Restaurant financial management: a practical approach

307 Pages·2019·5.785 MB·English

by  Jung, H

RESTAURANT FINANCIAL
MANAGEMENT

RESTAURANT FINANCIAL
MANAGEMENT
A PRACTICAL APPROACH
Hyung-il Jung, PhD
Rosen College of Hospitality Management,
University of Central Florida, Orlando, Florida, United States
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Library and Archives Canada Cataloguing in Publication
Jung, H (Hyung-il), author
Restaurant financial management : a practical approach / H. Jung, PhD (Rosen College of Hospitality
Management, University of Central Florida, Orlando, Florida, United States).
Includes bibliographical references and index.
Issued in print and electronic formats.
ISBN 978-1-77188-645-1 (hardcover).--ISBN 978-1-315-14739-0 (PDF)
1. Hospitality industry--Finance. 2. Restaurant management. I. Title.
TX911.3.F5J86 2018 647.95068 C2018-903678-8 C2018-903679-6
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CONTENTS
About the Author .................................................................... xiii
List of Abbreviations ............................................................... xv
Preface .................................................................................. xvii
Foreword ............................................................................... xix
PART I: HOW TO ORGANIZE COMMERCIAL
ACTIVITIES INTO FINANCIAL INFORMATION .................. 1
Chapter 1: Introduction: The Role of Accounting
in a Business ................................................................... 3
1.1 A Business as a Separate Entity ............................ 3
1.2 Assets and Equity................................................. 4
1.3 Assets and Liabilities ............................................ 5
1.3.1 Examples of the Description Above
(Owners’ Investments) .............................. 5
1.4 Recording Process of Financial Accounting for
More Details of Business Activities ........................ 9
1.5 Journalizing ........................................................ 9
1.6 Debit and Credit.................................................. 10
1.7 Posting to Individual T-Accounts .......................... 13
1.8 Preparing the Initial Balance Sheet of
R&B Grill ............................................................. 17
1.9 Activities of Resource Allocation
(Internal Investing Activities to Prepare
for Business) ........................................................ 18
v
vi j Restaurant Financial Management
1.10 Revenues and Expenses – Operating
Activities.............................................................. 27
1.11 Revenues ............................................................ 27
1.12 Expenses ............................................................. 28
1.13 The Income Statement – Temporary Result ........... 36
1.14 Conclusion .......................................................... 44
Chapter 2: Adjusting Entries for Missing Information .... 45
2.1 Introduction ........................................................ 45
2.2 Adjusting Entries to Uncover Hidden Activities ...... 47
2.2.1 Cost of Sales ............................................ 47
2.2.2 Prepaid Expenses ..................................... 49
2.2.3 Accrued Expenses ..................................... 51
2.2.3.1 Additional Labor Expenses
(Payroll Expenses) ..................... 51
2.2.3.2 Interest Expenses ...................... 53
2.2.4 Depreciation ........................................... 55
2.3 Balance Calculation and Error Checking with the
Adjusted Trial Balance ......................................... 57
2.3.1 Adjusted Trial Balance .............................. 62
2.4 Income Tax .......................................................... 63
2.5 Preparation of Financial Statements ..................... 65
2.5.1 The Income Statement .............................. 65
2.5.1.1 Analysis of the Operational
Result with the Income
Statement ................................. 66
2.5.2 The Balance Sheet .................................... 68
Chapter 3: Analyzing Business Progress Presented
in the Financial Statements ............................................. 71
3.1 Introduction ........................................................ 71
3.2 Changes of Financial Position .............................. 71
Contents j vii
3.3 The Impact of Operational Results on Financial
Position ............................................................... 73
3.4 Commonly Used Format of Financial Statements in the
Industry ............................................................... 76
3.4.1 Advanced Format of the Income
Statement ............................................... 77
3.4.2 Advanced Format of the Balance Sheet ..... 79
3.4.3 Explanation of the Revised Balance Sheet
Information After the First Month .............. 81
3.5 Summary of Annual Operations ........................... 89
3.6 Analysis of R&B Grill’s Performance ...................... 102
PART II: HOW TO USE FINANCIAL INFORMATION
FOR FORECASTING AND PLANNING .............................. 105
Chapter 4: Ratio Analysis: Advanced Tools to
Analyze Business Performance ....................................... 107
4.1 Introduction ........................................................ 107
4.2 Flows of Wealth to and from a Business ............... 107
4.3 Vertical and Horizontal Analysis .......................... 112
4.4 Ratio Analysis ...................................................... 116
4.4.1 Major Ratio Groups .................................. 117
4.4.2 Profi tability Ratios ..................................... 120
4.4.3 Activity Ratios (or Turnover Ratios) ............. 123
4.4.3.1 Asset Turnover Ratio .................. 123
4.4.3.2 Inventory Turnover Ratio ............ 124
4.4.3.3 Inventory Turnover Ratio:
Cost of Goods Sold (COS)/
Average Inventory ..................... 125
4.4.3 Advanced View of Ratio Analysis ............... 126
4.4.3.1 ROA Disaggregation ................. 126
4.4.3.2 ROE Disaggregation ................ 127
viii j Restaurant Financial Management
Chapter 5: Cost Analysis and Control .............................. 131
5.1 Introduction ........................................................ 131
5.2 Food and Labor Costs .......................................... 132
5.3 The Standard Food Cost ...................................... 133
5.4 Food Cost as a Variable Cost ............................... 136
5.5 The Standard Labor Costs .................................... 139
5.6 Fixed Costs .......................................................... 140
5.7 Mixed Costs......................................................... 141
5.8 Cost Structure of Individual Mixed Costs ............. 143
5.9 How to Handle the Variance Between the
Theory and Practice ............................................ 146
5.10 Break-even Analysis ............................................ 146
Chapter 6: Forecasting and Planning ............................. 151
6.1 Introduction ....................................................... 151
6.2 Naïve Method .................................................... 152
6.3 Moving Average Method ..................................... 152
6.4 Causal Forecasting Method ................................ 153
6.5 Exponential Smoothing Method ........................... 153
6.6 Revenues Forecast .............................................. 154
6.6.1 Daily Operating Hours with Expected
Customer Count, Revenues, and
Food Cost ............................................... 154
6.7 Forecasting the Ideal Food Cost ........................... 156
6.8 Forecasting Labor Costs ...................................... 156
6.8.1 Wage Forecasting of the Front of the
House ..................................................... 157
6.8.2 Wage Forecasting of the Back of the
House ..................................................... 163
6.8.3 Salary Forecasting .................................... 163
6.8.4 Payroll-Related Costs ............................... 163
Contents j ix
6.9 Forecasting All Other Costs (Expenses)
Using Excel .......................................................... 168
6.10 Other Costs and Pro Forma Income Statement ..... 171
6.11 Conclusion .......................................................... 178
PART III: CASH FLOWS, PROJECTION, AND
VALUATION ..................................................................... 179
Chapter 7: The Concept of Cash and the
Cash Flows Statement ..................................................... 181
7.1 Introduction ........................................................ 181
7.2 Profi ts Versus Cash .............................................. 181
7.3 The Concept of Cash Flows .................................. 182
7.4 Cash Flows From Operating Activities ................. 184
7.4.1 Tax-Effect of Depreciation (as a Non-Cash,
Tax-Deductible Expense) ........................... 185
7.4.2 Working Capital Adjustment ..................... 186
7.4.2.1 Net Income of Y-1 ..................... 188
7.4.2.2 Plus: Non-Cash Expenses .......... 188
7.4.2.3 Accounts Receivable .................. 188
7.4.2.4 Inventory .................................. 188
7.4.2.5 Prepaid Rent and Prepaid
Insurance ................................. 189
7.4.2.6 Accounts Payable ...................... 190
7.4.2.7 Accrued Expenses ..................... 190
7.4.2.8 Unearned Revenues .................. 190
7.5 Cash Flows From Investing Activities .................... 192
7.6 Cash Flows From Financing Activities .................. 192
7.7 Conclusion of the Cash Flows Statement ............ 193
7.8 Additional Information on Determining
the Value of a Business Using Its Cash Flows
Information ........................................................ 193