CHAPTER FIVE: Competencies• Forecasting Sales• Financial Budgets• Requirements for Obtaining a Loan• Various types of Loans• What it Takes to Acquire a Loan• Nuances of Leases
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SUFFICIENT CAPITAL• Lack of finance and
working capital is a close second to lack of management when it comes to reasons for restaurant failure
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TYPES OF LOANS• TERM LOAN
– repaid in installments, usually over a period longer than a year
• INTERMEDIATE LOANS– are made for up to five years
• SINGLE USE REAL ESTATE – typically run less than 20
years
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3 IMPORTANT FINANCIAL QUESTIONS TO ASK
YOURSELF1. How much money do
you have?2. How much money will
you need to get the restaurant up and running?
3. How much money will it take to stay in business?
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PROJECTING SALES AND OPERATIONAL
COSTS• 7 basic categories are used – Sales– Cost of sales– Gross profit– Budgeted costs– Labor costs– Operating costs– Fixed costs
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INCOME STATEMENT• Provides information to management and
ownership about the financial performance of the restaurant over a given period of time
• Allows for analysis and comparison of sales and costs
• Shows income after expenses have been deducted (net income or loss)
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SAMPLE INCOME
STATEMENT
SalesFoodBeverageOther
Total SalesCost of Sales
FoodBeverageOthers
Total Cost of SalesGross Profit
Other IncomeTotal IncomeControllable Expenses
Salaries and WagesOperating Expenses, etc
Total Controllable ExpensesRent, interest, depreciation, etc
Net Income Before TaxesIncome Taxes
Net Income
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BUDGETING COSTS
• Two main cost categories– Variable
• Change proportionately according to sales– Food and beverage costs
– Fixed• Unaffected by changes in sales volume
– Real estate taxes, depreciation, insurance premiums
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GROSS PROFIT• Money left from sales after
subtracting the cost of sales• Must provide for all other
operating costs and still leave enough dollars for a satisfactory profit
• If insufficient enough to cover costs, sales and cost mix must be replanned
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UNIFORM SYSTEM OF ACCOUNTS FOR RESTAURANTS
(USAR)• Outlines a uniform classifications and
presentation of operating results• Allows for easier comparisons to
foodservice industry statistics• Provides a turnkey accounting
system• Is a time-tested system
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BALANCE SHEET• Used to determine a sole proprietor’s or
company’s worth• Lists all assets and liabilities• Must always balance
– Assets= liabilities + net worth• Photo of the restaurant financial standing at a
given moment in time– Usually at the end of a financial period or fiscal year
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SAMPLE BALANCE SHEETCurrent Assets
Cash, Accounts Receivable, Allowances, Inventories, etcPrepaid ExpensesTotal Current AssetsFixed Assets
Land, Buildings, Furniture, etc.Deferred ExpensesOther AssetsTOTAL ASSETSLiabilities and Net WorthCurrent Liabilities
Accounts Payable, Accrued Expenses, Deposits, Income Taxes, etc.Current Portion of Long-Term Debt
Total Current LiabilitiesLong-term debt, deferred taxes, etc
TOTAL LIABILITIESNet Worth (for individual proprietor)TOTAL LIABILITIES AND CAPITAL
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SEAT TURNOVER• Number of times a seat turns
over in an hour• Some consider to be most
critical number in operation• Goal rates vary from as high
as seven an hour to less than one an hour, depending on type of establishment– High turnover equals low-check
average and high sales volume
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LOAN SOURCES• The local bank• The local savings and loan association• Friends, relatives, silent partners,
syndicates• Landlords• Small Business Administrations (SBA)• SBICs• Economic Development Administration
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SMALL BUSINESS ADMINISTRATION
(SBA)• User-friendly• Excellent record of success in lending
money to restaurants• 3 principal parties:
– SBA– the small business borrower– the private lender
• Government cosigns loan• Purpose is getting small business going• SCORE (experts in the field who help in
specific problems)
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STOCKPILING CREDIT1.A personal and financial statement
a. Educational and work historyb. Credit referencesc. Copies of federal income tax statements for previous three
yearsd. Financial statements listing assets and liabilities and life
insurance.2. If in business:
a. Business historyb. Current balance sheetc. Current profit and loss statementd. Copies statement for last yeare. Copies of federal income tax returns for past three yearsf. Life and casualty insurance in forceg. Leaseh. Liquor licensei. Health department permit
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COLLATERAL• Security for the lender• Personal property or
other possessions the borrower assigns to the lender as a pledge of debt repayment
• If debt id not repaid, lender becomes owner of collateral
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FORMS OF COLLATERAL• Character (most important)
• Real estate• Stocks and bonds• Chattel mortgages• Life insurance• Assignment of lease• Savings account• Endorsers/Co-makers/Guarantors
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LEASING• Obligated to pay for entire
lease period• Beginners should go for a
five-year lease • Lease building• Lease equipment• Cost (determine if lease cost
is fair)• Terminology (avoid
misunderstanding)• Rent calculated per square
foot per month of space
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RESTAURANT WORTH
• 2 Potential Values–Real estate value–Value as a profit generator
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The End