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RESTAURANT BUSINESS PLAN

RESTAURANT BUSINESS PLAN. THE CASH FLOW ANALYSIS. Cash Flow Projections. RESTAURANT BUSINESS PLAN. Cash Flow Projections. RESTAURANT BUSINESS PLAN. The cash flow projection is the most important financial planning tool available to you. Cash Flow Projections. RESTAURANT BUSINESS PLAN.

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RESTAURANT BUSINESS PLAN

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  1. RESTAURANT BUSINESS PLAN THE CASH FLOW ANALYSIS

  2. Cash Flow Projections RESTAURANT BUSINESS PLAN

  3. Cash Flow Projections RESTAURANT BUSINESS PLAN The cash flow projection is the most important financial planning tool available to you.

  4. Cash Flow Projections RESTAURANT BUSINESS PLAN Your cash flow analysis will show: 1)  How much cash your business will need 2)  When it will be needed 3)  Whether you should look for equity, debt, operating profits, or sale of fixed assets; 4)  Where the cash will come from.

  5. Cash Flow Projections RESTAURANT BUSINESS PLAN The cash flow projection attempts to budget the cash needs of a business and shows how cash will flow in and out of your operation over a stated period of time.

  6. Cash Flow Projections RESTAURANT BUSINESS PLAN Outflow of cash will be for cash payments for expenses of all types. The Cash Flow Statement will point out on your calendar when money will be coming in and when it will be flowing out, allowing you to plan for the cash outflows and avoid unnecessary borrowing.

  7. Cash Flow Projections RESTAURANT BUSINESS PLAN Remember, illiquidity is a killer, even for profitable restaurants. Lack of profits won’t kill a restaurant. Lack of cash to meet your trade and other payables will. Cash Flow ONLY deals with actual cash transactions. Depreciation (a non-cash expense) does not appear on a Cash Flow Statement.

  8. Cash Flow Projections RESTAURANT BUSINESS PLAN Whereas the Income Statement shows sales (whether or not you have received the cash from them) & expenses (whether or not you have actually paid for them), the Cash Flow Statement shows ONLY the movement of cash. Expenses show up when they are paid, not when they are incurred. Sales show up only when you receive the cash, not when the sale is made.

  9. Cash Flow Projections RESTAURANT BUSINESS PLAN Where the Income Statement shows only sales, the cost of food sold and expenses, the Cash Flow Statement shows ALL cash inflows and outflows, from operations or otherwise, including such cash movement as:

  10. Cash Flow Projections RESTAURANT BUSINESS PLAN   Some Cash Inflows (Receipts): a) Sales of products for cash b)   Collection of accounts receivable c)       Cash received from assets sold d)   Cash received from equity investment e)       Cash received from loans f)       Cash received from debt recovery

  11. Cash Flow Projections RESTAURANT BUSINESS PLAN Some Cash Outflows (Disbursements): a)  New inventory purchased for cash b)   Operating expenses paid in cash c)  New equipment purchased for cash d)  Provisions for bad debts set aside as cash

  12. Cash Flow Projections RESTAURANT BUSINESS PLAN • Outflow (Disbursements continued): • e)  Dividends or Partner Draws paid out in cash • f)  Provision for replacement of depreciable • assets, if set-aside in cash • Beginning Cash plus total cash received, less • total disbursements equals cash at end of period

  13. Cash Flow Projections RESTAURANT BUSINESS PLAN Beginning Cash + Total Cash Received - Total Disbursements Cash at End of Period After the Cash Flow Statement has been developed, use it as a budget. If cash outlays for a given item increase/decrease over the amount allotted for a given month, you should find out why and take corrective action as soon as possible.

  14. Cash Flow Projections RESTAURANT BUSINESS PLAN Beginning Cash + Total Cash Received - Total Disbursements Cash at End of Period. Cash on Hand (Opening Balance) 12,495 Cash Receipts 38,164 Cash Disbursements 49,184 What is the ending balance cash position?

  15. Homework Assignment RESTAURANT BUSINESS PLAN Cash Received Cash Disbursements Beginning Cash + Total Cash Received - Total Disbursements Cash at End of Period. Beginning Cash

  16. RESTAURANT BUSINESS PLAN THE BREAKEVEN ANALYSIS

  17. Breakeven Analysis RESTAURANT BUSINESS PLAN A breakeven analysis is a method used by restaurant owners to determine how much in sales is needed to offset all their expenses and at least “break even” financially. Do increased sales mean increased profits?

  18. Breakeven Analysis RESTAURANT BUSINESS PLAN Many restaurants that have gone broke after only a few months of operation would never have been started in the first place if the owners had done a breakeven analysis. They might well have discovered that the costs were so high there was no chance of bringing in enough sales to cover the costs, or break even.

  19. Breakeven Analysis RESTAURANT BUSINESS PLAN To do this analysis, you must know what your fixed costs are, and you must be able to estimate fairly accurately what your variable costs will be. Break Even = Fixed Costs + Variable Costs

  20. Breakeven Analysis RESTAURANT BUSINESS PLAN Fixed Costs Costs that are the same every month, no matter how many days a month the restaurant is open or how many meals are served. These costs are fixed, and the owners know how much they will be before the month starts. What are examples of Fixed Costs?

  21. Breakeven Analysis RESTAURANT BUSINESS PLAN Examples of Fixed Costs _____________ _____________ _____________ _____________ _____________ _____________ _____________

  22. Breakeven Analysis RESTAURANT BUSINESS PLAN Variable Costs Costs that vary, or change, as the volume of business varies. What are examples of Variable Costs?

  23. Breakeven Analysis RESTAURANT BUSINESS PLAN Examples of Variable Costs _____________ _____________ _____________ _____________ _____________ _____________

  24. Breakeven Analysis RESTAURANT BUSINESS PLAN Time Period for Breakeven Analysis The breakeven analysis can be calculated for different periods of time, such as a day, a week, a month, or longer. A month is a good period to use because it fits in with other accounting practices and gives a reasonable time for slow and busy days to even out.

  25. Breakeven Analysis RESTAURANT BUSINESS PLAN Remember, breakeven sales is the amount where total sales equals total costs. In other words, no profit, no loss. Break Even = Fixed Costs + Variable Costs

  26. Breakeven Analysis RESTAURANT BUSINESS PLAN You can estimate Fixed Costs fairly easily. You should have a good idea of what fixed costs such as rent, salaries, benefits, insurance, etc., are going to be for the coming period. Let’s use Stephanie’s restaurant as an example, calculate the fixed from the following: Where do you find these costs?

  27. Income Statements RESTAURANT BUSINESS PLAN

  28. Breakeven Analysis RESTAURANT BUSINESS PLAN Now calculate what you expect Variable Costs to be as a percentage of sales in the analyzed period. You have to use an estimated percentage, rather than absolute dollar amount, since you do not know what variable costs will be in absolute dollar terms.

  29. Breakeven Analysis RESTAURANT BUSINESS PLAN Let’s say that variable costs average 68% of sales. The percentage of variable costs, 68%, is subtracted from 100% (which is total sales); leaving 32% of sales to pay for the fixed costs.

  30. Breakeven Analysis RESTAURANT BUSINESS PLAN If the fixed costs are $2,996, and they are 32% of sales. So the remaining question is: $2,996 is 32% of what number, that number being the amount of total sales needed to breakeven.

  31. Breakeven Analysis RESTAURANT BUSINESS PLAN To find what $2,996 is 32% of, divide $2,996 by .32, the breakeven point in sales.

  32. Breakeven Analysis RESTAURANT BUSINESS PLAN We can now see that with fixed costs of $2996 and variable costs of 68% of sales, you need sales of $9,363 to break even. We can prove this answer: (a)  $9,363 x .68 = $6,367 in Variable Costs. (b)  To this $6,367, add $2,996 in Fixed Costs. (c) This equals $9,363, our breakeven point in sales.

  33. Breakeven Analysis RESTAURANT BUSINESS PLAN Practice Example: Fixed Costs $1,256,000 Variable Costs (% of Total Sales) 65% Calculate the Break Even Point

  34. Homework Assignment RESTAURANT BUSINESS PLAN Assume your var. % = 68% Fixed Cost $_____ Divided by _____ Break even =

  35. RESTAURANT BUSINESS PLAN THE DEVIATION ANALYSIS

  36. Deviation Analysis RESTAURANT BUSINESS PLAN Deviation Analysis The basis of the Budget Deviation Analysis (BDA) is the comparison of budgeted figures for your operation to actual results. (depicted on page 97 of the Restaurant Planning Guide).

  37. Deviation Analysis RESTAURANT BUSINESS PLAN The essence of the Deviation is the analysis of the cause of any noted discrepancy between budgeted and actual results, and the determination of the required corrective action, if the discrepancy is viewed as undesirable.

  38. Deviation Analysis RESTAURANT BUSINESS PLAN Budget Deviation Analysis may be applied to any budgeted data, and most appropriately to Income Statements, Cash Flow Forecasts and Budgets, if prepared separately.

  39. Deviation Analysis RESTAURANT BUSINESS PLAN To arrive at any line-item deviation, actual results are subtracted from budgeted results, resulting in the deviation amount, if any. This deviation amount is then divided by the originally budgeted amount and multiplied times 100 to obtain the percent deviation, either positive or negative. This calculation is applied to all items on the analyzed statement.  BUDGETED RESULTS - ACTUAL RESULTS = DEVIATION DEVIATION x 100 = PERCENT DEVIATION BUDGETED RESULTS

  40. Deviation Analysis RESTAURANT BUSINESS PLAN Practice Example: ActualBudget% Deviation Food Sales $266,148 $287,200 Beverage Sales $74,224 $73,100 Complete the Deviation Analysis

  41. Deviation Analysis RESTAURANT BUSINESS PLAN The resulting deviation can be either a positive number or a negative number. A positive deviation is not necessarily a good thing. Positive deviations in expenses are desirable, while positive deviations in sales are not.

  42. Deviation Analysis RESTAURANT BUSINESS PLAN Budget Deviation Analysis is a direct control on your operation. It will help you hold down costs and increase profits with little expenditure of time or effort, since all the information required is found in previously prepared financial statements.

  43. Deviation Analysis RESTAURANT BUSINESS PLAN The BDA must be performed periodically, at least monthly, if it is to be effective. It provides one of the best sources of current information available to you. It will tell you which parts of your restaurant are out of control and which are exceeding expectations.

  44. Homework Assignment Cover Page Breakeven Analysis Cash Flow

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