Restauranteurs often get into the culinary world because they possess a genuine passion for food. They love cooking innovative meals, plating beautiful dishes, and serving hungry patrons. In order to be successful in a restaurant, though, the owner must also possess an acute sense of business acumen. Without this qualification, even the best restaurant concept is likely to fail. In fact, poor management is cited as one of the most common reasons for restaurant failure. This is why understanding restaurant financials is such an imperative skill. Anybody who's a stakeholder in this business should be familiar with the following three most important financial reports for restaurants.
An income statement is perhaps the most important financial document relating to a business - including restaurants. Income statements are also sometimes referred to as profit and loss statements, and they typically include information regarding the company's overall profitability. Some essential pieces of information include the following:
Each of these items will be used to calculate a restaurant's overall profit, and usually several different profit numbers will be generated. The first, the gross profit, refers to the restaurant's revenue with the cost of goods sold deducted. The next, the operating cost, is the gross profit minus all costs associated with operations - costs such as restaurant insurance and labor. Finally, the net profit is the revenue that remains after all expenses, including taxes and interest, have been deducted.
A balance sheet is another vitally important financial document for a restaurant. This document is used to identify and categorize a business' liabilities, equity, and assets. The balance sheet serves to assign a dollar value to each entry in these categories. It's primarily useful because it can be used to gain a quick overview of certain expense ratios affecting a restaurant's day-to-day profits. A balance sheet can be used to track inventory turnover, for example, which is useful for measuring sales and minimizing waste. A balance sheet is also ideal for helping restaurants optimize details of daily operation.
Cash flow statements are the third vital document that every restaurant owner should understand. This document is typically used to justify the changes in a balance sheet and account for fluctuations in income. This statement is particularly important because it's often used to project a restaurant's viability. It can also be used to predict a restaurant's ability to cover general expenses. In some cases, investors or accountants may ask to see a cash flow statement in order to gain insight into a restaurant's profits and creditworthiness. This is because it is generally considered an accurate indicator of a restaurant's overall financial security and success.
At RMS Hospitality Group, our expertly crafted policies are written specifically for the hospitality industry. We offer custom tailored solutions to meet any venue's specific needs. For more information, contact our knowledgeable experts today at (888) 359-8390.
At RMS and associated firms, business continues as usual. Our staff is remote-capable and available to handle all partners, brokers, and insureds at the present time.
