SUSTAINABLE RESTAURANT SUCCESS. Profitable Financial Skills 11/15/2017. Copyright 2017 RestaurantOwner.com 1

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1 Profitable Financial Skills For Restaurant Owners & Managers How To Understand & Use Your Numbers To Build a More Successful Business Welcome! Today s webinar will be starting shortly. Your Hosts Joe Erickson Jim Laube SUSTAINABLE RESTAURANT SUCCESS Sustainable Success Requires 3 Core Competencies Copyright 2017 RestaurantOwner.com 1

2 BUSINESS / FINANCIAL SKILLS Sustainable Success P&Ls Statements & Reports Cost Control Accounting Financial Analysis Budgeting Sound Decision Making Cash Management ONE COMMON TRAIT IN HIGHLY PROFITABLE RESTAURANTS Successful independent restaurant operators have GOOD FINANCIAL SKILLS ONE COMMON TRAIT IN HIGHLY PROFITABLE RESTAURANTS They Know Their Numbers! Copyright 2017 RestaurantOwner.com 2

3 NUMBERS ARE LIKE THE INSTRUMENTS TO YOUR RESTAURANT Profit? Financial Condition? Better or Worse? Costs? Sufficient Cash? What s Working? SUCCESSFUL RESTAURANT OPERATOR If you don t know your numbers, you don t know your business. Robert Fleming Magnolia Pancake Haus Copyright 2017 RestaurantOwner.com 3

4 EVERYTHING THAT HAPPENS IN YOUR RESTAURANT IS EVENTUALLY REFLECTED IN YOUR NUMBERS! UNDERSTAND THE CONNECTION Every restaurant owner & manager should understand this! Copyright 2017 RestaurantOwner.com 4

5 BUSINESS RESULTS CAUSE & EFFECT The OWNER Decisions Startup Concept Location Lease Menu Design Marketing Ongoing Personnel Menu Purchasing Policies / Procedures BUSINESS RESULTS CAUSE & EFFECT The OWNER Decisions Activities Results ONGOING RESTAURANT DECISIONS Decisions Recipe Ingredients Purchasing Training Name Portion Activities Quality Preparation Promotion Price Preparation Marketing Copyright 2017 RestaurantOwner.com 5

6 ONGOING RESTAURANT DECISIONS Recipe Ingredients Name Portion Purchasing Training Measurement Accounting Sales Food Cost Gross Profit Decisions Accounting is a system of measurement that converts decisions & activities into numbers. Numbers show you Activities Results reality! Quality Preparation Price Promotion Preparation Promotion ONGOING RESTAURANT DECISIONS Ingredients Name Portion Purchasing Storage Measurement Accounting Sales Food Cost Gross Profit Decisions 12 Financial analysis is the process of converting numbers back into activities & decisions. 13 Activities Results Quality Preparation Price Preparation Promotion Analysis Good Results Bad Results 3 UNDENIABLE TRUTHS OF BUSINESS 1. What gets measured gets managed 2. What gets managed improves 3. Profit improvement begins with measuring your key activities You can t change it, if you don t measure it! Copyright 2017 RestaurantOwner.com 6

7 HAVE YOU EVER ASKED YOURSELF... How much profit should my restaurant be making? CASE STUDY 4,000 Square Feet 130 Seats Land & Bldg Leased Open 18 months CASE STUDY I m making money but is my restaurant as profitable as it should be? How would you go about answering this question? Copyright 2017 RestaurantOwner.com 7

8 RESTAURANT PROFIT POTENTIAL SALES PER SQUARE FOOT RULES of THUMB Square Footage? Full Service Losing Money Under $150 Quick Service Example: 2,000 SF restaurant with sales less than $300,000 RESTAURANT PROFIT POTENTIAL SALES PER SQUARE FOOT RULES of THUMB Full Service Quick Service Losing Money Under $150 Under $200 Break Even $150-$250 $200-$300 5% - 10% Moderate Profit $250-$400 $300-$500 Over 10% High Profit Over $400 Over $500 Occupancy Costs: $15 to $30 PSF $400? Copyright 2017 RestaurantOwner.com 8

9 RESTAURANT PROFIT POTENTIAL SALES PER SQUARE FOOT RULES of THUMB Full Service Quick Service Losing Money Under $150 Under $200 Break Even $150-$250 $200-$300 Moderate Profit $250-$400 $300-$500 Over 10% High Profit Over $400 Over $500 Why isn t Bob s more profitable? $ % What about this P&L format? $400 No % s Not categorized No comparisons 4.4% Copyright 2017 RestaurantOwner.com 9

10 Restaurant Industry Standard Format What format gives you better info? WHICH ONE IS WRONG??!! Food Cost TOTAL Sales 417,992 Food Cost = = 1,600,563 FOOD Sales 417,992 1,302,156 Copyright 2017 RestaurantOwner.com 10

11 Critical P&L Checkpoint Prime Cost PRIME COST Rules of Thumb Tableservice Max 65% of Sales Quickservice Max 60% of Sales Critical P&L Checkpoint Controllable Income Copyright 2017 RestaurantOwner.com 11

12 CONTROLLABLE INCOME Bob s Italian 23.6% Full Service Min 15% Quick Service Min 20% Key Number for Management Incentive / Bonus Critical P&L Checkpoint Occupancy Costs (Rent, Insurance on Bldg/Contents, CAM) OCCUPANCY COSTS Bob s Low Ave. High % of Sales below 5% 7% to 8% above 10% Copyright 2017 RestaurantOwner.com 12

13 Critical P&L Checkpoint Occupancy Costs OCCUPANCY COSTS Bob s Low Ave. High % of Sales 14.6% below 5% 7% to 8% above 10% What have the Numbers just told us about this restaurant? Strong Sales Acceptable Prime Cost Okay Controllable Income Very High Occupancy Cost Copyright 2017 RestaurantOwner.com 13

14 What s the problem? High rent or low sales? What s the solution? MORE SALES! Very High Occupancy Cost Possibilities Speed table turns More seats/tables Takeout / delivery Banquets / catering Better marketing Re concept Very High Occupancy Cost BOB S ITALIAN CAFE PROFIT & LOSS Your numbers should reveal how well (or how badly) your restaurant is being managed and where it needs attention. Copyright 2017 RestaurantOwner.com 14

15 PROFIT & LOSS STATEMENT 1. Take regular physical inventories FOOD PURCHASES VS FOOD COST FOOD COST CALCULATION Food Purchases $ 7,000 Add - Beginning inventory Deduct - Ending inventory Cost of Sales 7,000 PROFIT & LOSS STATEMENT Food Sales 25, % Food Cost 7,000 28% Gross Profit 18,000 72% FOOD PURCHASES VS FOOD COST FOOD COST CALCULATION Food Purchases $ 7,000 Add - Beginning inventory Deduct - Ending inventory Cost of Sales 7,000 $ 7,000 6,000 (3,000) 10,000 PROFIT & LOSS STATEMENT Food Sales 25, % Food Cost 7,000 28% Gross Profit 18,000 72% 25, % 10,000 40% 15,000 60% Copyright 2017 RestaurantOwner.com 15

16 REDUCE INVENTORY TIME Products on inventory count sheets in shelf order. Count Sheet REDUCE INVENTORY TIME Have a separate count sheet for each storage location. Walk In Count Sheet Freezer Count Sheet Dry Storage Count Sheet PROFIT & LOSS STATEMENT 1. Take regular physical inventories 2. Use the Uniform System of Accounts for Restaurants Copyright 2017 RestaurantOwner.com 16

17 THE NATIONAL RESTAURANT ASSOCIATION S UNIFORM SYSTEM OF ACCOUNTS A financial statement / reporting system specifically for restaurants THE NATIONAL RESTAURANT ASSOCIATION S UNIFORM SYSTEM OF ACCOUNTS The NRA s largest selling book! First published over 50 years ago Latest edition published in 2012 Restaurant Industry Standard Format Copyright 2017 RestaurantOwner.com 17

18 RESTAURANT CHART OF ACCOUNTS Chart of accounts RESTAURANT CHART OF ACCOUNTS COST / EXPENSE ACCOUNT Cost Coding Guide RESTAURANT CHART OF ACCOUNTS P&L templates Copyright 2017 RestaurantOwner.com 18

19 PROFIT & LOSS STATEMENT 1. Take regular physical inventories 2. Use the Uniform System of Accounts for Restaurants 3. Prepare a P&L every 4 weeks 28 days X 13 periods = 364 days = 52 weeks Copyright 2017 RestaurantOwner.com 19

20 BENEFITS OF 4 WEEK REPORTING 1. Better comparability COMPARING MONTH TO MONTH COMPARING MONTH TO MONTH 2017 Both 28 Days! Copyright 2017 RestaurantOwner.com 20

21 COMPARING TO PRIOR YEAR COMPARING MONTH TO MONTH Mon, Tue, Wed, Thur, Fri, Sat, Sun BENEFITS OF 4 WEEK REPORTING 1. Better comparability 2. Easier to plan for physical inventories 3. Compliments weekly reporting 4. Eliminates need to accrue bi weekly payroll Copyright 2017 RestaurantOwner.com 21

22 1 st Payroll 2 nd Payroll 28 Days of Sales 1 st Payroll 2 nd Payroll 28 Days of Payroll CONVERTING TO 4 WEEK PERIOD 1. Start at the beginning of a new year. Copyright 2017 RestaurantOwner.com 22

23 CONVERTING TO 4 WEEK PERIOD 1. Start at the beginning of a new year. 2. Divide monthly payments into 13 periods. 3. Quickbooks can handle custom accounting periods. PRIME COST Track and monitor Prime Cost weekly, not just monthly Copyright 2017 RestaurantOwner.com 23

24 WEEKLY PRIME COST REPORTING Prime Cost will go down 2 5 points! All chain restaurants do this Focuses attention on the 2 biggest, most volatile cost areas Greater staff awareness & accountability Faster recognition & response to problems Shows how well mgt. is managing 2 POINT REDUCTION IN PRIME COST Sales $700,000 Prime Cost 528,000 66% Net Income $ 35,000 5% Sales $700,000 Prime Cost 514,000 64% Net Income $ 49,000 7% 40% Increase in Net Income PRIME COST RESOURCES Prime Cost Templates Webinar Articles Copyright 2017 RestaurantOwner.com 24

25 RESTAURANT SUCCESS PROCESS Owner / Management Decisions Activities Accounting Results Analysis RESTAURANT SUCCESS PROCESS Financial analysis is the process of converting the numbers back into activities. Activities Accounting Results Analysis FINANCIAL ANALYSIS $ Amounts SALES Account Description $ Food 14,205 Liquor 894 Beer 691 Wine 975 Total Sales 16,765 COGS Food 4,763 Liquor 215 Beer 125 Wine 223 Total COGS 5,326 PAYROLL Management 1,200 Hourly Staff 3,214 Employee Benefits 971 Total Payroll 5,385 Prime Cost 10,711 Gross Margin 6,054 Copyright 2017 RestaurantOwner.com 25

26 TREND ANALYSIS $ Amounts Current Account Description SALES $ $ $ $ 12,677 12,998 13,541 14,205 Food Liquor 1,023 1,125 1, Beer Wine Total Sales 15,075 15,601 16,223 16,765 COGS Food 3,857 4,015 4,257 4,763 Liquor Beer Wine Total COGS 4,367 4,566 4,836 5,326 PAYROLL Management 1,200 1,200 1,200 1,200 Hourly Staff 2,852 2,963 3,006 3,214 Employee Benefits Total Payroll 4,943 5,079 5,131 5,385 Prime Cost 9,310 9,645 9,967 10,711 Gross Margin 5,765 5,956 6,256 6,053 FINANCIAL ANALYSIS Percentages SALES Account Description % Food 84.7 Liquor 5.3 Beer 4.1 Wine 5.8 Total Sales COGS Food 33.5 Liquor 24.0 Beer 18.1 Wine 22.9 Total COGS 31.8 PAYROLL Management 7.2 Hourly Staff 19.2 Taxes & Benefits 5.8 Total Payroll 32.1 Prime Cost 63.9 Gross Margin 36.1 TREND ANALYSIS Percentages Current Account Description SALES % % % % Food Liquor Beer Wine Total Sales COGS Food Liquor Beer Wine Total COGS PAYROLL Management Hourly Staff Employee Benefits Total Payroll Prime Cost Gross Margin Copyright 2017 RestaurantOwner.com 26

27 Blue Fish Grill PRIME COST WORKSHEET Week Starting/Ending Dates 6 Apr 12 Apr Taxes & Benefits 22.0% MON TUE WED THU FRI SAT SUN INVENTORY 6 Apr 7 Apr 8 Apr 9 Apr 10 Apr 11 Apr 12 Apr BEG END TOTAL PCT SALES: Food 1,406 1,598 1,847 2,058 2,456 2,857 1,983 14, % Liquor % Beer % Wine % Total Sales 1,562 1,869 2,186 2,420 2,886 3,464 2,378 16, % Purchases COST OF SALES: Food 4,417 3,231 (2,885) 4, % Beverage Liquor 811 1,958 2, % Beer % Wine 348 1,021 1, % Total Beverage 1,307 3,551 4, % TOTAL COST OF SALES 5, % LABOR: Management 1, % Hourly Personnel , % Payroll Taxes & Benefits % TOTAL LABOR 5, % PRIME COST 10, % GROSS MARGIN 6, % Customer Count Check Average QUESTIONS What did we learn about this restaurant? 2. What would we know without preparing & analyzing the Prime Cost Report? 0 TREND ANALYSIS WORKSHEETS INCLUDED IN PRIME COST TEMPLATES By Percentage of Sales & Per Guest PRIME COST WORKSHEET RO.com Prime Cost Worksheet Templates 1. Tableservice w/ alcoholic bev. 2. Tableservice w/o alcoholic bev. 3. Fast Casual / QSR Copyright 2017 RestaurantOwner.com 27

28 SHARE YOUR NUMBERS Teach your employees basic restaurant economics RESTAURANT ECONOMICS 101 EVERY How restaurant much money employee does the should typical know they employee work think a low the margin owner is business making? RESTAURANT ECONOMICS 101 How much does the owner get to keep? Copyright 2017 RestaurantOwner.com 28

29 RESTAURANT ECONOMICS 101 Have an all employee meeting Give everyone 100 pennies Explain where the money goes & how much is left and what the owner(s) really gets to keep MICHAEL VIDEO MICHAEL PASSALACQUA ON SHARING NUMBERS I want them to know what it costs to operate a restaurant. At the end of the day they know that after all the expenses, our net profit is only about 8%. It helps with people taking care of stuff. It reinforces that they work for a company that takes care of them. Copyright 2017 RestaurantOwner.com 29

30 RESTAURANT ECONOMICS 101 When you withhold financial information about your restaurant, employees make assumptions and the assumptions they make are usually WRONG! AFTER THE MEETING... Don t drive off in... FINANCIAL SKILLS REVIEW 1. Pay attention! 2. Physical inventory counts 3. Uniform System of Accounts day cycle 5. Weekly Prime Cost 6. Educate your staff Would any of these work in your restaurant? Same Practices = Same Results Better Practices = Better Results Copyright 2017 RestaurantOwner.com 30

31 FINANCIAL SKILLS Your Comments & Questions Profitable Financial Skills For Restaurant Owners & Managers How To Understand & Use Your Numbers To Build a More Successful Business Welcome! Today s webinar will be starting shortly. Copyright 2017 RestaurantOwner.com 31