The challenge
The company, well established in its sector, operated high-quality restaurants and managed beach resorts. With a turnover of $35M and a workforce of over 150 employees, it outsourced its operational management to a hospitality firm. This business had a strong foundation—an attractive concept, a prime location and high occupancy—yet financial visibility and operational efficiency were major pain points.
Despite an 80% average occupancy rate, the restaurant business faced losses, with net profit declining while gross profit remained insufficient to cover overhead costs. Owners sought to understand the root causes of these financial struggles.
Key Issues Identified
* Revenue Discrepancies: Despite high occupancy rates, reported sales were lower than the approved budget. Possible causes included unrecorded transactions, unauthorized discounts, or weak internal controls over cash handling.
* Cost Mismanagement: Lack of clarity on profit margins and cost structures led to inefficiency in procurement, excessive stock levels, and food waste, negatively impacting profitability.
* Technology Deficiency: The existing IT infrastructure was inadequate, failing to generate essential financial, operational, and commercial reports. This likely hindered informed decision-making and strategic adjustments.
Solution
An internal control approach was developed to model the business process. This involved a comprehensive sales audit covering pricing, order requests, invoicing and cash collection. A gap analysis and positioning of similar services were conducted. It also involved an evaluation of the client’s purchasing process, menu engineering, and IT system.
We held extensive discussions about the IT system’s capabilities and the changes required to support ABC purchasing and improve the costing of menus and individual dishes. We also did a sales invoicing health check and corrected the findings of some discrepancies between the sales register, cash collection, and sales invoices.
Implementation
Following our findings, multiple presentations were made to the owners and key decision-makers. We developed a costing model to assess the profitability of each dish, leading to the removal of low-margin items and their replacement with more profitable alternatives.
To optimize inventory management, we established minimum and reorder levels for warehousing, reducing excess stock and enhancing purchasing efficiency from major food suppliers. Additionally, we upgraded the IT system and developed reporting tools to support data-driven decision-making.
Achievements
The client began generating profits shortly after implementation and sustained a successful business for a decade before selling it for a high return.
It was a remarkable turnaround! The strategic approach—optimizing costing, streamlining inventory, and enhancing IT systems—clearly had a lasting impact. The fact was that the business sustained profitability for a decade and secured a high return upon sale underscores the effectiveness of the transformation.
Reflexion Research & Insights DepartmentPublished · 20 May 2025