Restaurant and hotel finance: the KPIs that actually steer your business

A packed dining room on Saturday night and a comfortable bank balance say nothing about the profitability of the year. Restaurants and hotels are businesses where money comes in every day and goes out in waves: payroll, suppliers, VAT, rent. As a result, many owners steer on the bank balance and discover the real number months later, when the annual accounts arrive.

Why the bank balance misleads you in this sector

Guests pay immediately, costs land later. Today’s card takings reach the account tomorrow, but suppliers are paid at 30 days, VAT the following month, social charges in the middle of the month. During the season the balance climbs while liabilities quietly pile up behind it. A seasonal hotel that collects €300,000 in July and August still owes a large slice of it in October, to the tax office, to suppliers and to payroll.

The August bank balance already belongs to the VAT office, the suppliers and November’s payroll. The only honest number is cash net of what is already owed.

The three ratios that steer a restaurant

A restaurant does not need a dozen metrics. Three ratios, read every month, say almost everything about the business.

• Food cost: cost of goods consumed divided by net revenue. Most restaurants sit between 28% and 35%. On €1M of revenue, each point of food cost is worth €10,000 of profit, which makes recipe cards and monthly inventories a very profitable habit.
• Staff ratio: gross payroll including charges divided by revenue. Depending on the format, the sustainable zone runs from roughly 30% to 40%. This ratio is managed weekly, by matching scheduled hours to expected revenue, not at the end of the month when the game is over.
• Prime cost: the sum of the two. Past 65% to 70%, almost nothing is left for rent, energy and profit. It is the first number a buyer or a bank will look at.

Hotels: one metric called RevPAR

RevPAR (revenue per available room) combines the two numbers every hotelier discusses daily: occupancy and the average room rate. A property with 40 rooms, 70% occupancy and a €120 average rate shows a RevPAR of €84. The metric is useful because it exposes both mistakes: the full house at giveaway prices and the half empty house at stubbornly high prices. A hotel running 90% occupancy at €80 (a RevPAR of €72) earns less per room than one at 70% and €120, with more wear and more staff on top.

Seasonality is managed over twelve months

A coastal business makes 60% of its revenue between June and September, while rent, loans and fixed payroll run for twelve months. I have watched owners celebrate a record August and then call their bank in February. The question that matters: how much does the season have to leave in the till to carry the quiet months? With €40,000 of fixed costs per month and six weak months, the summer has to generate roughly €240,000 more than it costs before a single euro of profit exists.

• A twelve month cash curve that shows the low point of winter before it happens.
• Set VAT and social charges aside in a separate account as you go, so the bank balance stops lying.
• Compare each month with the same month last year, never with the previous month; in a seasonal business the previous month means nothing.
• Decide investments only once you know the lowest cash point of the winter.

A worked example

Here is the pattern I see most often with our clients. A restaurant at €1.2M of revenue. Food cost 34%, staff ratio 42%, prime cost 76%. After €90,000 of rent and the rest of the cost base, EBITDA comes out at €24,000, a 2% margin. The bank balance, meanwhile, often showed more than €80,000, because guests pay on the spot, so the owner felt safe. Two levers change everything: bringing food cost down to 30% through recipe cards, a monthly inventory and waste tracking adds €48,000; aligning schedules with bookings brings the staff ratio to 39%, another €36,000. EBITDA moves from €24,000 to roughly €108,000. Not a single extra cover required.

A monthly rhythm that works

• Every week, four numbers: revenue, estimated food cost, hours worked against revenue, and bookings for the next two weeks.
• By the 10th of the month, one page: the three ratios, cash net of upcoming obligations (VAT, suppliers, social charges) and the comparison with the same month last year.
• Every quarter, the twelve month cash curve, updated with the actual season.
• Once a year, before the season, a review of selling prices: the menu is decided with the ratios in front of you, not by feel.

Once in place, this rhythm takes two hours a month; it turns ratios the whole industry knows into decisions made on time. That is exactly the monthly steering a fractional CFO brings to SMEs and startups in restaurants and hospitality: build the page, set the thresholds, and read it with you every month. A diagnostic conversation is often enough to identify which of the three ratios deserves your attention first.

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