CHAPTER FIVE: Competencies

1. 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

2. SUFFICIENT CAPITAL • Lack of finance and working capital is a close second to lack of management when it comes to reasons for restaurant failure

3. 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

4. 3 IMPORTANT FINANCIAL QUESTIONS TO ASK YOURSELF • How much money do you have? • How much money will you need to get the restaurant up and running? • How much money will it take to stay in business?

5. PROJECTING SALES AND OPERATIONAL COSTS • 7 basic categories are used • Sales • Cost of sales • Gross profit • Budgeted costs • Labor costs • Operating costs • Fixed costs

6. 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)

7. SAMPLE INCOME STATEMENT Sales Food Beverage Other Total Sales Cost of Sales Food Beverage Others Total Cost of Sales Gross Profit Other Income Total Income Controllable Expenses Salaries and Wages Operating Expenses, etc Total Controllable Expenses Rent, interest, depreciation, etc Net Income Before Taxes Income Taxes Net Income

8. 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

9. 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

10. 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

11. 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

12. SAMPLE BALANCE SHEET Current Assets Cash, Accounts Receivable, Allowances, Inventories, etc Prepaid Expenses Total Current Assets Fixed Assets Land, Buildings, Furniture, etc. Deferred Expenses Other Assets TOTAL ASSETS Liabilities and Net Worth Current Liabilities Accounts Payable, Accrued Expenses, Deposits, Income Taxes, etc. Current Portion of Long-Term Debt Total Current Liabilities Long-term debt, deferred taxes, etc TOTAL LIABILITIES Net Worth (for individual proprietor) TOTAL LIABILITIES AND CAPITAL

13. 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

14. 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

15. 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)

16. STOCKPILING CREDIT 1.A personal and financial statement • Educational and work history • Credit references • Copies of federal income tax statements for previous three years • Financial statements listing assets and liabilities and life insurance. 2. If in business: • Business history • Current balance sheet • Current profit and loss statement • Copies statement for last year • Copies of federal income tax returns for past three years • Life and casualty insurance in force • Lease • Liquor license • Health department permit

17. 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

18. FORMS OF COLLATERAL • Character (most important) • Real estate • Stocks and bonds • Chattel mortgages • Life insurance • Assignment of lease • Savings account • Endorsers/Co-makers/Guarantors

19. 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

20. RESTAURANT WORTH • 2 Potential Values • Real estate value • Value as a profit generator

21. The End