Article Details

Controlling Overheads.

Published Date: June 28, 2023

Overhead Mastery Hacks.

Cafe overheads can quickly spiral out of control and are frequently the cause of closure or a definitive factor in how profitable a cafe will ultimately be. If you want your cafe business to thrive and survive well into the future, you need to control your overheads rather than letting them control you.

To maintain the health and proper functioning of your cafe, and considering your specific business model, it’s important that your overhead costs are kept well below 30% of your total business expenses. Are you inputting data into a spreadsheet or using accounting software like Xero, Quickbooks, or MYOB? Or maybe you’re taking the traditional route with a pen-and-paper ledger (not recommended). Keeping an eye on overheads is a good beginning, but your main aim should be getting a grip on them and working to make them better using smart insights.

Understanding how your overheads are calculated and how they factor into your total gross revenue, along with grasping how much you actually need to allocate to each item you sell in your cafe, brings the true picture of your business overhead costs to life. This insight is crucial for taking control. It paves the way to cutting expenses, staying in the game, and boosting your profits.

Overhead bench press.

It might seem like an odd analogy at first, but not paying attention to your overheads can be like trying to bench press 70kgs on the first day you start working out. Sure, if you’re relatively healthy and strong, you might be able to do it. You might even gain muscle at first, but try carrying that around 24/7, through good times and bad, and see how much strain you’re under. Before you know it, you’re no longer controlling the workout; it’s controlling you.

Heavy overheads are no different.

Whether you’ve committed to leasing a state-of-the-art gadget for the cafe or you’ve locked yourself into an extended expensive marketing contract, if the costs become difficult to shoulder and the returns are not paying for the expense, that particular overhead is bossing you. Similar to a fitness goal, a steady, sustainable, and consistent approach is preferable to short, unsustainable growth that fizzles out quickly. Don’t over commit, especially as a cafe start-up. Your cafe will go through ups and downs. There will be times when business is booming and times when business is slower than usual, and you need to be able to carry your overheads through it all. Before committing to any overhead, do your sums, understand the risks and accurately assess whether you can carry this overhead through the leaner times.

Needs vs Wants.

We all know needs and wants are different things, but sometimes we can get so caught up in our enthusiasm to have or try something that we take on more than we need and more than we can sustain long term. You might want to bench press 70kgs from day one, but you might need to start bench pressing a more modest weight. To do otherwise is asking for trouble.

Similarly, take on what you need to take on to run the cafe, but leave the wants until you’ve reached flow and have operated from a comfortable place of trading long enough to know what you can handle without putting your business at risk.

Rent as part of cafe overheads.

Most cafe business plans try to keep rent at 10-15% of gross revenue. Where does your rent sit in that equation?

Keeping rent at 10-15% leaves 15-20% for all your other overheads, such as energy, waste, equipment leasing and maintenance, insurance, internet/Wi-Fi etc.

In most cases, you can’t change your rent, so you’ll have to do your best to lower every other overhead. But how do you do that if you have no idea what percentage each overhead translates to? This is where modelling your overheads comes in. It’s a valuable exercise that will help you see where your money is going.

Neglecting this or putting it in the too-hard basket will only mean you end up spinning your wheels and exhausting yourself without having any real idea where your money is going and what impact your overheads have on your bottom line.

Cafe location impacts overheads.

It’s not uncommon for the right cafe to be in the wrong location, so this is more of a leasing issue, but we’ve included it here since your rent is costing you money, and that’s relevant to overheads.

You can try to control the overheads as much as possible to keep the lease below 10-15%, but if you’re in a highly competitive area with fluctuating foot traffic and/or the wrong demographic for the cafe you want to run, chances are you’ll become another sad cafe closure statistic.

Maybe you’ve found THE perfect place to operate your Bali-style beach hut coffee shop. Awesome! What’s the rent? What are the overheads? How many other coffee shops line that beach frontage, and how do your offerings differ from theirs? What happens in the dead of winter when far fewer people go the beach and you still have to carry heavy overheads and pay rent for prime real estate?

Perhaps you’ve gone for a more eclectic or Bohemian vibe with up cycled furniture, mismatched cups and saucers and lots of Indie artwork. Once again, awesome, so long as you’ve located your cafe in an area where the demographic appreciates that vibe and has the money to spend in your cafe.

The bottom line is that cafe overheads and leases must be looked at individually and in tandem to be managed effectively with minimal strain on day-to-day cash flow. If you’re a cafe start-up, our coaches can help you determine the best place to locate your cafe. If you’re an established business, we can help you gain insight into what you can do to better tailor your offerings to your current demographic.

Currently, Clever Cafe employs discussions with brokers, engages in partner consultations, and leverages online resources to pinpoint optimal locations. However, in the not so distant future, we’ll have the distinct advantage of fine-tuning our results even further. This will involve in-depth analysis of crucial bench marking data collected from cafe clients nationwide. As a result, we’ll be well-equipped to assist cafes in gaining insights into potential opening locations or refining their offerings, all based on concrete data.

Overheads looking foggy with a chance of showers?

As a startup, we can help you explore options and create a plan to keep overheads under control from day one. If you’re an established business, we can assist you to define your current overhead commitments, analyze the impact they have on your business, and develop a solid plan to refine, reduce and control them.

No matter where you are in your business journey, we can provide the support and clarity you need.