Answer: If you’re serious about making more money, you have got to know how your biggest, most volatile costs are running, not just once a month, but at the end of every week.

As a refresher Prime Cost is cost of sales (food and beverages) plus all payroll costs, including gross payroll of all management and hourly personnel and payroll taxes, benefits, worker’s compensation, etc.

Prime cost usually runs 60 to 65% of total sales in a full service restaurant and 55% to 60% in a quick service restaurant. And your food and beverages purchase are normally 50 5o 75% of those numbers!

First step is to create an automated system with your vendor to view purchase invoices online or receive them in some electronic format such as an excel worksheet. This should include all credits posted to each specific invoice such that you can match up the total invoice to your payments being drafted from your account or checks being written per invoice. Never assume the distributor is updating their records accurately.

Next process is to setup a system to hold the distributor accountable for price fluctuations that would impact your controllable profit. For example, most distributor discussions in the field focus on the ingredients for dough, cheese and sauce and toppings. It’s when you don’t have time to compare the toothpicks and cleaning supplies that you can get taken advantage. We recommend a system to monitor the increase in cost percentage of every item purchased from a distributor.

On your next purchase of that item your system will catch any honest mistakes in price increases or decreases or intentional ones that a foodservice representative charges to potentially generate a higher commission to be made on your account. Simply, take the time to get a quote from several suppliers and pick the distributor you choose to work with based on past service not price. Then share the costs with them and work out an accountable arrangement to keep integrity with price offerings so you can focus your time on new customers, marketing, and the entrepreneurial side of your restaurant.

Engaging in ongoing competitive bidding practices to get the lowest prices actually leads to higher foods costs.
 

Question: Why is sales mix of my menu items important?

 
Answer: Sales mix is a term that refers to how many menu items you have sold in a specific period. For example, one large pepperoni, two sausage and three small meat lovers will generate the restaurant a different profit than changing that combination to two large pepperoni, one sausage and three calzones.

Each menu item when costed properly generates a specific gross profit. Thus when added together in a given period a different combined result will occur most of the time.

That is why your overall food cost percentage is important as a weekly tool to monitor but more accurate monitoring should be had in identifying which menu items generate the highest gross profit in your sales mix of menu items. Specials could be generated and wait staff awareness to promote higher profitability items.

Most foodservice distributors can provide tools to generate food costing programs and then you will need to match up your weekly sales mix of menu items to determine which combination will yield the highest profit. Integrating costing with point of sale or cash register weekly sales data is often difficult but well worth the effort. This is one area the chains focus on since they have learned the profitability to their restaurant operations.

How card processing benefits your restaurant

Regardless of your restaurants size, there are many benefits in having the ability to process credit card transactions.

By accepting multiple forms of payment, you give your customers options and improve their experiences. You also introduce a new audience of customers to grow your business.

In addition, card processing is an efficient, convenient payment solution that helps you improve cash flow by ensuring timely, automatic deposits to your account.

Value-added services—like gift card and prepaid card programs—can provide a new channel for generating profits and increasing your revenue. Check protection services can help you limit your risk from bad checks.

While price is important, don’t let it be the driving force behind your credit card purchasing decision. First, review the service offerings of several credit card transaction service providers. Then, consider other important aspects of your buying decision.

Customer Support

Customer support is the most essential – problems in credit card processing can quickly impact your bottom line. The best way to learn about a provider’s level of customer service is to obtain customer referrals from current clients. Request referrals to merchants that are comparable to your restaurant in size and similarity of customer habits. Then ask these important questions: do they have to wait several minutes before reaching a customer support rep? Are their needs serviced quickly? How does the provider deal with chargebacks? Also ask the provider about their level of support – do they have phones staffed 24 x 7? Do they charge per incident?

Rates and fees

Many factors can influence the fees you pay for the privilege of accepting charge cards. Among those factors: the length of time you have been in business, the percentage of your sales that you make over the Internet, the type of restaurant you operate, the number of years you’ve been in a restaurateur, your personal credit rating, the average dollar amount of each sales transaction, the total dollar amount of sales per month. Service fees tacked on by the third party providers or by their sales people, can also add to your costs.

Some companies advertise discount fees less than 2 percent. Usually these lower fees are for swiped transactions (sales made by running the customer’s credit card through a machine).

Therefore, in comparing processors, be sure to find out what all of the fees will be. Compare not only the application fees and the discount rate, but also the initial cost of equipment, transaction fees (the fee you pay on top of the discount for each transaction you process), monthly minimums, voice verification charges, address verification (if extra) fees, monthly statement fees, and any other costs you will incur. A difference of 10 cents on the transaction fee is equivalent to a one-half a percent on the discount rate if your average sale is $20.

Pay close attention to the cost of equipment or software for processing the charges, too. Identical software and comparable hardware varies in price by as much as $600 or more depending on who you use purchase it from.

If at all possible do not lease equipment or software. Buy it at the start. By leasing it you often set yourself up for three or four years of noncancellable lease payments and wind up paying thousands of dollars more than necessary.

Be sure to read ALL applications forms and contracts mailed to you carefully. Read all of the small print. Several companies will charge you if you want to stop processing charges through them in less than two to three years. What the salesman says on the phone may NOT be what the application actually says. If there’s a dispute, what will stand up is what is on the printed contract you get, not what you say the salesman told you.

Check to see under what conditions the company can terminate your account, and, whether there are monthly minimums or maximums.

The Application Process: What to Expect

Depending on which company you are dealing with, you may have to provide any or all of the following: copy of your business license or certificate of doing business (dba); profit and loss statements; copies of previous years’ tax returns; photo of your office.

Finally, if you are not using a bank or financial company you recognize, make sure you verify that the company you are investigating is legitimate – there are con artists and scammers who set up fake processing companies just to collect setup fees then vanish. Contact the Better Business Bureau to check the company’s status if you are unsure, and if you find a credit card transaction service provider on the Web, make sure you get a physical address and phone number.

Restaurants with small tickets are usually wary of a merchant processing account due to pricing concerns. They seem to overlook the idea that paying for merchant processing is an investment to their business and they may be surprised to learn that accepting credit/debit cards is not only convenient for their customers, but will ultimately help increase their bottom line. By taking advantage of small ticket pricing offered through MasterCard and Visa, the per item cost on card present transactions under $15 has a lower per item fee.

Question: Can I mandate a fee passed on to my customers to account for excessive credit card fees?

 
Answer: In my research merchants are restricted in charging any additional fees to customers specifically to recoup merchant processing fees charged by the bank processors. Simply put merchants have to bury the fees charged in the sales price of menu items as an overhead cost.

Lately we are seeing merchants provide a cash discount of up to 3% for customers willing to pay cash for their menu items. This allows the customer to decide whether it is worth saving the extra discount to apply towards the total menu items price plus applicable sales tax that applies. What else can we do?

I have taken the time to research this area of fees and will offer two pointers. First, have your account statement analyzed immediately. Credit card companies are now so competitive and computerized that the fees charged are not for customer services but basically a commodity no different than cheese being bought and sold. Also, since the industry is so regulated many of the improprieties have been flushed out of the system. Credit card processing has become a buyer’s market as long as the merchant service provider has a track record and processes through one of the top five processors on the back end.
Therefore have a few merchant service processors or agents analyze the fees you are being charged on your current statement and first approach your current provider for any possible adjustments. You may get angry at your sales person claiming they needed to make a profit for customer service but most companies provide an adequate toll free number to contact for any questions on processing and an online access to allow you the ability 24/7 to review all transactions processed normally for free.

Secondly, create a system to monitor the fees being charged to you on a monthly basis comparing the original contract of fees to be charged to the resulting monthly account statement after transactions have been processed. Many times there are hidden per transaction fees when customers use a Corporate Card or additional batch processing fees or statement fees and the list goes on and on. Most merchants are not trained to monitor these fees and since restaurants run on less than a 4 to 6% net income margin a 3 to 4% credit card fee can be the difference in making a profit for the day!

Question: Why is my bank charging me fees to download or export my banking transactions to my accounting program such as QuickBooks or quicken?

 
Answer: First we are teaching restaurateurs to instill a system to check banking transactions daily due to so many fraudulent transactions taking place that if gone unnoticed small amounts not materially causing concern to your bank balance can add up to thousands of dollars in total at the end of a month. And if your bank does not alert you to unusual activity this can go on for months.
You want the ability to electronically be able to download a file to import into your accounting software that represents the total cleared transactions from the bank in a given date range. Most banks provide this service for free and enable the restaurant owner daily to monitor discrepancies in charges.

Also having the ability to view pending banking transactions also allows you to stop the potentially fraudulent transactions before they become a cleared transaction.

Inquire with your current banking institution as to their online tools availability regarding electronic capability of retrieving cleared transactions and their procedure to notify you of irregular or unusual pending transactions based on your purchasing habits established over time. Many banks will have two services: direct connect which is fee based on a subscription monthly basis or a Web Connect feature which is normally free but takes a few extra steps to retrieve the data.
 
For example, I notify my bank before I travel in and out of state such that any transactions of retail establishments or vendors that are not in proximity of my travel area provided a hold is placed on my business check card via email or text until I phone the bank to confirm the unusual pending transaction. This simple check has saved me at least once a year over the past few years of headaches and lost cash flow.

Question:

 
Answer:Most accountants do not specialize in one area of accounting or taxation. Most bookkeeping firms just take on most any client who is willing to use QuickBooks or the like and pay a monthly fee. A restaurant operation is a unique animal and you need someone who understands “paid outs” or “cash over/short” or “tips” or “employee theft.”

With the tough times that we are in we need to make that tough call and get a second opinion. Start by getting a current engagement letter from your accountant. This is a document that an accountant provides a client detailing out exactly what services will be performed, when and the associated fees. Once you receive this letter review it to see if all of the tasks are being performed on a timely basis as well as the fees matches the services.

Next, ask another restaurant operator or for that matter another business owner that you respect and find out if you can speak to their accountant over the phone or to meet in person. Tell the new accountant you are looking for someone in the restaurant industry that you can bounce off ideas with in addition to your current accountant and possibly switch if the right match comes along. Ask for their resume and a few customers to contact for references. This process may take some time but your gut is giving you signals to keep searching.

Once information is gathered on how other accountants service and charge their restaurant owners regarding fees a decision can be made in comparison to the fees, services and products being received currently. In the end a checkup is always healthy to keep your current accountant on their toes and knowledge that is gained about the competition.
 
 

Question: My credit card fees are just too expensive. How do I compare them?

 
Answer: I have learned that credit card fees change like the monthly cellular telephone charges and plans and if go unchecked they will continue until challenged.

I have my clients every six months perform a rate analysis check with a competitor to determine rates being charged are in line with the industry. Credit card fees have become a commodity and once the installation has occurred not much is done to control the costs or charges. If becomes automated with an 800 number at that point.

Therefore the devil is in the details and it is appropriate to have your statements compared. There are many companies willing to make a comparison of rates with you very quickly. Once this analysis is received the next step is to contact your current carrier and ask for a reduction in fees or rates if appropriate. It never hurts to ask.

Inquire whether all of your transactions are available online for viewing and backup. Do some due diligence to find out which company the promoter processes all of their transactions through and see if you recognize that back end processor. Contact your accountant to confirm whom you are processing your transactions with along with your bank for a second opinion. Ask questions. Get to the bottom of the major fees charged and how your restaurants current volume of transactions stacks up to different credit card processors. The credit card industry is known for not having transparency so during your investigation you may come across some land mines of individuals that won’t provide information or get offended in due diligence. I recommend keep digging and asking questions.

If a decision is made to switch make sure that termination fees from your current carrier are considered and to negotiate these types of fees with a new carrier in the future. Be aware the original contract you signed may have many termination clauses that need to be checked before a switch is made. After a little investigation it’s amazing what one will learn and uncover.

First, the restaurateur was randomly selected for losses from rental activity on his personal tax return. The auditor requested lease agreements from the entities where the rental income was being reported. The goal was to match up rental income per the lease agreement to payments received in the rental property checking account to rental payments made from the S Corporation entities being reported as rental expense. Since there was only one checking account for all rental activities we had to prepare an exhaustive excel spreadsheet that clearly identified all deposits by rental property that were made into the checking account for that tax year. The taxpayer had refinanced several of the mortgages that year so you can imagine the time it took to specifically reconcile all deposit activity and transfers entered into the bank accounts for five properties for a tax year three years in the past!

Suggestion: At the end of each tax year ensure your CPA prepares a bank deposit audit matching the income and expenses between related entities. In an IRS audit the auditor is required to investigate sources of rental income if they come from related parties as they did in this case from personally owned S Corporation entities operating the restaurants. Also, as confusing as it can be keep separate checking accounts be very disciplined to not deposit any funds not related to that activity. The IRS auditor challenges all deposits as unreported income until the taxpayer proves otherwise if there is a difference.

Secondly, as can be expected one of his restaurants was underperforming and reported net operating losses. These losses were funded by profits by several of the other entities basically by distributions from his profitable S Corporations and direct capital fund injections to the poorly performing store. The tax issue was the deductibility of the current period taxable loss reported on the individual’s tax return from the poorly performing store. The IRS was able to open up this tax issue in addition to investigating the rental income and expenses reported since the taxpayer owned a related party entity that generated the rental income (S Corporation). The IRS auditor wanted to ensure that the profitable entities were not just transferring monies directly to the unprofitable entity since this does not give stockholder basis allowing the restaurateur to deduct the losses on his individual income tax return.

Suggestion: There is a concept called “commingling of funds” that is a target to audit the substance of these transactions between related parties. Separate accounting is required for each activity preferably through separate checking accounts. The method that the auditor’s utilize to identify discrepancies is through a bank deposit audit reconciling all bank deposits and requesting the taxpayer to identify each deposit. Related party transactions create related issues and are targets to investigate on your personal tax return. Ensure your CPA is provided a road map of all related party transactions and a detailed stockholder basis worksheet of monies funded and transferred between related entities.

Finally, the IRS auditor prepared a bank deposit audit on the restaurateurs’ individual bank account to determine if there existed unreported income. For example, after an initial interview with the taxpayer it was represented that all income from all sources was reported. We were required to identify all bank deposits for the entire tax year that were deposited into the restaurateur’s bank account to pay personal bills. Wages, dividends, and yes rebates from distributor vendors were some of the major deposits. Unusual deposits were distributions from the S corporations and a few rental checks that were deposited incorrectly into the personal checking account versus the rental checking account. Interest earned and gifts from other family members had to be identified to ensure all deposits were reported for income tax purposes.

Suggestion: At the close of each year take some time to create an excel worksheet and identify all bank deposits from all of your bank accounts for the tax year. A better practice which we advise all of our clients are to perform this task monthly. This will provide the road map regarding any money transfers to entities owned by the restaurateur during the year especially when calculating deductibility of business losses.

Good news is that we exited the audit with a “No change” which means no tax adjustment. After 25 years of performing audits I have never seen routine audits become so exhaustive and the web of information the auditors are requesting in search of additional unreported monies. With employees not showing up, distributors not delivering, customers complaining, and sales down from last month accounting and taxes are understandably at the bottom of priority but your CPA usually has some down time over the summer months and a reduced fee analysis of your situation might be in order to shore up documentation that might be missing.

Question: Every restaurateur hides some cash from operations so why is my CPA so shocked when he learns this side of my business?

 
Answer: For some background, the field of ethics is involved in defining behavior as good or bad. People in business generally have as their primary motivation increasing profits. If we assume that people will not behave ethically simply because it is the right thing to do, then there must be some additional incentive or motivation for people to act in an ethical manner.

One obvious motivation for a CPA is the fear of sanction or punishment that can come with noncompliance or simply assisting the restaurateur in not reporting cash transactions for instance. No CPA would reasonably do something that he knew could result in the loss of his license to practice because such action would threaten the person’s livelihood.

But there are other reasons that the CPA should be concerned about following ethical rules. First, being ethical is the right thing to do. Second, being ethical will often lead to better assisting the restaurateur down the road in representing the client for a bank loan or possibly selling the restaurant.

For example, if John, a CPA, serves a restaurateur that offers John a cash bonus if he will agree not to report all of the Restaurants income, John might be faced with a predicament. John might ask: “Who does it really hurt if we underreport our income and pay less corporate tax?” At the same time, John might need the extra money being offered by the Restaurant so that his son can get a potentially life-saving operation.

There is little doubt that to accept the payment in return for signing a knowingly false tax return violates the professional rules of ethics and you as a restaurateur are placing him in that position when you ask your CPA or bookkeeper to aid you in hiding cash transactions, underreporting income, or other operational deviations from the normal protocol of accounting.

Remember, there will come a day in your restaurant existence when you will need your CPA or accountant to go to bat for you representing the integrity of your financial affairs and the last thing you need at a critical time is for your trusted advisor to pass on this request.
 

Question: Why is it that if I try to pay minimal taxes to the Government that my banker penalizes me for that?

 
Answer: This is the age old double edge sword in building a business. Since most bank loans are based on the ability of a restaurant operations cash flow the further you reduce your net income the harder it becomes to qualify for a loan.

Reducing your corporate tax obligations to the fullest extent does retain cash in the business to help grow the restaurant operations. But just recognize that this strategy lowers the restaurant’s reported net income from operations which is the starting point that lenders use to calculate whether your cash flow adheres to their lending guidelines. Simply put coordination with your CPA or accountant to look into the future and determine if accessing third party debt is on the horizon and ensure that various tax saving or deferral strategies match your goals for the restaurant.

For example, depreciation of equipment and restaurant leasehold improvements is a tax deduction that allows for the expensing of the cost of the asset over a designated period of time. Some methods of depreciation are allowed to “write-off” the assets over a shorter life than others which creates a larger expense against net income in the earlier years of the asset reducing net income. Most lending institutions will add back these tax deductions to net income to determine true cash flow of the restaurant if clearly stated on the financial statements and many times have to be explained to the banker.

Bottom line is to always be looking ahead in determining your possible cash flow needs of the restaurant when the tax man starts talking to you about tax saving and deferral strategies. A simple question is how these strategies will affect my ability to borrow money in the future.

You can visit us at www.rasmussentaxgroup.com for additional insight into restaurant specific tax strategies, accounting and technology programs. To ensure compliance with requirements imposed by the IRS, we inform you that any US federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from an independent advisor.

Question:

 
Answer: It’s called internal control.  First, print a daily sales report from the point of sale and from your credit card machine if a standalone terminal.

Next create a system or worksheet that compares the total daily sales to the cash and credit cards accepted along with non cash transactions, paid outs of cash, and tips.  The result of this close out worksheet will be a calculated daily cash bank deposit and the credit card charges for the day along with the over/short for the day.

The following day you will use a system to go online to your banking institution and verify that the cash calculated in your close out worksheet the night before agrees to the following day’s cash bank deposit and the credit card batch total from the day prior agrees to the activity being credited to the bank usually two days later.  You should create a system or worksheet to track daily sales as you compare them to outside sources such as online banking and credit card activity.  Don’t procrastinate.  Discipline yourself to perform this task daily.

Ideally you want to segregate the individuals responsible for creating the daily close out worksheet from the employee that makes the cash deposits in the bank and the person that verifies that the actual monies were credited to the bank on a daily basis.  Understandably with a small pizzeria with very few employees at night these tasks may have to be performed by the same employee.  Regardless, determine a way to separate these duties to allow for cross checking the accuracy of the restaurant numbers.

Never assume that the “trusted manager” that you have known for years will never purposely misstate a cash deposit or claim that the deposit was lost or bunching up daily deposits and making two or three days cash sales all at once.  It’s usually always the employee that can talk their way out of missing cash since no previous event has led the owner to believe otherwise.

Consider procedures to identify kickbacks from food vendors to employees (generally the chef or person doing the buying taking a commission and making the restaurant pay more for the merchandise); or vendors delivering supplies weighing less than the amount stipulated on the invoice ( indicating a possible collusion between the person receiving the merchandise and the delivery driver).  A solution to deterring this perpetration is to have the employees perform a different task when the food orders are delivered to the restaurant allowing you the owner to perform the task.  Verify vendor purchases to online invoice reporting similar to online banking provided by the vendors to determine completeness of an order.

Question: I use a cash register?  Does the process change?

 
Answer:  The only change will be that the Daily Sales report from a point of sale will be in the form of a Z tape which identifies all menu items sold per day or shift.  This lengthy cash register tape will then be your starting point to prepare the daily cash close sheet.  From here the process to verify the calculated cash deposit and credit card batch totals crediting your bank is the same.

Again, we advise to segregate the functions performed by employees of actually printing the Daily Z Tape and counting the cash and making the cash deposit including the daily credit card charges.   The owner should consider cross training employees, forced absences, varied scheduling, and other methods of allowing multiple employees to perform similar tasks. This creates an environment with the wait staff to not become comfortable at any one position or develop associate friendships and allow for collusion and therefore the monies do not make it to the bank.

I cannot stress enough to ensure you have the procedures in effect at the restaurant to enforce DAILY tracking of cash and credit card activity and comparing the balances to the bank activity.

Question:

 
Answer:  We have been flooded with these requests lately and here is what we have found to greatly assist in the process.

First, understand that most lending institutions or bankers do not understand your operations to the degree that you do.  Therefore time needs to be spent on clearly stating your loan intentions meaning exactly what you plan to spend the money on and how you will repay the bank.

Ask your accountant or do some due diligence yourself in finding out about the average commercial loan rates available and create what they call an amortization schedule of loan repayment.  Most banks will have a standard set of terms or loan covenants that will be required for your new loan which you must comply.

Next, determine if your entities cash flow can handle the new debt that will be added to your operations.  Banks today look at what they call “EBITDA or (Earnings before Interest Taxes Deprecation Amortization)” to determine if your restaurant has the ability to pay back the monies borrowed.  Basically you or your accountant can assist the bank to understand your cash flow by ensuring they follow this formula.  Your profit and loss statements should clearly identify interest, taxes, depreciation and amortization so that the bank can add back these expenses to your net income to arrive at a modified cash flow from your operations.  Sounds confusing but this are where your advisor needs to assist the bankers to understand your cash flow and ability to repay the loan.

Second, the banks will require copies of your restaurants prior and current year’s financial statements and tax returns.  Usually anywhere from one to three years prior and if your applying for a loan midyear they will want a current one that reflects the last three months operations.  For your quickest delivery of these documents ask your accountant if they have an online electronic way to deliver them securely over the Internet so that you can direct the bank to a secured website to download them at their leisure.  I have found that providing documents easily and securely expedites the loan process as well as adds credibility to the operator’s organization and character assessed by the lenders.

Finally, here is a note on “Character” of the operator in the eyes of the bank.  Banks lend monies based on Character and Capacity.  Capacity is the ability to repay the monies as discussed.  Character is a subjective way of determining organization, reputation, credit score, community involvement, and experience in the trade, professional advisor associations, and reputation as a restaurateur.  Do not underestimate this assessment when applying for monies at a bank or any lending institution. Take the time to put your best foot forward when having any interactions with the bank including source document gathering and personal interviews with the lenders.

Question:   Why do I pay extra payroll taxes in the first part of the year?

 
Answer:  Most states have an unemployment insurance contribution system that is applied usually to the first amount of wages for each employee up to a maximum in a year.  For example, the California Unemployment Contribution rate is 1.5% to 6.2% on the first $7,000 of wages earned for each employee.  Therefore in the first quarter of the tax year you will have increased employer payroll taxes that are due and payable that is not withheld from the employee paychecks but are contributed out of the employer’s side.  This can be a shock if all of a sudden your quarterly payroll taxes are due and these amounts have not been budgeted or accounted for in the cash flow.

There are methods of reducing these rates primarily by controlling your hiring and firing employee practices.  Employee retention is costly and this unemployment insurance mandated by most states is a direct effect of having excessive turnover in your restaurant.  First, contact your accountant or payroll service provider to determine the employment insurance rates in your state and then start inquiring how to reduce the rate.  Find out how other restaurant owners are managing their employment practices to keep this rate down.  Actually have a national payroll service provider provide a quote on processing your payroll and inquire about best practices for restaurants to manage this rate.

You wouldn’t get on a plane if your weren’t comfortable that the pilot budgeted the amount of fuel needed for the trip? You wouldn’t enter into a long term lease in a strip mall for ten years without budgeting your restaurant cash flow to ensure you pay the lease since nonpayment may lead you to bankruptcy due to personal guarantees? You wouldn’t sign a contract with your food supplier without budgeting your profit margin that might cause your food costs to generate a negative cash flow immediately? And on, and on, and on.

Setting up a budget may be one of the few ways you can seize control of your restaurant finances before allowing matters to drift towards disaster.

Disaster can take many forms, such as:

• Not being able to take advantage when opportunity knocks like a greatly reduced piece of equipment that would double your sales.
• Having your credit tarnished, or worse!
• Seeing yourself forced to file for bankruptcy due to cash flow shortages.
• Budgeting can help ensure you don’t spend more money than you earn. A budget is simply an accounting of your income and expenses during a certain period of time, usually a month or a year. It involves looking at how much money you expect to earn and then determining what you can afford to spend.

Having a budget does not prevent you from spending money, using credit cards, or taking out a loan for special purchases. Instead, a budget encourages you to be certain you can afford what you’re buying and guides you through what lifestyle changes, if through what lifestyle changes, if any, you’ll have to make in order to pay for it.

Having a budget does not prevent you from having fun! On the contrary, a budget gives you greater freedom to spend the money you earn. Trust this advice: It is a far better thing to have control of your budget, than to have your spending control you!

I don’t have time to sit down and work on my budget! I just wing it and I have done just fine! I operate the restaurant by my “gut.” Here is the reality. Every employee, organization, vendor, customer who comes into contact with your restaurant is expecting the owner at the helm to ensure that sound business decisions are in place to not be hurt by doing some form of business with you and your restaurant. You are creating trust with each one of these parties. Frequently comparing your actual results to an established budget allows an owner to possibly raise a white flag for help sooner than later. Toss the ego aside and become accountable.

First of all a budget is the place where you tie all of the rest of your planning down to numbers and also timing. For example, if you need to buy a piece of equipment you need to know when you are going to order it so that you can have it on time to open the business and you also have to plan for the money necessary to buy that equipment. So the budget becomes the place where you can tie all those things together.

Beyond that the budget is the roadmap where you believe you want to go so it helps you set goals in terms of what revenue you want to achieve. And it is also a way to track those goals. So it provides a great tracking tool and beyond that it puts a discipline on yourself to do all the homework necessary to get into business because you have this opportunity to look forward and ask: What do I need to buy? What do I need to have in place? Finally it’s a way to measure your success against your expectations.

Where do I start? First, start tracking simply your cash flow for the next thirty days. Start identifying monies in and monies out. If you have a point of sale system you can start accumulating menu items that are moving and ones that are not. You can perform some basic food costing to ensure your profit margins are adequate to pay for your fixed expenses. Keep a diligent record of your cash in a spreadsheet form. Balance your checkbook in entirety. Don’t give this responsibility initially to your outside accountant. Do it yourself first.

Secondly, now you are in the habit and this process of tracking your monies monthly needs to continue until you start seeing a trend. Restaurants are affected by outside environments: holiday, school, birthdays, weather, events, so you get the point. Therefore when you have tracked each month based on your activity at your restaurant you now have a roadmap of expected activity to budget and look forward to anticipated revenue and expense for your restaurant.

Finally, sit down with your accountant and compare your budget to actual results that have been reported on the entity tax returns in the prior years to fine tune the expected revenue and expenses you alone have identified. History has a way of repeating itself and numbers don’t lie! Ask “why” about every revenue and expense identified. If you are a new restaurant then you must accumulate data from the national restaurant association or some other reliable source. Many local cities have demographic information based on buying patterns of consumers of existing restaurants. The SBA (small business administration) has agencies that can assist in free demographic studies which are then used in the creation of budgets for lending purposes.

Create a culture at your restaurant that tracking numbers is important to your restaurant! Managers make bonuses. Employees make bonuses based on even cash drawers. It all starts from the top. If it’s important to you it will be important to all employees in the restaurant operations. Think of budgeting as a tool that will provide a roadmap to one question all owners say to me, “Where’s my Cash?”

What do the chains know that you need to know?

• They know that their menu is their marketing plan.
• They know that their menu prices align with their cost to produce a profit.
• They know the menu items that produce the most revenue.
• They know when menuprice changes are imperative.

If someone asked you “Which menu item gives you the highest profit?” could you provide an answer? The reality is most operators don’t know. They have a gut feeling, but they don’t know exactly. The difference between a gut feeling and knowing exactly can mean the difference between a profit and a loss.

So what do the chains do? They use one reliable trustworthy source for goods and services, we call that a prime vendor.

At first this might seem totally contradictory. Shouldn’t you keep your suppliers honest? Won’t buying from two or three different suppliers keep the costs lower?

The reality is that juggling multiple suppliers takes you away from what should be your primary focus, the customer.

Franchises invest the majority of their time in the area that produces revenue – the customer experience. In order to do that, they must have a system.

They have a system that creates consistent results day after day, and that’s it. They have a system that creates the same hamburger at the same location, every location every time they make it with any employee each and every time. What we’re doing with CommandoPOS is bringing systems at the franchises have implemented, have paid for, have developed, and make those available to independent operators.

An essential part of that system is knowing your food costs down to each item. The franchises typically have one supplier for this reason.

For example, with CommandoPOS, PFG clients can now apply food costs to their sales in real time. They can see by hour what their profit margin is. This level of control is now available to independent restaurant owners.

How It Works

The Performance Food Service representative sits down with you and breaks down your menus and recipes. It’s simple. You take your menu, you break it out in categories, you basically look at each menu item, and you break down the recipe for each menu item.

We’ve generated, through Commando POS, a place on the internet at www.commandopos.com to enter the information. This information is then housed on the internet and accessible 24/7.

It also is available not only 24/7, but it’s available to make changes. In the event that you want to change your menu, if prices change through Performance Food Service, basically, you’ll be able to go in there and see the new desired results when you change your recipes.

The next thing that happens is we merge your cost and sales information together.

This enables you to see your sales mix from your point of sale data (basically daily sales, how much of each menu item you sold on a daily basis), and then you will have invoice data, which provides current pricing. And what that does is it gives you the ability to have a real time menu analysis.

So the next is to contact your Performance Food Service AM, and decide if you really want to find out what is your highest profit margin item that is on your menu. And if you’re even considering adjusting your menu, if you ever thought of adjusting your menu prices, this is a simple tool to work hand in hand in partnership with your Performance Service AM, and develop and have quantifiable results and actual numbers that you can look at and modify on an ongoing basis.

This process is not static – it’s dynamic. Prices change, behavior of customers change, so you need a real time food costing menu analysis program that you can update based on the environment of where each restaurateur is located and what’s happening in the economy. So contact your Performance Food Service representative, and get started.