What They Mean & How to Read Them
Table of Contents
"My place is full, but I have no idea if I'm making money." When I hear operators say this, I know they are not managing their businesses efficiently. On the other hand, I have some clients who are so dedicated to the financial end of the business they know how many covers are necessary to break-even. Some operators even know how many guests will order appetizers, desserts and bottles of wine.
It is not hard to track and calculate the above information. However, if operators receive this information in a timely fashion, they will be able to quickly identify problem areas and respond accordingly. Operators can recognize problem areas simply by reading the financial statements. Once they can read that information, they can begin identifying the "red flags."
The Income Statement and Balance Sheet are the two types of financial statement reports that allow operators to pinpoint weaknesses and problem areas. The Income Statement and Balance Sheet
should be prepared and reviewed monthly.
The Income Statement
The Income Statement shows how the restaurant performs over a period of time (i.e. a week, month or year). It takes all restaurant expenses into account, from prepaid expenses to expenses paid in the future. Overall, theIncome Statement tells the operator if the business is making a profit. From there, the operator can begin making changes in policy and implementing strategies that will help the restaurant achieve its goals. Should new sales programs be implemented? Is food cost in line with menu prices? Is the restaurant hitting its budgets? Can the owner(s) make distributions to the partners? These are some of the key questions that need to be addressed. The basic formula for an Income Statement is:
Sales - Cost of Goods Sold - Expenses = Profit/Loss
The Income Statement is everyoneнs favorite financial statement to review because it reveals the nature of the restaurantнs success. Restaurant financial statements should be broken down into the following categories: