So, Your Clients Want to Open a Restaurant...
How to Avoid Empty Tables and Garner Maximum Efficiency

By Scott H. Cytron

Note: This article was written to an audience of accountants and bookkeepers providing accounting and financial support to restaurants. I think it is of equal or greater value being read firsthand by the restaurant owners and operators themselves!  John Nessel, Restaurant Resource Group

CPAs and accounting professionals who work with clients in the food service industry understand the difference between what appears on the dining table versus financial matters affecting the operations side of the business.

Because there often is much more being discussed and evaluated in any small business, CPAs who offer value-added consulting on a silver platter provide a much-needed, key ingredient to restaurants. Matters like teaching employees how to report tips, ensuring owners have enough cash on hand and how to negotiate with vendors to lower costs are just a few areas that stand out.

Annually, it is estimated that 75 percent of small business failures can be traced to "unskilled, untrained, fly-by-the-seat-of-their-pants management as the root cause of failure", according to Phil Wiggle, CPA, CSE, CME, president of The Aspen Group in Buffalo, N.Y., in an article in Empire State Food Service News on www.theheadtable.com. He further states that this holds particularly true in the family-owned restaurant.

“Even though restaurant owners are in a primarily cash business, most of them have no idea what their true cash situation is,” says Keith P. Bleier, CPA, manager of the Restaurant Advisory Group for Bonadio & Co., LLP in Rochester, N.Y., a member of Moore Stephens North America, Inc. “We teach our clients to look at cash and other money matters on a weekly basis so they'll be more aware of peaks and valleys associated with running a business.”

With six staff in his division, he stays passionate about his restaurant clients based on the will to help them succeed, as well as his own background as the former principal accounting and financial officer for the Montana Mills Bread Company, a national bakery chain. He took Montana Mills public, and the chain was eventually bought by Krispy Kreme. After Montana Mills went public, he entered the consulting arena to help a variety of businesses execute their strategic growth plans and improve their profitability. As a result in his work for Bonadio, he says he relates much better to business owners rather than the traditional accountant who has never been on the other side.

“As a traditional public accountant, you sometimes don't understand what's important to the client,” he says. “You get the numbers to them, and it should never stop there. My industry experience has allowed me to focus on what's really important to a restaurant client: the activity on the operations side. Accountants traditionally focus on the bottom line. I help my clients focus on the top line and cash flow. This is where my clients face their most pressing challenges.”

From a client's perspective, Bleier says a weekly cash flow report allows owners to move away from traditional GAAP financial statements, which offer information too late in the operations process to react to it in a useful manner. Instead, the report guides them to think about the financial well being of their business every week, in a more timely and effective way. More than that, a cash flow report eliminates any surprises.

“After doing this exercise for a few months, owners know their business much better; their monthly statements are an affirmation of what they already knew,” says Bleier. “They know the key indicators that effect their cash flow.”

Payroll is one issue in running any business that can quickly become difficult, he says. Instead of focusing on payroll dollars, he suggests owners focus on payroll hours to get a more precise, manageable idea of how sales correlate to hours. Like his cash flow report, Bleier provides a payroll grid to assist owners in calculating these figures.

“Owners want their CPA to advise them on improving cash flow, and it is critical to provide them with tools to help them become accountable,” he says. “If you leave too many things to chance, the details get away from the owners and it's a no-win situation. Many owners can realize significant savings by knowing what drives their costs. Take something like trash collection. Most services come twice a week, when only once a week may be sufficient.”

Bleier reviews each major expense with his clients. Take laundry, for example. The owner needs to understand the invoice and what is driving the costs.  This exercise makes the owner realize from an operations perspective how much money is spent in this one area. It also enables Bleier to get owners focusing on critical expenditures, all the time devising methods to reduce expenses on something like cleaning and chemical supplies.

The consulting function ranges from monthly bookkeeping to human resources. Since most patrons naturally focus on customer service, he likes to tell the story about one owner who never knew his customers were complaining about either the food or service because the manager never told the owner about the complaints.

“The information flow between the frontline manager and the owner is essential, and in this case, the hostess and waiters were undermining everything we had worked toward in helping the owner on operation-type issues,” he says. “To remedy the situation, we created a 'client complaint log' that required the staff to record any malady so the owner could track the source of the problem and create workable solutions. The obvious factor is that you have great food and a great product, but no matter how great you are, the image you project to the public is the server or person waiting on you. That's where some restaurants really fall short, but the critical part of this is that owners need to be in front of the restaurant and need to know what's going on.”

The sentiment on cash flow and operations issues is echoed in the southern United States, where Helen Cohen, CPA/ABV, CVA, is a partner with another Moore Stephens North America Potter & Company, LLP in Louisville, Ky. She shares Bleier's opinion with regard to risk and reward. This year, alone, she has had two restaurant clients close, with the principal reasons being under capitalization and location.

“The people who go into the restaurant business severely underestimate the amount of capital it takes to really start a proper business,” she says. “In fact, they underestimate this amount by as much as half of what they need.”

Cohen says the Louisville metropolitan area has more restaurants per capita than any other city of its size. The city is home to Yum Brands, Inc., the parent company of Kentucky Fried Chicken, Pizza Hut and Taco Bell. With all this activity taking place around her, she says that creating a preventive rather than reactive situation is important.

“By the time most clients get around to actually hiring an accountant, they are deep into various problems,” says Cohen. “They may have set up something like QuickBooks®, but did not know how to properly set it up to track items like food, wine and beer. In addition, owners mistakenly think they can do their own payroll, but are, in fact, better off to outsource this if they can find an inexpensive payroll service to deal with restaurant issues like tips.”

The key is to have your restaurant client come to you for assistance early on, “before they get the first pan dirty. If you can catch them before they actually open the doors, you can give them quite a bit of help up front to make sure something like QuickBooks is set up correctly.”

In addition to providing tools and consulting, Cohen believes the “education” component is imperative to keeping the doors open. For example, she says most owners need an education in payroll taxes because most don't understand issues like instructing employees in reporting their tips. Something as basic as how to annually fill out the tip reporting form and what the IRS expects can be learned and passed on to employees.

“I think the most frustrating thing to restaurateurs is teaching employees how to record tips, so a very useful tool you can give to the owner for the restaurant's employee manual is a one-page handout,” says Cohen. “Providing education in how to use software, for example, also is a great way to increase your own client base. Every city of any size has a restaurant association, and the membership meets periodically. This is a great venue for presenting a 25-minute seminar on the way QuickBooks or Peachtree can be set up to handle many operationally related matters.”

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Scott H. Cytron, ABC, is an accredited communications and public relations consultant working in the accounting, health care, high-tech and finance industries. He can be reached at scott@cytronandcompany.com or through his Web site, www.cytronandcompany.com. 

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