Financial Reporting – A Key to Successful Business Practices

By Clyde Gilfillan – Consultant

The best sports team not only keeps score, but they continue to measure themselves and their performance with data – after all, it is an “analytics” era in professional sports of all kinds. In the restaurant industry, having financial data to assist you in making good decisions is sound business acumen. Without this financial data, you are “flying blind,” so to speak. Consequently, assembling and using the proper financial reports and data are imperatives in today’s business environment.

Here at Synergy Restaurant Consultants, we are consistently advising our clients to create, analyze, and implement data from the following three most important financial documents:

1. Cash Flow Projection – it is one thing to know how much cash on hand you have every day in the bank, but it is much more vital for you to understand where that cash position will be 4 to 6 weeks out from the present week. Understanding how cash flows in and out of a business and seeing where that cash position might be in the future will assist the operator/owner in “firewalling” his bank account position.  Predominantly, it is understanding how much cash you will have on hand a month from now which will assist you in planning any capital expense and/or pumping the brakes on operational expenses.  Either way, projecting out your cash flow is the only true way to understand what the future might hold for your business.
2. Income Statement – as an indicator of performance, the Income Statement lets you know how you did in any given previous period. It measures past performance and is not an indicator of where you are going.  As such, it is essential to obtain an Income Statement from your accountant within seven days of the close of any period; otherwise, the information becomes obsolete for analytics.  Additionally, an operator/owner should use Income Statements for what they are – past data points. It is also important to put together an industry-standard P&L using daily sales reports, taking physical inventories, costing out all hourly labor schedules, and using the declining checkbook method for operational expenses.  In this way, you have accurate information to perform timely corrective measures and actions.
3. Budgets – it is important to put budgets in their proper place as subordinate data to the above. Not to be confused with a Cash Flow Projection, the budget is used mainly for boards, ownership groups, banks, and other institutions to get a sense of where your business might be heading in the next 6-12 months.  Moreover, and perhaps more importantly, they are a good way to set up goals, metrics, KPIs and other performance measurables, albeit in reasonable time measurements.  Budgets in and of themselves do not give much information beyond a reasonable guess of future performance, but they can be very useful for incentivizing management and setting objectives.  One smart way for operators to use the budget system is to set weekly labor costs and food/beverage purchase targets for management to achieve.

The active use of financial reports, resources, and data are highly correlated to successful restaurant businesses. Accurate, timely, and cogent, financial information can pave the way for better decision-making.  Better decisions = Better profits.