ARTICLE 3 – Review fixed expenses and plan for the unexpected
“Be frugal, but not too frugal” —David, regional manager, Food Service Operations
In this 3rd article of my 10-week series from my book 1 Week 1 Thing, I chose this chapter to share in light of all that is happening to our lives due to the Covid-19 outbreak. While the focus of this chapter tends toward preparing for the physical unexpected needs of the business, one should be prepared for other disasters that may come your way and affect your income.
David has been a successful regional manager for a couple of major food service chains over the many years that I have known him. But his previous employer really challenged his ongoing successes in the sector. David has years of experience from running his own restaurants as well as the chains he has worked for. He knows how to manage every aspect of the business, from food (quantity and quality) to employees, to marketing and building management. He takes pride in his knowledge and skills to deliver great results.
Take care of your facilities
David considered his employer to be too frugal and that frugality was the real challenge. Over the few years of working for them, he found it more and more difficult to retain customers even though he did a good job of managing all the budgets, food, and service quality. The main reason: The facilities were getting tired and shabby looking. Eventually they needed a total remodel which cost a lot more money than if the facilities were properly maintained and refreshed on a regular basis. He had to spend additional marketing money to woo the lost customers back and to attract new ones. All this because the company did not want to spend any money on maintenance when it was needed.
Are you fully aware of your current expenses and potential unexpected ones? For example, one of my clients recently had to spend almost $900 for an unexpected repair on a large piece of equipment. Things are going to wear out and need maintenance or replacement. The safety of your staff and clientele is another consideration in maintaining your facilities. You may need to move to another location. Costs are ever increasing. And do you have the funds available when the unexpected occurs? See Week 39 for more information about this. Being fully aware of all these things will help you in making your annual budget, setting your prices, and preparing for future needs.
The theme for this week is to review your regular fixed expenses such as:
- Lease/rent—potential increases in price coming, time to renew, renegotiate, buyout, etc.
- Utilities—how to reduce use or increase efficiencies.
- Everyday maintenance—cleaning, painting, etc.
- Long term maintenance—building, fixtures, equipment, etc.
- Replacement savings/budget—building, equipment, etc.
- What new regulations will require new/ongoing expenses (training, safety equipment, etc.)?
- Other agreements—Banking, credit, etc. Covered in Week 39
- Insurance—covered in Week 38
Your assignment this week:
- List all the regular expenses from your P & L and review— what can be modified or will change?
- List of all the items that will need maintenance this year and estimate costs.
- Make a schedule of what will need replacing and when covering the next ten years.
- List of action items (lease agreements, etc.) that will need to be addressed this year and get them on your calendar.
- Do you have a special fund put aside for the unexpected? Consider the funding of this in your budget.
- Review this exercise on an annual basis.
Planning and budgeting will save you a lot more now and down the road.
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