Friday, August 14, 2009

Two Basic Business Rules - Lowering and Increasing

Running a succesful business does not have to be as complicated as this diagram tries to make it seem:

What you really need to know are these two basic rules:
1. Lowering Your Costs
2. Increasing Your Revenue

You want to always be looking for ways to lower your costs. A relentless pursuit I might add. Because there is no such thing as being neutral or stable. Your business is either growing or shrinking.

And if you say your business has brought in the same amount of cash as last year, then you can consider it as shrinking, since the motif of any successful profit-making business is to make more money then last year. Plus, you can't forget that with inflation, you are in fact making 2% less, since your purchasing power decreased, if you earned the same amount of money as last year.

The corollary to LOWERING YOUR COSTS, is to INCREASE YOUR REVENUE. Sell things higher, or get more people to buy stuff.

So applied to the real world in a restaurant:

-lower the costs of your food: find a different supplier, renegotiate with your existing supplier or find alternative ingredients that can be interchanged with your currently used ingredients.

-increase revenue: get more foot traffic, offer appetizers/wine at a lower cost if they purchase high-margin meals - this will increase the amount they spend in a restaurant which is what we want.

Now go apply it in the real world - it's never too late to start your own business!!
And before you know it, your restaurant will be this packed:

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