School of Hospitality Management develops profit planning tool for restaurants

Aaron Wagner
September 01, 2020

UNIVERSITY PARK, Pa. — During the easiest of times, restaurant operators are extremely busy. Now, as the COVID-19 pandemic and related governmental restrictions disrupt the restaurant industry, operating a restaurant is even more challenging, fraught, and time-consuming. To help restaurant operators weather this period of extreme instability, researchers in Penn State’s School of Hospitality Management developed an easy-to-use, profit planning tool.  

Amit Sharma, professor of hospitality management and director of the Food Decisions Research Laboratory at Penn State, led the team that interviewed restaurant operators to gather the information needed to create a new profit planning tool, which can be downloaded for free at this link.

“Every business has costs — money that goes out — and revenue — money that comes in,” Sharma said. “Because of the time required to run a restaurant, few restaurant owners have time to catch their breath, let alone do financial planning.”

Despite the demands on their time, restaurant owners told Sharma that they understand the importance of profit planning.

“Sometimes, restaurant operators don’t know where to start, and this tool can provide a starting place, “Sharma explained. 

“What we have created is an easy-to-use spreadsheet,” Sharma continued. “By entering a few basic pieces of information in the spreadsheet about a restaurant’s costs and the desired profit levels, operators can calculate the revenue needed to meet their goals and plan accordingly. Additionally, the tool can help users understand their businesses’ cash flows.

“Restaurant owners, as a general rule, understand their business’ finances very well. They could create this tool on their own, but none of them have the time. By investing just 30 minutes using this tool, owners can begin to make better informed choices about how they operate their businesses."

The primary audience for this tool is independent restaurants, because they do not have access to the same types of planning tools that franchises and chain restaurants do.

However, when franchise restaurant operators used the tool they also found value in it. A franchise operator told the researchers that this tool is similar to what their corporate partners provide to them, but that this tool is more flexible and provides more insights, said Sharma.

One feature of the profit planning tool is that restaurant operators can customize it to their businesses. The numbers used in the spreadsheet can be tailored to each business which will help to provide even more accurate forecasts.

After conducting interviews this spring, Sharma and his collaborators quickly developed the profit planning tool. They plan to write up their results for publication in the future, but their immediate priority was to assist small- and medium-sized restaurants in any way they could.

“When the pandemic started, researchers of all kinds set aside their planned studies to see if they could contribute to battling the pandemic,” Sharma continued. “In the School of Hospitality Management, we responded the same way. If ever there has been an all-hands-on-deck moment in the hospitality industry, this is it. This is an existential crisis for these businesses.

“We hope that this profit planning tool will empower restaurant operators to make informed decisions so they can build healthier businesses for their futures and the futures of the communities they serve," said Sharma.

In addition to this new profit-planning tool, Penn State School of Hospitality Management researchers also created a guide that provides research-based recommendations about how hospitality managers should plan for and respond to crises like the pandemic. Additionally, they created a fact sheet that examines how the pandemic has affected people’s access to food. All resources also can be downloaded for free.

“The School of Hospitality Management exists to educate students and improve the practices of the hospitality industry through research,” explained Marvin Ashner Director and Professor Donna Quadri-Felitti. “Our outreach efforts can enable businesses to make better decisions in this turbulent environment. I hope everyone reading this will look over these resources and pass them along to someone who might be able to use them.”

Seoki Lee, associate professor of hospitality management and doctoral student Michael Lin, both at Penn State, contributed to the development of the profit planning tool.

This research was supported through a COVID-19 Rapid Response grant from the Huck Institute of Life Sciences at Penn State.

(Media Contacts)

Last Updated September 04, 2020