![]() Caps on common area expenses may take any number of forms. One way in which tenants have been attempting to minimize costs and/or potentially great cost exposure, is by negotiating limits (or “caps”) on common area expense obligations under their leases. By the same token, retailers have found themselves in situations where consumer spending has slowed or dropped, requiring tenants to control revenues in other ways, including by minimizing extraordinary operating costs (including costs under their leases). Such developments have reinforced the importance to developers of recapturing as much of their project operating costs as possible, in an effort to maximize the bottom line. It’s important to remember that if your sales are not high enough for your location or concept for reasons outside management’s control, no amount of cost management will be able to fix your controllable profit.In today’s economic environment, and in the not too distant past, developers and retailers have both experienced the volatility of an unpredictable economy in recession and retail business negatively affected by unforeseen and costly factors, such as increasing utility and security costs. The key to evaluating controllable profit is recognizing that management can only do so much. For example, your manager can earn a bonus when controllable profit exceeds 25 percent of gross sales, and the bonus increases as controllable profit hits 28 percent and then 30 percent or higher.Ĭheck out The Ideal Restaurant Management Incentive Plan in 3 Steps to learn more about structuring your managers’ bonus or incentive plan. Contact us if you want your financials to reflect industry standard reporting used by national chains at the same price as a bookkeeper.Ī management incentive plan based on controllable profit typically rewards management when controllable profit as a percentage of sales exceeds a certain percentage of sales. There is usually a direct correlation between management’s proficiency and controllable profit.Īs an alternative to controllable profit, using Earnings Before Interest, Tax, and Depreciation (EBITDA) is widely used to design a management bonus plan because it’s more easily accessible, but if your accounting is set up according to restaurant industry standards, you should be able to monitor controllable profit just as easily. However, sometimes management may earn an incentive or bonus driven by controllable profit because it is typically one of the best indicators (from a financial perspective) of how well management is directing and handling operations. As noted earlier, management can’t control certain fixed costs like occupancy, interest, depreciation, etc. ![]() provides these industry averages as benchmarks for a healthy, controllable profit as a percentage of sales:Īgain, controllable profit measures the portion of total profit that management can control or influence. Separating the controllable from non-controllable makes it possible to calculate one of the more valuable margins on any restaurant’s P&L: Controllable Profit.Ĭontrollable Profit = Sales – Controllable ExpensesĬontrollable profit can also be measured as a percentage of sales.Ĭontrollable Profit / Sales = Controllable Profit as % of Sales ![]() You must use the restaurant uniform chart of accounts to distinguish controllable and con-controllable expenses and measure controllable profit accurately and reliably.
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