Cigar Box Europe

No matter what you think of the international discussion on the credit crisis, it is time to react to the realities of the market so that your business will survive through 2009.
 
Here in the United States I have written on the likely prospect that the credit crisis will have a very negative impact on restaurants in every segment, whether independently owned or part of a larger chain organization. Granted that while the business models for this side of the Atlantic are built on a much more willing acceptance of the use of credit by both consumers and owners, the principles I’m suggesting in this blog can be adapted to any market. Ignoring negative news does not make it go away, and there is plenty of negative news on the financial front.
 
So today, I offer positive suggestions to fight these outcomes. I would appreciate it if you let me know if you think they are usable by a European operations.
 
So no matter where your place of business, it is time to return to the days of running your restaurant “out of a cigar box.” By this I mean you need to switch from your current credit-driven model to a cash-driven model. You need to free yourself of the credit cycle before it changes, not after.
 
Keep this at the front of your mind—every credit card slip you deposit is a loan from your bank and every delivery you receive is a loan from your vendors. Your current business is built on debt, not cash. Here are five solutions on how to change this situation. Some are quick and easy, some will require you to work in new ways, and some are going to be very hard and nasty to implement.
 

1. Stop nightly cash-outs. I was a waiter for many years. I loved the cash payout I received every night when I went home. But starting next week (so you can warn your staff) it is time for you to stop your nightly cash-out settlement of charged tips to your waitstaff and instead write them one check for their total tips for the previous week. Hand out these checks every Friday morning just before lunch to increase your float. Stop borrowing money from the bank to “loan” it to your staff. Hoard your cash
2. Manage your inventory-3 steps to take. You need to go to a true “just-in-time” inventory system. This will take at least four weeks of focused work to determine correct and safe levels. Remember—inventory is your cash sitting on a self. Let your purveyors pay the interest to store your stock in their warehouses.
   • First, you have to recalculate your daily parstock levels. You should have them set to the absolute minimal amount of physical stock necessary to meet your needs for a 7-day sales cycle. This includes all fresh and frozen food, all dry goods, and all beer, wine and alcohol.
   • Second, you need to take inventory every Sunday evening, not to check for losses but to prepare your Monday morning ordering so you purchase only what you need to build back to your new parstock levels. In an ideal system, your Sunday inventory will be drawn down to only what the prep crew needs to open for lunch and dinner on Monday.
   • Third, you need to remove every item in your storeroom within 30 days if is not capable of producing immediate sales. Run specials to merchandise all the “orphans” in your freezer or storerooms.
3. Manage your suppliers. You need to have the discipline to break your reliance on supplier credit. Over the next few weeks, clear your payables account by paying every invoice that is more than 7 days old. As you do this, take all of your new invoices and pay them within 7 days from the date of delivery. Let all of your suppliers know that you will be looking for the customary cash discount associated with this kind of prompt payment. You should ask for a discount of at least 1.5% on every one of these cash payments. Do not cover some other restaurant’s interest payments on their inventory.
4. Change the way you look at purchasing. It is easier to save 5% on your purchases than it is to increase your sales by 5%. This means that you should meet with your vendor sales people to determine which products on your order list can be purchased in a more cost effective way. This does not mean you should lower quality, in fact in hard times the opposite is true—customers want more value from higher quality items and you need to give it to them.
   • What you must do is learn to listen for, and ask about, the upcoming sales and case discounts on products you currently purchase. If you need to buy a full case of an item that might increase your parstock level above your 7-day needs, determine if the cash savings are actually higher than if you held your cash in your bank account.
   • Make your purchases in smaller amounts over the course of the week (but meet your delivery minimums so you don’t pay a premium). This will help you match your payments to your revenues, the “cigar box” management system, by keeping the outflows to lower less painful levels. It will also help you manage your inventories and par levels.
   • You also want your vendor’s sales people to find substitute products of higher quality at lower costs. You pay them a commission on every purchase, make them work for your money. Respect your vendors so that they help you save on every purchase.
5. Offer Cash Only specials and events. Forget Special Events and Happy Hour. Start offering discounts and deals to your customers if they pay in cash. “Two Drinks for a Ten Euro Note” works. They face the same credit crunch you do, give them a reason to help you and themselves by not using their credit cards.

We are all in for a very challenging future. Take hold of what you can control so you will be the business that survives