Those of you who look at what books I've recently read will see I just finished "Restaurant Financial Basics". Considering we're entering our 8th year of operations I either didn't need to read it, or should have done it a long time ago. I bought the book for the GM about 2 years ago, and she expressed no interest in reading it, so it sat on the shelf. Now that more of her time is directed toward the Sardine and more of mine directed on pursuits beyond the kitchen, I thought it would be useful to review how we deal with the money.
The biggest reinforcement I got from the book is in the "Pricing for Profit" chapter. My hippie upbringing has produced a deep distrust of profit and I tend to view it as something that a corporation like DeBeers has wrenched from the backs of near slave labor rather than a desirable goal for my business. I know what our costs should be, based on industry averages and standards, and if we were meeting those costs, well then, we're making money right? Things like cash flow held little meaning for me until the day came when on paper we did fine but I had no cash to pay the taxes.
Starting now, I will view profit as my paycheck. This isn't a concept from the book, this is my own interpretation. The part of me that is resistant to the term profit, is fine with getting a paycheck, earning a living, bringing home the bacon. I guess I see myself as a worker, not an owner. And while it would be better to just deal with the fact that I am an owner, if it takes this terminology deceit to make sure I can pay my bills, so be it.
To this end I've been reviewing all our systems, seeing where we can improve. This past year, my attempt to lower our food cost has paid off. I set a goal for food cost and a target for spending, based on our average number of covers. Then had the cooks post the vendor invoice totals on a dry erase board in the kitchen. It doesn't look like we'll achieve our year end goal but we will come really close and we did cut the cost by 2%.
I predict we will hit our targets next year because after tracking this in 2006 I saw we had made our target 4 times in the past year. I gave a bonus based on those months to the cooks who do the ordering in my absence and explained how a bonus in the coming year would work.
It was also illuminating to put a dollar amount to a 1% increase in costs. Close to $6000. A 2.5% increase in cost of goods doesn't sound like much, but $15,000 is a number that gets some attention.
The good news is most of our costs are in line with where they should be. The other good news is that I've been thinking about this for a while now, and the GM and I are actually working on a marketing plan, and a budget for next year. Our plan thus far has been more along the line of "Oh shit, Mother's Day is next week. What are we gonna do?" I'm having fun with the planning part because I like to talk (and go on and on). I think the GM is having less fun but I'm hoping she'll get in the spirit.
As friends of mine wrote this year- Happy non-denominational yet deeply respectful of whatever your particular religious or non-religious take on the human condition is Days! Peace be with you. (Unless that's not your thing).
yes, many 'owners' miss the point that having a business survive isn't enough. it must pay you a living wage, plus benefits, commensurate with your skills and time invested. If you work 80 hours a week, you need to make probably 80*15*1.3 dollars each week, or else you should just go work for someone else who pays 15 dollars an hour plus benefits.
Then, of course, the business needs to survive, grow, stabilize, pay the taxes, rent, other employees, etc.
The equity of the restaurant can be considered a retirement package or pension plan. If it is stable and earning a certain amount each year, and can be considered to do so with a new owner of comparable skill, then it can be sold as a running business for a good amount; and this amount increases as the business grows. When you are ready to turn in for the long day, and need income to retire, you should have at least 75% of your annual salary from dividends/capital gains, etc. Not counting what you bequeath to children - like college, a starter home, wedding expenses.
You'll need this income for possibly 20-30 years, so spending down capital is unlikely to satisfy, unless you can get together $1.6 million or more. Medical expenses will drive up retirement costs severely. So, you need to consider that when you sell the restaurant, it will need to fill in any gaps in your savings (401k, etc) after taxes. Or else you will need to sell a partial stake and keep reaping dividends out of profits - a sort of 'undiversified investment strategy' that still costs taxes as you go, though not all at once.
Anyway, it is all very depressing and yet necessary to consider.
Posted by: ben | December 26, 2006 at 11:00 AM