As a restaurant owner, are you afraid of your numbers? Do you look at your profit and loss statement only to see if you made or lost money the past month? Do you struggle actually knowing what goes into each line item? Well, you're in the right place because I'm about to talk to you about three important restaurant financial reports independent owners often misunderstand. Click below to watch the tip or keep scrolling to read more.
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 multiunit 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.
It starts with your balance sheet and the balance sheet literally is a balance. It basically says, here are my assets, here are my liabilities, and they should equal or balance. But what does it really mean? It's 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. If you use 13 periods, prior to counting the end of that period, or on 12 month accounting, the end of the month. And then I might 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. What happened between those two, right? Inventory levels change, cash levels change, things change. Assets and liabilities went up and down. Well, in between those two points at times is the movie. You're going to see that video, right, of 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. So your profit and loss statement tells 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 by line entry of everything that happened.
And that's how you look at your financials. When you see something wrong in your P&L, 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 life. But there was one more thing I had to learn the hard way, and that was you 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 into each bucket. 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. You trust your numbers and now you can make actionable items, proactive decisions to change your life.
If you would like to learn how to own a restaurant that doesn't depend on you to be successful, watch this free video course that teaches you three key principles to running a successful restaurant.
Be sure to visit my YouTube channel for more helpful restaurant management video tips.
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