This Is The Data Every Culinary Business Should Check Before Every Important Decision

The amount of paperwork that comes across your desk and into your inbox can be overwhelming. The challenge is to identify what is urgent, what is important, and what is not. As you work through this grid related to your particular restaurant, it can be tempting to skim or even ignore the various financial reports. However, as you work towards the stability and growth of your business, these 5 reports you can’t afford to ignore. These are the reports that help you avoid costly mistakes, uncover opportunities for more revenue, and even predict the future!

(1) Don’t Overlook The Basics

It is ironic that even though the budget is one of the most foundational and elementary financial tools, it is often the most overlooked within the food and beverage industry. Typically, a business will establish a budget in the early years, as required for small business loans or to appease investors, but as the restaurant matures, the temptation is to abandon the discipline. Remember that a budget is just a tool to help your business be financially efficient and cut waste. By neglecting your budget, it allows for ongoing and gradual losses to continue undetected. These “vampire costs” are typically small enough that you don’t notice them through the day-in and day-out routines. They lie below the surface, slowly bleeding your profits. But over time, these undetected losses could be the difference in purchasing new equipment, hiring a new employee, or expanding. As the complexity and maturity of your restaurant grows, a budget can be one of the most clarifying reports you review.

(2) Know Your Income

Your income statement is one of the most foundational reports you can review. Though often confused with a balance sheet, your income statement actually reports income through a defined period. The income report should be focused upon 4 central areas of your business: revenue, expenses, gains, and losses. Typically, it starts with a detailed summary of your sales and then works through your net income and even your earnings per share (EPS). Essentially, this report is so foundational to your restaurant because it gives an account of how the net revenue realized by the company gets transformed into net earnings. In the most simple form, this report could be summarized as: Net Income (Loss) = Total Revenues – Total Expenses

(3) Keep Your Balance

Your balance sheet is another essential report that provides a snapshot of your restaurant’s assets, liabilities, and equity at a specific point in time. Essentially, your balance sheet is a financial statement that provides a snapshot of what the business owns and owes, as well as any retained earnings, known as shareholders’ equity. Keep in mind that by itself, a balance sheet cannot give you any sense of the financial trends that are playing out over a more extended period. For this reason, your balance sheet report should be compared with those of previous periods. It can also be helpful to compare these trends and averages with other foodservice businesses compared to your own. The balance sheet could be summed up with the following equation: Assets = Liabilities + Shareholders’ Equity

(4) Monitor Your Cash Flow

Routinely charting the amounts, timing, and fluctuation of your restaurant’s cash flow is one of the foundational objectives of financial reporting. Positive cash flow means more options. And organizations with strong financial flexibility can jump on core investments, ride out those economic slumps, and avoid the complications associated with financial distress. Spending a few moments each month with your monthly cash flow report will give you a good sense of your business’ financial health. This sort of review will help you navigate the critical decisions you will need to make as the company matures.

(5) Learn To Predict The Future

Moving from historical data to projected data is one of the most overlooked opportunities within quality accounting. As essential as a cash flow report is, taking time to read through your cash flow projection report can be equally as important. By projecting your restaurant’s cash flow, you can have a reasonably clear picture of where the business is heading and plan for any adjustments. This sort of planning can help you predict upcoming cash surpluses or shortages. By looking at the historical data and trends, you can plan for the predictable future periods of income and expenses. For example, let’s say you are planning on hiring another employee next quarter. By including this event in a cash flow projection, you can map out the associated wages, taxes, and other staff expenses. This sort of projection will give you a solid understanding of how this hiring decision will impact your cash flow. Think of your cash flow projection report as a map for your restaurant’s future. By planning for various gains and expenses, you will have the peace of mind you need, as you have the justification for the timing of critical business decisions.