Maximizing Your Restaurant's Potential: A Guide to Using Financial Statements
Running a successful restaurant involves more than just serving great food and providing excellent service. To keep your restaurant thriving long term, you need to understand the financial health of your business. One of the best tools at your disposal is your financial statements. Once you have accurate financial statements you must then learn how to use them to your benefit.
Understanding Your Financial Statements
There are three primary financial statements every restaurant owner should be familiar with:
Income Statement (Profit and Loss Statement): This statement shows your revenue, expenses, and profits over a specific period. It helps you understand how well your restaurant is performing financially, especially when compared to other time periods. The expense items that a restaurant will watch closely are COST OF GOODS SOLD (COGS) and LABOR COST.
Balance Sheet: This statement provides a snapshot of your restaurant's assets, liabilities, and equity at a specific point in time. It helps you gauge the overall financial stability of your business. It can show you if you have enough CASH to pay all your BILLS on a specific date.
Cash Flow Statement: This statement tracks the flow of cash in and out of your business. It helps you understand how well you manage cash to meet your obligations and fund operations.
Using the Income Statement
Track Revenue and Expenses
Your income statement will show you how much money is coming in from POS sales and how much is going out in expenses. By analyzing these figures, you can identify trends, such as which days or times are most profitable, and adjust your operations accordingly. Using the Profit & Loss to make scheduling and purchasing decisions can really increase profits.
Calculate Profit Margins
Understanding your gross and net profit margins is crucial. Your gross profit margin (revenue minus cost of goods sold) indicates how efficiently you're producing and serving your food. This can tell you if you need to look at pricing. The net profit margin (revenue minus all expenses) shows your overall profitability. Aim to improve these margins by controlling costs and boosting sales.
Leveraging the Balance Sheet
Assess Financial Health
The balance sheet gives you an overview of what you own (assets) and what you owe (liabilities). A healthy balance sheet typically shows more assets than liabilities, indicating financial stability.
Manage Inventory and Assets
Your balance sheet includes your inventory and other assets. Monitoring these can help you avoid overstocking inventory, which ties up cash and can lead to spoilage, or understocking, which can lead to missed sales opportunities.
Monitoring the Cash Flow Statement
Ensure Liquidity
Cash flow is the lifeblood of your restaurant. Your cash flow statement helps you track the money flowing in and out of your business. Will you have enough money to cover all your bills next month or do you need to make alternative plans?
Plan for Seasonal Variations
Restaurants often experience seasonal fluctuations in business. Use your cash flow statement to plan for these variations, ensuring you have enough cash on hand during slower periods and making the most of busier times.
Practical Tips for Using Financial Statements
Regular Reviews: Make it a habit to review your financial statements regularly, ideally monthly. This allows you to catch issues early and make informed decisions promptly.
Benchmarking: Compare your financial performance against industry benchmarks. This can help you identify areas for improvement and set realistic goals. Do you know the average COGS & labor cost in your specific market segment? Do you know how to make changes that will affect these numbers?
Consulting with Professionals: If you're not confident in interpreting your financial statements, consider hiring an accountant or financial advisor. Their expertise can provide valuable insights and help you make better business decisions. A professional with experience in restaurant accounting can be invaluable because they can point you to the right area to make changes.
Final Thoughts
Your financial statements are powerful tools that can give you a regular report card for your business. By regularly reviewing and analyzing these documents, you can gain a deeper understanding of your business's financial health, make informed decisions, and ultimately, ensure your restaurant thrives in a competitive market.
Working with an accountant to make sure your financial statements include all of your detailed transactions and that they are categorized correctly can help you make the appropriate decisions for your restaurant.
Remember, numbers tell a story. Make sure you're listening to what they have to say!
