September 13, 2012 |

Common Number Problems

By Dave Ostrander


Independent operators get a failing grade on a huge issue: they do not have readable financial statements. For the moment, I won’t even consider the problem of getting information too late to be of any real help. Some operators just rely on their accountants to work up the figures and accept what they are given. Now CPAs are good people, but they are into numbers, not operations.
As long as the numbers balance and are kept in accordance with standard accounting principles, their work is done. They are not entrepreneurs and (bless their hearts) seldom consider whether the numbers they provide are helpful.

Case in point: A P&L statement should list percentages as well as dollar amounts, but too many of these documents use gross receipts (sales plus sales tax) as the divisor when computing their expense percentages. This skews the percentages and gives a 6 to 8 percent false sense of security.
The next most common error is that food cost percentages should be food used divided by food sales, not divided by total sales. Similarly, if you operate a bar, bar cost ratio should be to bar sales, not to total sales. Some accountants just do what is easiest for them. It goes on and on.

If you have never taken a basic accounting course, it is time you did that. Then be sure to use an accountant who understands the restaurant industry, not just accounting practices. Finally, insist that you get numbers in a format that will allow you to quickly understand what is happening in your business.
Sure, it may take a little extra effort to educate yourself enough to grasp how the numbers go together and what they mean. Remember: EO’s make pizza – CEO’s make money.

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