These are typical questions that are asked as owners of any restaurant business, especially during hard times. Let’s take a look at the “truth” surrounding the benefits of financial statements or Profit & Loss Statements.
Timely and accurate financial statements are one of the most useful management tools for any business owner. They give you a true “financial pulse” of your company at a particular time and provide you a reliable tool in helping you make crucial decisions about your business’ financial future. There are many other benefits.
- Accurate monthly/period financials give a true performance measurement. It is essential that you have a periodic “accurate picture” of your period performance in order to make the proper decisions about your business. You need to know such things as available cash, tax liabilities, profit or loss for that period and overall financial strength before deciding such things as whether or not to expand, remodel, buy equipment or even borrow money.
- Tax planning. You need to know and plan your tax position each month to avoid penalties or a potential drain on your cash flow at the end of your tax year. Financial statements give you the information in order to plan for those occasions.
- Planning on buying, selling or borrowing money without financial statements? This simply cannot happen. At some point in your restaurant’s life, you will need to buy, borrow or sell something relating to your business. Anytime any one of these events take place, you will need to provide all of the persons or businesses involved with creditable and current financial statements.
- How much is my business worth? Generally, restaurant businesses are bought and sold based on a multiple of EBITDA (Earnings before depreciation, interest, taxes, depreciation and amortization) and other assets such as real estate related to your business. Without accurate financial statements from at least 12-24 months prior, it would be near impossible to calculate a true value of your stores including convincing a prospective buyer that the information you have given them is valid towards determining your asking price.
- Requirements. If you borrowed money from a lending institution or are a part of a franchise brand, you will generally be required to provide both of them with periodic financial statements as a part of the loan or Standard Franchise Agreement. How often depends on the relationship, but monthly or quarterly disclosure is not uncommon.
Is there a difference between accounting and bookkeeping services and is it important for my accountant to be familiar with my business? The answer is yes to both questions. While it is not completely necessary that your accountant fully understand your business, it is a definite plus that they have other clients for which they perform restaurant accounting and tax work. It shows that they have made and will continue to make investments in time and resources towards understanding the issues surrounding your business. Your accountant should be up to speed on important matters like rising wholesale food cost, most recently the staggering cost of dairy products, restaurant related labor law changes and many other financial related issues. Now, not all bookkeepers are bad and there is no guarantee that just because you have a CPA doing your work that you are good to go. You have to do your homework when choosing the right person for your business. As far as accountants versus bookkeepers, I would like to share a story with you about a hair salon owner who felt he was going out of business because a competing salon opened up across the street advertising all of their services for $5! When his competition finally opened, it seemed that everyone in town went there for their $5 haircut. His most loyal customers for over 15 years stopped coming in. Quickly, the doomed salon owner came up with an idea that saved his business from going under. He put up a huge billboard sign over his shop that read, “We fix $5 haircuts!” Soon, his business was thriving again.
Like any business, there is a difference between the quality of products companies provide. Accounting products and services are no different. The accuracy of financial statements is very important to your business. Having the wrong information can be costly and time consuming. Doing your accounting in-house can potentially be more costly than having a qualified CPA firm do your work. Problems include:
- Inaccurate financial reports due to lack of accounting and tax knowledge.
- Lack of confidence from lenders in the accuracy of the reports.
- Additional fees charged by tax professionals for correcting the work.
- Getting involved in other businesses outside your core company.
As business owners, do we really have the time and expertise to manage an accounting staff’s performance? Imagine if that time was spent in the business that you are in instead of the business you are not in. Without a doubt, the difference between good and great in the restaurant business is the quality of management and leadership day in and day out. The competition for every food dollar is fierce which demands an owner’s and manager’s complete time and attention towards perfecting operations and taking care of every customer. Every consideration should be taken before making a decision that will take the key people in your business away from the one thing that generates every dollar you take in.
Financial statements are a necessary part of operating in today’s business world. A business cannot be operated successfully without timely and accurate financial reports. We encourage all business owners to look beyond the perceived short-term dollar savings to the long-term effects of omitting routine financial reporting. Your accounting team should be an integral part of your business routine and they should provide you with the tools and financial counseling you need for your business.