July 28, 2014 |

Ask Big Dave: Getting up to Speed on Accounting

By Dave Ostrander

askBigDaveQ: My brother and I own a pizzeria and deli. We have been open almost two years and business has been OK, but not terrible. We are paying bills, payroll is covered and my brother and I are making money. I don’t think we are making profit; I feel we are making salary for the amount of work we are putting in (which is still good considering we are still open). The concern I have is we should be making more! We have a proven product that is far beyond the competition. I know there is always room for improvement (i.e. our delivery times, consistency with product and overall atmosphere of our location).

This is where I need some help. I’m torn between expanding my current location or opening a second location. We are a small location and not very appealing for a sit down location. So, should I stick to what we have or put my focus into another location, or possibly move and expand our current location?

Christopher L.
via e-mail

A: Whenever I get a question like yours, I feel I need to read between the lines and make some assumptions. My first assumption is that detailed financial statements are not being done every month. If you were doing your own or having them prepared by an accountant, you would know for sure if you were running in the black or red. In addition to the bottom line amount, good financials would show you your exact amounts as well as percentages for each and every expense category. If you don’t understand, or haven’t been mentored in basic profit & loss statement, balance sheet, cash flows, current ratios and what EBITDA means, you are not ready to open a second location. You have bought you and your brother a job. Unfortunately you two are the last ones getting paid.

One of my must read business books is titled The E Myth Revisited. The author, Michael E. Gerber, states a truism I absolutely agree with. He says: “The problem with most failing businesses I’ve encountered is not that their owners don’t know enough about finance, marketing, management and operations — they don’t, but those things are easy enough to learn — but they spend their time and energy defending what they think they know. The greatest business people I’ve met are determined to get it right no matter the cost.”

Start by getting yourself more up to speed on accounting. When you have a handle on that you are ready to take your next step.

Big Dave Ostrander owned a highly successful independent pizzeria before becoming a consultant, speaker and internationally sought-after trainer. He is a monthly contributor to Pizza Today.