[00:00:01] What's the one thing I can do such that by doing it, everything else will be easier or unnecessary? Those aren't my words. Those are the words of Gary Keller. Gary Keller, among other things, wrote a book called the One Thing. The One thing has had a profound impact on my business and my life and by extension, the lives and businesses of hundreds and hundreds of restaurant owners all over the country. The reality is your one thing is profit. Profit is the thing that will change your business. It will render everything else easier or unnecessary. Now I'm going to explain what I mean and how you get it, how you target profitability. We're talking about the Profit first mindset on today's episode of Restaurant Strategy. There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking.
[00:01:17] Hey everyone, thanks for tuning in. My name is Chip Close. This is the Restaurant Strategy Podcast weekly podcast where we put out two new episodes every single week. The whole focus is to help you build a more profitable and sustainable business. We've got interviews, we focus on operations, marketing, leadership, management, everything in between. I wrote a book, it's called the Restaurant Marketing Mindset. You can find me on YouTube, you can find me on Instagram, you can listen to 400 and some episodes. I also run a mastermind called the P3 mastermind where I gather restaurant owners from all over the world on a weekly call, two hours every single week where we're laser focused on profitability. It syncs perfectly with the conversation we're having today. If you have a busy restaurant but struggle with profitability and you want to learn more about the program I run, best way is to get in touch, set up a conversation. RestaurantStrategyPodcast.com schedule it's a 30 minute call absolutely free where you get to ask us a ton of questions about what we do and how we get the results we get. 20% profits is doable. I promise you. We do it hundreds and hundreds and hundreds of times over and over again. Again. RestaurantStrategyPodcast.com Schedule if you want to learn more about the program we run now, are you tired of juggling schedules, tracking hours, worrying about HR compliance and dealing with all those last minute no shows? Well, it's time to say goodbye to the headaches and hello to Time Forge. Time Forge is a labor management solution designed for the fast paced world of restaurants. With product offerings ranging from recruitment to retention of your team members. With Time Forge, you can simplify employee scheduling with automated AI schedules based on sales, weather and other events. You can track attendance and labor costs in real time, keeping up with complex labor law like fair work week and meal penalties. You can recruit staff who live near your stores from our more than 11 million hourly job seekers. They have 11 million plus job seekers on their platform. You can pay employees their wages and tips on a daily basis after every shift. And you can communicate proactively with your staff using messaging, surveys and more. And that's not all. Time Forge integrates seamlessly with most POS systems, giving you full visibility into labor and sales performance and suggesting when you should staff up or staff down. Whether you manage one location or dozens, Time Forge saves you money, time and stress so you can focus on what really matters, delivering exceptional service and growing your business. Thousands of restaurants trust Time Forge, so why not you visit time forge.com restaurantstrategy today and see how Time Forge can help your team and your restaurant run like clockwork again. Timeforged.com RestaurantStrategy as always, that link is in the show notes.
[00:04:01] Okay, so today we're talking about this profit first mentality, right? Again. And I started off the conversation by talking about Gary Keller. If you've never read this book, it's one of the most impactful books I've read in the last 10 years. It's called the One Thing. It is very, very short. It is very easy to read. The whole point is that you should read this sort of like two times in a row. I was told to do that and I ended up doing that. You read it two times in a row because the first time through just sort of like knocks you over. It gives you a new way of thinking about things. And then when you read it again right away, you can distill down and internalize a lot of the ideas and the tactics that Gary Keller talks about. But the idea, right, that, that one, that one idea, that one sentence. What's the one thing you can do such that by doing it would make everything else easier or unnecessary? For me, and I think for you, the answer is profit, right? Profit First. The whole reason we start a business is to generate income for ourselves and our lives, right? I say this a lot and this is a good time to parse it out. Our restaurants are really good at telling us what they need from us. And I think we're not nearly as good at telling our restaurants what we need from our restaurants. Let Me give you an example, right? When somebody cooked, no shows, right? Or manager walks out, your restaurant's basically saying, hey, I need you on the line. Hey, you gotta run the floor tonight. It's telling you what it needs, right? You do the inventory, you do the pars, you do the setups, you do your training, you place the ads, you. You pay your vendors, all of the things that you do for your restaurant to make it run. And that's good, right? I don't think any of us are afraid of hard work. I certainly know that hard work is involved to make a successful restaurant, but it's got to be in balance. At some point, you have to be able to turn around and tell your restaurant, okay, great, I'll do that. I'll cover the floor shift, I'll jump back on the line, I'll do the schedule, I'll do the ordering, I'll do the update, the training, the training packet, all of that. Fine, I'll do all that. As long as you do this for me. And you have to get really clear on what this is.
[00:06:14] It's a very long road. It's a very hard life.
[00:06:18] And I think if we're properly rewarded, it becomes really easy to love this life. Now, to be really clear, I don't think any of us, any of us got into this industry to get, you know, bugattis and yachts and beach houses. And if you can, God love you, you deserve it. Right? I think most of the people that I know, most of the people that I work with, I'm guessing most of the people who listen to this podcast, just want a little bit more stability and security, and that's okay. You're allowed to want that. I think you want a little bit more for yourself and a little bit more for your family. I think you'd like to be able to set yourself up for the future and set your family up. So you're thinking about legacy, and that's okay. That's as it should be. The way you do that is by reverse engineering, you have to adopt a profit first mentality. Right. Now there's another book called Profit first, which I'm going to talk about on this episode, and it sinks in with a couple of the other things that we've been talking about recently. And it syncs perfectly with Gary Keller's notion of the one thing. But before we go into sort of the tactical side, which we'll get to later in the episode, right now I need you to shift your mindset. And this is the first really big Thing. So in the book, the one thing Gary Keller says, you know, at some point along the way, we bastardize the word priority, right? The priority was really meant to be singular. It was a singular focus, right? In ancient times, it was, what's your priority? Health, wealth, legacy, family, growth. They were big words. It wasn't. Well, my priority is to save for college, and my priority is to, you know, pay off the house. My priority is to put away for retirement. My priority is to open a second restaurant, right?
[00:08:01] We prioritize, right?
[00:08:05] We rank our priorities from most important to least important. And he says when we do that, we rob it of all its power. The priority was meant to be singular. There's one thing and a lot of other factors then feed into that one thing for me, for you, I think for your restaurant, it is profitable. If you can focus on profit, building a profitable restaurant, one that generates more than it spends, then you open yourself up to think about your personal one thing. So I'm talking about the businesses one thing. That's a really important distinction. The one thing for your business, for your restaurant, is profitability. It is a business. And in order to be profitable, you need to tell your restaurant what you need from it. Meaning you need to tell it. I need you to be profitable. I need to make X number of dollars. I need to make X number of dollars and limit my time here in the restaurant to Y number of hours.
[00:09:08] It's okay for you to tell your restaurant that now. There's a season to everything. When you're opening a restaurant, when it's in growth mode, when you're bringing on new teams, when you're stepping back, there is a time when you're going to have to put more into it. I think any small business owner, any entrepreneur, I am a small business owner. I am an entrepreneur, just like you guys are. I understand that there are seasons. There have been seasons of my business. I continue to go through new seasons of my business. There are times that I've really been able to sit back and enjoy my life, and there are times where I grind it out six, seven days a week. I'm sure it's the same with you, but ultimately, I'm telling my business what I need from it eventually or within a certain timeframe. And I think you have to be really clear of what you want from your business eventually or within a certain timeframe.
[00:10:01] The profit first mentality, which we're gonna talk about in a second, because that's really a tactical approach to achieving the one thing. The one thing is Profitability.
[00:10:11] And then I want to introduce you to a series of turns, twists, moves you'll make to help dial in profitability. But we have to agree on this. The whole point of this episode, I'm trying to give you some confidence. If you feel like you're not getting enough from your restaurant, it's fine. I agree with you. You're probably not getting what you deserve from your restaurant. And what we do is way too important and way too hard. I've said this before, I'll say it again. What we do in this industry, what you do as a restaurant owner is way too important and way too difficult to not be compensated for it, to not be rewarded for all of that. And here's what I mean, right? People rely on you to get lunch, to get dinner, their coffee and bagel on their way to the train, whatever it is you're doing, whether you're three Michelin star or serving coffees and bagels to people while they're on their way to work. You serve a very important function in a lot of people's lives.
[00:11:06] You generate tax revenue for the state. You provide jobs, you provide people with a way to provide for their families.
[00:11:14] And I don't want anyone to take that away from you. You are providing jobs, you're providing livelihoods for tons of people. You're feeding people, you're providing livelihoods for people. And you're helping to support the state by generating sales tax.
[00:11:29] You're supporting your vendors, all your partners, you're supporting your landlord. I don't need to go on. I hope you see it's okay for you to feel like, man, I support a lot of people. You, your business does a lot. So when I say it's way too important for you not to make money doing it, the flip side of that is, after a certain amount of time, if you are not getting what you need to out of your business, you're going to throw in the towel. You're going to say, you know what? I love this restaurant. I love what I do. But man, I'm just, I'm here all the time. I'm too tired, not making enough money. I just can't keep doing this.
[00:12:07] And the state loses out on all that tax revenue. All your employees lose out on their jobs. Your landlord loses out on the rent.
[00:12:15] All your vendors, all your distributors, all the partners you work with. And your employees have to go somewhere else.
[00:12:23] That's crucial. That's really, really important for you to understand and acknowledge. And again, I don't have to tell you that what you do is really hard. It's important and too important, too difficult to not make money doing it.
[00:12:36] But you have slipped in, not asking, not telling your business what you expect of it. Again, it's really good at telling you what it needs from you. You just have to be better at telling it what you need from the business. When you do that, when you embrace that, everything changes.
[00:12:58] We're talking about how we put those tactics into place to make it so you make what you need from your business. We're going to talk about in just a second after a word from some more of our sponsors.
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[00:16:02] Now we're talking about this profit first mentality, right? We talked about Gary Keller in his book, the one thing we talked about that focusing question, right? What's the one thing I can do such that by doing it will make everything else easier or unnecessary for you? As far as your business is concerned, that's profitability. You need a profitable restaurant. In order to get a profitable restaurant, you have to ask your restaurant as much of it as it asks of you. Again, it tells you when you got to come in and run the floor. It tells you when you got to jump back on the line. It tells you when you got to take a look at your pars, at your recipe cards that you're ordering. It's got to take. It tells you when you got to redo your training packet. It's really good at telling you all the crap you need to do for it.
[00:16:46] We have to be just as good at telling what telling the restaurant what we need from it, right? And that is a living, that is a livelihood. I need to make X number of dollars and limit my activity level here to Y number of hours in the business.
[00:17:02] Whatever you fill in for X and Y, that's for you.
[00:17:06] But you started your business so that it would provide for you. So let's make sure it starts providing for you. Almost everyone I talk to, independent restaurant owners all over the country, they work really hard, they got a really great restaurant. They're really proud of what they've done. People love what they do and they just don't make what they think they should be making from their restaurant. And if that's not you, if you feel really Good about where you're at with your restaurant. Great. God love you. Power to you. Keep growing, grow more, provide more jobs, feed more people, make more money. And then what you do with that money, provide for your children, give it back to charity, support your community, whatever it is, I love it.
[00:17:47] But if you are one of the individuals, like a lot of the people I meet at trade shows, at conferences, when I hop on calls to talk about the mastermind, I'm going to guess most of you out there are not happy with where you're at with your business, that you want more from your business. And that's okay.
[00:18:07] You're in the right place. That's what this podcast is all about.
[00:18:12] How to make you a better business and therefore a better life.
[00:18:17] Again, the one thing in your business is profitability. So now let's talk about this profit first mentality. There is a book called Profit first and it's sort of a complicated take on what I'm going to tell you, but he articulates it really beautifully. If you haven't read it, I would recommend you read it. At the very least, though, I want you to internalize what I'm about to tell you. The profit first mentality says before you go into a period, right? Let's call a period a month, right? So the month of April ahead of the month of April, you have to tell your business what you want from it. Now that says you go, okay, how much revenue do I think is reasonable for me to expect to generate? So I believe my, for ease of this example, I believe my restaurant can generate $100,000 in revenue.
[00:19:09] That's about what we do in, in April in the start. So $100,000. And I believe as a restaurant owner, I deserve to make 20% NOI, right? Net ordinary income or net operating income, the operating profit or ebitda, that it's all the same thing. In the restaurants, we just call it noi.
[00:19:31] Noi is what the operation will generate for the owners.
[00:19:37] 20% I think is absolutely reasonable. If you've got a quick service or fast casual concept, the number is closer to 24 to 27, I'll say some really good rate. Panda Express famously does 30% NOI plus on every one of their locations. That's why there's a million locations of Panda Express. They got the profitability dialed in. At the very least, your number's 20. I believe all restaurant owners should, should be targeting 20% profit because again, what you do is too difficult and too important to not make money yourself doing it you gotta make 20%. So it begins by saying, I think my restaurant's gonna generate 100k in revenue this month and I deserve 20% of that. And you write that number down.
[00:20:20] I want to take $20,000 out of my business. Now, the profit first book says what you do is at the beginning of the period, you take that out and you put that into like a holding account, right? So before you actually take the distribution, you separate out, quote, unquote, your money from the operating expense, right? From the. Your. Your operations checking account.
[00:20:41] It's yours. That's what you expect to make. And so just, just put it to the side so you can see it. It's not swirling anymore with the rest of your. With the rest of your finances.
[00:20:51] The profit first mentality talks a lot about holding accounts, and I think holding accounts are crucial to running a profitable business. Now, one of the sponsors on today's episode is Davo by Avalara. Davo sets aside your sales tax, basically creates a holding account to separate out sales tax every single night. So not even for a second does it swirl with the revenue you generated. It's not your money, right? You're just collecting it for the state because you're super cool guy or gal.
[00:21:22] It's the state's money. State should really go to the effort of collecting it, but it makes businesses do it. And so that's what you do, but it's not your money. So I don't even want you to think for a second that it is your money, because then you run the risk of being like, oh, let me pay down that vendor. Ooh, let me use this. I'll just use this real quick for. To cover payroll. It's not your money. Don't fall into that trap. And I'm guessing some of you guys have fallen into that trap because cash flow wizardry is very difficult in the restaurant industry. But no more.
[00:21:53] So what you do in the profit first mentality is create a series of holding accounts.
[00:21:58] Profit is the first holding account. Now, the idea is, in theory, you'd separate out. If your restaurant's going to do $100,000 in revenue and you're going to do all your budgets to keep all your expenses to 80% of revenue, which is possible. That's what you should do. Then what you should be able to take out of the business is $20,000. So you separate that out, you put it into a distribution holding account. So before you actually take it as a distribution, at the end of the month, it sits there in the holding account, but it is now separate from the operations account.
[00:22:32] You create another holding account for sales tax. If you collect tips to then distribute in people's paychecks, you would separate that out into another holding account, right?
[00:22:45] Sometimes rent would be a holding account, right. Or occupancy would be a holding account. And the one that I always love, that I think is crucial is an R and R holding account, repair and replace. That's how I was taught to do it. So what we want is we want very boring businesses, right? There's plenty of excitement already in our day to day in the restaurant industry. The restaurant finances, though, I want to be automatic. I want it to be boring.
[00:23:12] An R and R holding account, repair and replace basically says instead of getting dinged with like an $8,500, you know, replacement charge, what you do is every single month you just move $2,000 into a repair and replace holding account. 2,000 bucks. 2,000 bucks. It's just a flat line on your P and L. It's a fixed expense. What happens is you never pay back bills, right? For maintenance or replacements out of your P and L, you pay it out to the holding account. So you're going to have to spend a couple of months seeding that account. But then you got a $1,400 bill, you take it out of the holding account. You have a $3,500 bill that goes out of the holding account. You got a $200 bill comes out of the holding account. Because some months you're going to spend 200 bucks for repairs and replacement. Some months are going to be 15,000.
[00:24:04] What I want is, I don't want that to affect your take home pay. I don't want that to affect the profitability of the business.
[00:24:16] So what we do is we create a holding account and we draw from that holding account. Now how your accountant needs to account for that, I don't know, talk to them. They're smarter than me.
[00:24:25] But this is an operational podcast, right? How do we operationalize this and make sure that we make money every single month?
[00:24:33] That's how we do it. And now with this account, you're seeding this account. Let's say we, the R and R account, right? We move over 2000 bucks every single month. And then what you do is you say, okay, what's the most amount of money I think I'll ever need to spend in a given month? Maybe that's $30,000. You seed that account until it hits $30,000, and then you don't put in any More above that. So if that means it's $0 for a couple of months, great. You save money, you make more money.
[00:25:04] In essence, what we're doing is we're building a rainy day fund. It's the same thing we do in personal finance, that you've got six months worth of expenses in savings.
[00:25:14] God forbid something happened and you couldn't go to work or your business shut down. Hey, we all went through Covid, right?
[00:25:21] We all get it. We know how scary that was.
[00:25:25] There will be other things coming along.
[00:25:28] I've lived through 9, 11. I've lived through the financial crisis. I've lived through Covid. Like there's stuff that's going to happen that we don't see coming.
[00:25:37] What we're doing right, your walk in is going to totally go belly up one day and they're going to say, I can't repair it, man, we got to replace it. We got to gut this thing out of here.
[00:25:48] Having a holding account, planning for just such an occasion, it's going to, number one, help you make very even, consistent money every month. And it's going to help you not freak out when you got a big bill. You're like, oh man, it sucks. But that's what we planned for.
[00:26:04] The profit first mentality says, let's get our house in order again.
[00:26:11] The distribution holding account, the sales tax holding account, the TIPS go into a holding account so we don't even pretend for a second that it's ours. The repair and replace holding account again. Sometimes I've seen operators do an occupancy holding account. Hey, our occupancy is pretty flat. It's pretty much always this much. Just move it over. So, you know, you always have your rent, utilities.
[00:26:36] And then of course the most important piece is then how do you do that? How do you make sure that you keep your expenses to a certain amount? The key to that is forecasting and budgeting. And I've talked a lot about that on the podcast. It's exactly what we do because I think is the key to profitability is exactly what we do in the P3 mastermind. We are very good. I've got a really good system that I teach everybody in the program. We've put, I don't know, 330 people through the program to date, right? The program works.
[00:27:13] That's why we keep growing over the four years of growing this program. First year we launched the program with 10 people in the program.
[00:27:21] Next year we brought 23 new members into the program. 20, 23. The third year, we brought 95 new members into the program. Last year, 2024, we brought 160 new members into the program. And now here we are in the middle of March, and already we've brought 38 new members into the program. We're on target to bring over 200 new members into the program in 2025. The community's incredible. And they all show up for the same reason. They got really good products, right? They've got a great restaurant. They're just not making what they want to make out of it. The first turn you have to make is you have to say, I deserve it.
[00:27:57] You have to agree that profit is the only thing. Great food, great service, you know, you know, you know, a great relationship with your employees and your guests and all of that, all of that goes back to profitability. But profit's the only thing that matters because if it's not profitable, the restaurant can't sustain itself, can't stay open. And then you can't feed people, can't employ people, can't provide that all important sales tax revenue to the state.
[00:28:21] You can't provide for your family. You got to go get a job.
[00:28:24] Profit first mentality says, you got to embrace that and say, I deserve that.
[00:28:30] That's what we spend time talking about and convincing people of in the program that you deserve it.
[00:28:36] And then we show you how to do it. So these are the first steps of how we do it.
[00:28:43] I urge you to then go find other podcast episodes or if you want somebody with you to show you how to do this and change your restaurant in six months. That's how you get in touch. RestaurantStrategyPodcast.com schedule. You'll chat with me or someone from my team. We will answer all of your questions about the program and let's figure out if you're a good fit.
[00:29:05] I care about this industry so deeply. I care about you guys and your ability to provide for your family, to create stability, security, legacy in whatever way. That means not talking about yachts and beach houses and Bugattis, though if you want that, that's okay. We'll show you how to get that too. But I think for most of you guys, it's just, I don't have to worry about paying my bills next month. There is a better way. If you got a million dollar restaurant, you should be able to take $200,000 out of that every single year.
[00:29:33] If you got a $2 million restaurant, that's 400K, you do the math. Wherever you're at, you deserve 20% of that number. And if you're a quick service or fast casual brand, that number is like 25%.
[00:29:45] If you need help figuring out how to do it, that's what this podcast is for. That's what my program, the P3 mastermind, is for. And I'd urge you to get in touch restaurantstrategypodcast.com schedule that's it, guys. Listen, I really appreciate you being here every single week. Hope you get some value out of this. Again. I know there's some of you out there that are thinking this sounds like a good idea. It's more affordable than you think and we can make an incredible impact. In as little as 90 days, I promise you will change your restaurant and it will change your life. Appreciate everything you guys do for this community, everything you do for your communities. Again, my name is Chip Close. I'm the founder of Restaurant Strategy. I am your host. I always love having you here every week and I will see you next time.
