#5: Restaurant Accounting Tips to Build Cash Flow and Security

October 7, 2020 by David Scott Peters

Restaurant accounting requires a special touch and there is no one I recommend more to independent restaurant owners than Anne Gannon, CPA. In this latest episode of The Restaurant Prosperity Formula, Anne and I talk about many important topics, including:

Why it’s probably worth keeping your restaurant’s doors open right now, even if you’re losing money
What financial numbers to know and pay attention to for restaurants
Cash flow budgets and their benefits
Why you have to take care of yourself as the owner
What to look for in an accounting firm as a restaurant owner

After working in a big-five accounting firm in Boston, Anne was motivated to create a more efficient system for monthly accounting and tax services. She saw too many small businesses spend a year without accurate numbers or support only to end up during tax season paying big bucks to figure out their tax obligation and where they really stood financially – 18 months removed from what actually happened. She wanted to take a more proactive approach and work one on one with her restaurant clients every month – sometimes weekly – to allow them to be proactive in their own businesses. So she opened her company, The Largo Group

Anne disrupted the CPA paradigm when she opened her accounting firm. She charges her clients a monthly fee and works one on one with them throughout the year to keep their monthly accounting up to date while keeping their accounting costs lower.

“When I went out on my own, the goal was to not be a traditional accountant, to do it the way we wanted to do it. And that's really been our mission: to break down accounting into not just the annual tax return but to have constant communication between the business owner and the CPA. The numbers in accounting are the language of business, so you need good numbers to really understand your business. And that's the goal of The Largo Group,” said Gannon.

During our discussion, Anne also talks about how things have been different in the COVID-19 pandemic.

“Everyone was so focused on revenue because we were in a really good economy. So, if a restaurant owner was hitting a million dollars, they wanted to get to 1.5 million, and then once they were at 1.5 million, they wanted another location. Restaurant owners weren’t focused on saving, only on getting bigger. Then COVID hit,” said Gannon.

Anybody who went through the last several months knows what the end of March was like. Hopefully you’ve stabilized with your local government’s regulations and your customers are comfortable with what you’re able to offer. You’re not back to pre-COVID sales, but many restaurants have at least three weeks of consistent revenue. These can be numbers you can work with to project and build efficiencies.

This is a great episode to listen to as an independent restaurant owner because the truth of matter is a cash flow budget doesn't stop you from making an entrepreneurial decision. If you sit there and say, I want to add this piece of equipment because I think it will increase my revenue, would increase my efficiencies, or you still want control of your business, the cash flow budget shouldn't be scary. They are more like a crystal ball to help you plan. You can project out, even down to repairs. You can plan for things like repairs. When you know what cash you’ll have in the bank, emergencies aren’t so scary

Two hot takes

For most entrepreneurs, your business is your largest asset. Even in COVID, you have this business that has historical information that has a value to someone. You can’t look at the direct cash flow value right now, but look at it in business valuation terms. If someone walked in and bought your restaurant today, they’re buying time. If they buy your restaurant vs. start one from scratch down the street, they’re saving themselves two years. If they didn't have to build the building and introduce themselves to the community, there is value in that. Even without being cash flow positive, there's value. That gets forgotten.

The other thing to think about is if you turn the keys in and walk away, what needs to be paid for in your lifestyle that is not getting paid now. Your business might not be cash flow positive, but it's been paying your car, your insurance, your cell phone. That could add up to $3,000 per month. If you turn the keys in, how are you going to earn $3,000 per month? It’s pretty sage to say for many that 2020 is a wash. It's not fun. Nobody's gonna want to look at this. But if you have to pay $30,000 in 2020, but in 2021 your business could potentially be worth $150,000 based on the valuation of your sales and the historical information of your location, that is an asset you should maintain.

To get more restaurant accounting tips to build cash flow and security, listen to this episode of the podcast.

Anne and I talk about:

Restaurant cash flow
Cash flow budget
Restaurant chart of accounts
COVID-19 plan for restaurant recovery

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