Maybe you think you're not naturally a numbers person. You're not alone. In fact, I wasn't a numbers person either. That was until I unlocked the secret to understanding my restaurant financials when I was the operations manager for a multi-unit brewpub and cafe in Phoenix, Arizona, decades ago. The magic happened when the owner of the restaurant sent me to a one-day seminar on simplifying accounting, using a lemonade stand as the example. Here's what they taught me when it came to understanding my financial reports, so you can finally stop ignoring your budget.
It starts with your balance sheet and the balance sheet, which basically says, here are my assets, here are my liabilities, and they should equal or balance. But what does it really mean? Think of your balance sheet as a snapshot or Polaroid showing you a picture in time of the health of your business. That's all that is. You take one at the end of the period (either 13 periods or 12-month accounting). And then do it again at the end of the next period or month.
What happens between those two snapshots is the profit and loss statement, also known as your financial statement, or income statement. Imagine that Polaroid, your balance sheet, and what happened between those two periods, right? Inventory levels change, cash levels change, things change. Assets and liabilities went up and down. In between those two periods is the movie. Looking at your profit and loss statement, you're going to see a story of what played out that month. For example, that Sysco truck pulling up to the back dock, dropping off $3,000 in product and your employees putting it away, prep happening, customers walking out the door. And this happens day after day after day for 30 days. That movie shows us how we end up where we are. It tracks sales and everything else, to tell you how much money you made or lost in between those two Polaroid snapshots.
Last but not least is the general ledger. The general ledger, if you print that off, is that line by line of every entry that shows what came in and how much of it went to your different categories like draft beer, bottle beer, food, janitorial, paper and so on, all categorized in the right buckets on your profit and loss statement. But your profit and loss statement is just the totals. Remembering you have a beginning and end captured with your balance sheet, and the goings on captured as the movie in between, what does the general ledger tell you? It's the script, the line-by-line entry of everything that happened.
And that's how you look at your financials. When you see something wrong in your profit and loss statement, where do you go? You go to your general ledger, the script, and you see what was said. Maybe it was misspoken and belongs in another place.
Those are the top three things I learned that really changed my view on financial reports and my whole life perspective on numbers. But there was one more thing I had to learn the hard way, and that was you have to tell your accountant what your chart of accounts should look like and what expenses go into each line item. That way, everything you look at when it comes to your numbers makes sense to you.
If you want to change your life, don't make your restaurant’s numbers scary. Understand them. Make sure you know where everything went in your restaurant. Then you’re on your path to that which we measure improves, taking your budget and putting your actions next to it because you know where all the numbers came from. Trust your numbers and use them to make proactive decisions to change your business and your life.
David Scott Peters is an author, restaurant coach and speaker who teaches restaurant operators how to take control of their businesses and finally realize their full potential. His first book, Restaurant Prosperity Formula: What Successful Restaurateurs Do, teaches the systems and traits to develop to run a profitable restaurant. Thousands of restaurants have worked with Peters to transform their businesses. Get his three principles to restaurant success here.
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