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A cash flow statement makes it simple to see how your income and expenses compare. This makes it easier to determine whether new sources of income are generating enough ROI to continue being a valid option. Valuations among U.S. publicly traded companies climbed by 15% even with the economy shutdown and many restaurant chains taking a substantial hit. The median valuation (measured by EV/EBITDA) was 11.1x as of FY 2019 and stands at 12.8x as of April 2020. Wingstop, Papa John’s, Shake Shack, Chipotle, and Domino’s are reaching valuations above 20x. Labor has increasingly become the biggest pain point for operators in the restaurant industry.
- We’ll talk about that later in this blog, along with a restaurant balance sheet example.
- The first step is to note down all your assets and liabilities in one place.
- A restaurant balance sheet shows assets, liabilities, and equity to reveal a restaurant’s financial position on a given date.
- The median valuation (measured by EV/EBITDA) was 11.1x as of FY 2019 and stands at 12.8x as of April 2020.
Since 2012, over 40,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections. Bankable is a Small Business Administration (SBA) lender that makes loans from $500 to $250,000 to Indiana small businesses that are unable to secure financing from a traditional bank. By now, we hope you’re familiar with what assets, liabilities, and equity are.
How to Analyze Restaurant Financial Statements and Identify Growth Opportunities
Selling, General, and Administrative expenses are the direct and indirect selling expenses, those additional expenditures besides the direct costs involved in making the product. It includes the costs to manage the company and running the day-to-day operations such as accounting, utilities, marketing and advertising, HR, IT, etc. Increases in minimum wages are creating significant cost increases for restaurants (payroll typically represents about 30% of sales), which could see declines of up to 19% of four-wall EBITDA margins. Because of the type of service, full-service restaurants typically have higher labor costs than QSR and fast-casual.
- When I asked the accountant why he was not using
accrual accounting, he replied that there were tax advantages in using cash
accounting. - A restaurant’s balance sheet takes daily losses and earnings into consideration and indicates its growth percentage.
- As shown, you’re tracking the available resources to the company (cash + POS system), how much you owe ($2,000 to the credit card company), and how much you personally own ($10,000 of cash).
- Another key metric recorded in your cash flow statement is your debt and financing, as taking on debt or financing assets will change cash flow.
- It also helps restaurant owners forecast future cash flow to ensure that they have sufficient funds to manage and finance the restaurant’s current operations and growth projects.
Restaurant CAPEX benchmarks reach an overall median of 3% (based on public companies as of 2020) though is higher than 5% of revenue for the top quartile. Leaders are investing at least three times as much in CAPEX (as a percent of revenue) as the median. Unit-level profitability is one of the best indicators of efficiency for restaurants, simply calculated as the difference between revenue and costs (with the margin calculated as a percentage of sales represented by profits). Restaurant rent usually takes around 8% of sales but it’s not unusual for some chains to have large swings between high-traffic and low-traffic locations. Location strategy is key to optimize occupancy costs, especially when opening a restaurant.
Managing Your Restaurant Balance and Finances
Current assets, also known as liquid assets, are those that can be quickly and easily converted into cash. For example, your current liquor inventory and the funds in your bank account. Download the Restaurant Balance Sheet Template that is designed as a simple balance sheet for any kind of restaurant.
When I asked the accountant why he was not using
accrual accounting, he replied that there were tax advantages in using cash
accounting. Of course, that was a moot point since the business had never made
a profit. But the biggest travesty of using the cash system was that it had
hidden the fact that their costs were way out of line. In fact, a break-even
analysis showed they were never going to be profitable. If you’re doing worse than before, use your balance sheets to try and determine when this change happened; if you’re doing better, identify the factors behind your newfound success so you can capitalize on these. To help you make the most of your restaurant financial statements, let’s break down how you should approach a few different types.
Assets
That’s why several accounting tools are needed, and a restaurant balance sheet is one of them. The detail needed by an operator on their
financial statements is far more detailed that that needed by the IRS to
determine tax liability. I recommend that, at least initially, new restaurants
should retain the services of a professional hospitality accounting firm or consultant to set
up their QuickBooks file and procedures. The cost of this service is about 1 percent of
your sales, and that is the best money you will ever spend. The first and most important point about numbers
is that they must be accurate and collected in a timely manner. I was asked by
a successful independent restaurant operator to assess his business and
determine its value.
Short-term assets, also called liquid assets, can be easily converted into cash. They may include the funds in your bank account or food and beverage inventory. Long-term assets, otherwise known as non-liquid or fixed assets, cannot easily be translated into cash on hand. Your P&L is extremely valuable to manage your operations, budget, and future business growth.
Cash flow statement
While this sounds great on the surface, it’s important to break down each section even further to truly understand what you’re spending. For instance, you can break your expenses section down into categories such as labor costs, rent, utilities, etc. You can easily do this using our free Profit & Loss Statement Template.
- It’s a good idea to take a look back at your financial predictions to see how accurate they were.
- If numbers are not your thing, reading and understanding financial statements can seem like a daunting task.
- A Balance Sheet is a financial statement that provides a snapshot of a restaurant’s financial position at a specific point in time.
- 2) Restaurant Sales Forecast & Projection Template – use this if you need to create up to 5 years of financial projections including a balance sheet, cash flow statement, and profit and loss.
- The restaurant cash flow statement provides data on cash receipts and payments of the operating, investing, and financial activities of a restaurant for a stated period of time.
- If you’re planning to use financial statements to find ways to grow your restaurant business, you’ll need to optimize how you create them.
To set up a balance sheet, start with your chart of accounts that we previously discussed. Restaurant liabilities are what a restaurant owes for a certain period of time, like outstanding vendor bills, rent for property or equipment, lines of credit, or bookkeeping for restaurants loans. From startups to small businesses, a balance sheet is an important tool for financial monitoring, decision making, and reporting. According to the formula/equation above, equity is what’s left to you after subtracting liabilities from assets.
Horizontal Analysis:
As shown, you’re tracking the available resources to the company (cash + POS system), how much you owe ($2,000 to the credit card company), and how much you personally own ($10,000 of cash). As a restaurant owner who has multiple things to do, it https://www.bookstime.com/articles/period-costs can get difficult to keep track of all these metrics. It’s nearly impossible to manually collect and analyze this data on a regular basis. Thankfully, technologies like table management systems now exist to help restaurant owners do just that.
