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chromedome

Well this is unexpected...Boston restaurant opens its books to staff and the public

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https://www.eater.com/2020/3/9/21166993/how-much-to-run-a-restaurant-cost-mei-mei-boston-finances

 

Involving all of the staff in this way has been done before, by Brazil's Semco (read CEO Ricardo Semmler's "Maverick" for details), but letting customers see what's happening is a new one on me.

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“What is called sound economics is very often what mirrors the needs of the respectably affluent.” - John Kenneth Galbraith

 

"Not knowing the scope of your own ignorance is part of the human condition...The first rule of the Dunning-Kruger club is you don’t know you’re a member of the Dunning-Kruger club.” - psychologist David Dunning

 

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I did not read the entire article but I have a question for you regarding overhead. I worked in the electronics engineering and  manufacturing arena. Everything it took to keep the business running, it's overhead, was "funded" by the "overehead burden," simply a percentage of the cost to produce the items sold, typically 35%. In food terms if I could make a gourmet donut for the cost of a dollar, $0.35 would be added into the selling price to cover the overhead.

 

In the restaurant business, is there a similar money management model to keep the business open?


Porthos Potwatcher
The Once and Future Cook

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I haven't read the article, but basically all businesses have to allocate their overhead one way or another.  In my manufacturing business, we do it as a multiple of labor hours.  So, basically, if a product requires 1 hour of labor, the direct labor cost is 1xDLR (daily labor rate).  To get the total costs (not including profit), you add the direct labor, material costs and overhead, which is DLxOHM (direct labor x overhead multiplier).  Figuring out this OH is probably the hardest thing to do in business, as you basically have to take all of your fixed costs for the year and divide by how many units you think you'd sell....  For us, the easiest way to do this is by using labor hours - so products that require more labor get more of the OH costs applied to it.

 

Figuring OH using cost of materials is tricky as some items could be very expensive, product wise, but very fast to make. Like a pate de foie gras that you purchase, portion and plate with some accoutrements.  Plus, you may not sell that many of them, so you wouldn't be effectively paying for your OH very much that way.

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That's basically the way it's done in the restaurant business as well (the article goes into some detail) but because labor and COGS (ie, food cost) are so high and so variable in the restaurant business, they're usually treated separately. In manufacturing you might have to rapidly tool and staff up/down at some point in a quarter to meet unexpected spikes or lapses in demand, but in a restaurant you'll do that daily or even hourly.

It can (he says, mildly) be a challenge.

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“What is called sound economics is very often what mirrors the needs of the respectably affluent.” - John Kenneth Galbraith

 

"Not knowing the scope of your own ignorance is part of the human condition...The first rule of the Dunning-Kruger club is you don’t know you’re a member of the Dunning-Kruger club.” - psychologist David Dunning

 

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Oh, and the shelf life of the raw materials is measured in days or sometimes hours. Ditto the finished product.

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“What is called sound economics is very often what mirrors the needs of the respectably affluent.” - John Kenneth Galbraith

 

"Not knowing the scope of your own ignorance is part of the human condition...The first rule of the Dunning-Kruger club is you don’t know you’re a member of the Dunning-Kruger club.” - psychologist David Dunning

 

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This article is missing the most crucial data: the amount of money invested in the restaurant. Not much sense in knowing all the costs and the final profit if you can't calculate the return over investment.

 

 

 

Teo

 

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Teo

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2 hours ago, weinoo said:

This kinda brings me back to my cost accounting days in Silicon Valley.  Which is giving me a rash.

 

 

 

I know what you mean.  Reminds me of the variance analysis I used to do when I worked for the Royal Canadian Mint.  I think I have a headache.

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@ElsieD 

 

Id love to hear about The Mint,  Royal or not

 

it must be a fascinating business 

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5 minutes ago, rotuts said:

@ElsieD 

 

Id love to hear about The Mint,  Royal or not

 

it must be a fascinating business 

It's a great career if you really wanna make money... :P

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“What is called sound economics is very often what mirrors the needs of the respectably affluent.” - John Kenneth Galbraith

 

"Not knowing the scope of your own ignorance is part of the human condition...The first rule of the Dunning-Kruger club is you don’t know you’re a member of the Dunning-Kruger club.” - psychologist David Dunning

 

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@chromedome 

 

fine very interesting artilcle

 

thanks for posting

 

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The articles says that revenue was $1.2 million but the taxable amount is only $22,000. 

 

So they just paid taxes on $22,000. 

 

I think that's pretty good. 

 

If you wanted to turn income into an expense, you pay yourself (owner/CEO) $500k or something for the year. lol. 

 

***I'm not saying this happened and I don't think this happened but it is a point about accounting 

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Posted (edited)

salary for all  employees  is taxable

 

at the earned income rate  earned income is your W-2 , treated the same as cash

 

taxes on this amount varies based on your AGI and Deductions 

 

no matter what rate that ends up being 

 

it can be  much much higher  than  qualified dividends , or long term capital gains.

 

for the same amount of dollars


Edited by rotuts (log)
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Posted (edited)

one last thing :

 

what isn't mentioned in the financial report

 

is the current value of the business 

 

which may go up or go down over time

 

that value is not realized until the business  is sold

 

the business itself ( not probably the physical property )

 

is a long term investment , and if sold , its capital gains 

 

are treated at a relatively lower value than cash

 

the value is returned to the owner or the owner and her partners

 

im not an accountant , but I find economics interesting 

 

 

now if this business gets successfully franchised 

 

see where Im going ?

 

 


Edited by rotuts (log)
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BTW  im extremely pleased the owner 

 

treats her staff in very enlightened ways

 

very rare   

 

its rarely understood  that Owners ( and shareholders )

 

managers  and staff   ( workers )

 

are in an actual partnership

 

working together to create product 

 

maximizes  the final rewards ,  for all of them

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