Financial Food For Thought: Entrepreneur Foodie Session

3330 N. Causeway Blvd., Suite 422 Metairie, La. 70002 www.lsbdc.org (504) 831-3730 Email: [email protected]

Grow Your Business:NOLA Restaurateur Boot Camp

Financial Food for Thought

Presented by

Dianne F. Sclafani, Business Consultant-Food and Restaurant Specialist LSBDC Greater New Orleans and Bayou Region

Jarrett Woods, New Orleans Regional Manager Accion in Louisiana

Why are Financials Important ?

The many small businesses that have major problems being successful are because of

•Weak Business Management in many areas

#1) Lack of financial management and understanding

Cash Flow Statement Example, LLC

Pro-Forma Cash Flow

Direct Method

Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

Beginning Cash Balance 32,735 26,231 23,060 23,221 18,383 15,211 8,707 13,867 10,696 12,523 16,016 9,512

Cash Inflows

Cash Sales 24,900 33,200 41,500 29,050 33,200 24,900 53,950 33,200 45,650 49,800 24,900 20,750

Total Cash Inflows 24,900 33,200 41,500 29,050 33,200 24,900 53,950 33,200 45,650 49,800 24,900 20,750

Cash Outflows

Inventory Purchases 11,952 15,936 19,920 13,944 15,936 11,952 25,896 15,936 21,912 23,904 11,952 9,960

Sales Tax (% of Sales) 2,241 2,988 3,735 2,615 2,988 2,241 4,856 2,988 4,109 4,482 2,241 1,868

Merchant Account Service Fee (% of Sales) 710 946 1,183 828 946 710 1,538 946 1,301 1,419 710 591

Rent/ Lease 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815

Utilities 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475

Insurance 350 350 350 350 350 350 350 350 350 350 350 350

Repairs 50 50 50 50 50 50 50 50 50 50 50 50

Permits 45 45 45 45 45 45 45 45 45 45 45 45

Associations fees 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115

Advertisment 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915

Fuel/ Van repairs 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050

Owner's Salary 835 835 835 835 835 835 835 835 835 835 835 835

Wages & Salaries 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166

Payroll Taxes 633 633 633 633 633 633 633 633 633 633 633 633

Loan Payment 3,052 3,052 3,052 3,052 3,052 3,052 3,052 3,052 3,052 3,052 3,052 3,052

Dividends Paid - - - - - - - - - - - -

Total Cash Paid Out 31,404 36,371 41,339 33,888 36,371 31,404 48,790 36,371 43,823 46,307 31,404 28,920

Monthly Net Cash Flow (6,504) (3,171) 161 (4,838) (3,171) (6,504) 5,160 (3,171) 1,827 3,493 (6,504) (8,170)

Cumulative Net Cash Position 26,231 23,060 23,221 18,383 15,211 8,707 13,867 10,696 12,523 16,016 9,512 1,342

Cash Flow BreakevenDefinition: The point at which sales revenue equals fixed and variable costs.

Management Question:How much do I need in sales to cover all expenses? • The minimum level of activity required to stay

in business.

Cash Flow vs. Profit

Cash Flow: What have I paid vs. what have I made? 1. Include: Cash- in (Sales Revenue) and Cash- Out (all FIXED and

VARIABLE expenses paid)2. Exclude: Accounts Receivable and Accounts Payable that will

not affect cash for this time period.

Cash Flow = ( Cash In - Cash Out )

ProfitGross Profit = Sales (including AR) – COGSNet Profit = Gross Profit – All other expenses (including AP)

Breakeven Fixed Costs

$ Price – Variable Costs = Unit Cost

Fixed Costs (total monthly fixed costs- rent, insurance, utilities, etc.)

$ Price – Variable Costs = Unit Cost (Units/Sandwiches need to sell a month) (Price of sandwich) – (Raw Food Costs) = How many sandwiches at that price you need to sell

Example: $16,400

$9 -$3 = 2,733.333

2,733 X $9 = $24,600.00 Gross Sales needed to Breakeven

Profit & Loss (P&L)

Example, LLCPro-Forma Monthly Income Statement

SALES Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

Food 9,960 13,280 16,600 11,620 13,280 9,960 21,580 13,280 18,260 19,920 9,960 8,300 Beverages 6,225 8,300 10,375 7,263 8,300 6,225 13,488 8,300 11,413 12,450 6,225 5,188 Festivals 6,225 8,300 10,375 7,263 8,300 6,225 13,488 8,300 11,413 12,450 6,225 5,188 Catering 2,490 3,320 4,150 2,905 3,320 2,490 5,395 3,320 4,565 4,980 2,490 2,075 Total Sales 24,900 33,200 41,500 29,050 33,200 24,900 53,950 33,200 45,650 49,800 24,900 20,750

COST OF GOODSFood 4,781 6,374 7,968 5,578 6,374 4,781 10,358 6,374 8,765 9,562 4,781 3,984 Beverages 2,988 3,984 4,980 3,486 3,984 2,988 6,474 3,984 5,478 5,976 2,988 2,490 Festivals 2,988 3,984 4,980 3,486 3,984 2,988 6,474 3,984 5,478 5,976 2,988 2,490 Catering 1,195 1,594 1,992 1,394 1,594 1,195 2,590 1,594 2,191 2,390 1,195 996 Total Cost Of Goods Sold 11,952 15,936 19,920 13,944 15,936 11,952 25,896 15,936 21,912 23,904 11,952 9,960

Gross Profit 12,948 17,264 21,580 15,106 17,264 12,948 28,054 17,264 23,738 25,896 12,948 10,790

OPERATING EXPENSESSales Tax (% of Sales) 2,241 2,988 3,735 2,615 2,988 2,241 4,856 2,988 4,109 4,482 2,241 1,868 Merchant Account Service Fee (% of Sales) 710 946 1,183 828 946 710 1,538 946 1,301 1,419 710 591 Rent/ Lease 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815 1,815 Utilities 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475 1,475 Insurance 350 350 350 350 350 350 350 350 350 350 350 350 Repairs 50 50 50 50 50 50 50 50 50 50 50 50 Permits 45 45 45 45 45 45 45 45 45 45 45 45 Associations fees 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 Advertisment 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915 2,915 Fuel/ Van repairs 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 Owner's Salary 835 835 835 835 835 835 835 835 835 835 835 835 Wages & Salaries 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166 3,166 Payroll Taxes 633 633 633 633 633 633 633 633 633 633 633 633 Total Operating Expenses 16,400 17,383 18,367 16,892 17,383 16,400 19,842 17,383 18,859 19,351 16,400 15,908

Operating Profit (EBITDA) (3,452) (119) 3,213 (1,786) (119) (3,452) 8,212 (119) 4,879 6,546 (3,452) (5,118) Depreciation 593 593 593 593 593 593 593 593 593 593 593 593 Amortization 451 451 451 451 451 451 451 451 451 451 451 451 EBIT (4,496) (1,164) 2,169 (2,830) (1,164) (4,496) 7,167 (1,164) 3,835 5,501 (4,496) (6,162) Interest Expense 724 713 703 692 682 671 660 650 639 628 617 606

Net Income before tax (EBT) (5,220) (1,877) 1,466 (3,522) (1,845) (5,167) 6,507 (1,813) 3,196 4,873 (5,113) (6,769)

Profit and LossGross Profit = Sales (including AR) – COGSNet Profit = Gross Profit – All other expenses (including AP)SALES:Revenues:

Food Sales 50,000Drink Sales 20,000

Other Revenues:Catering  5000

Total Revenues: 75,000COGS:Food

Chicken 6000Beef 7000

Seafood 8000Vegetables  4000

Total Food Cost 25,000Drinks

Soda 2000Liquor 4000Water  1000

Total Beverage Cost   7000Total COGS 32,000

Gross Profit:   43,000

EXPENSES:Labor

Servers 5500

Cooks 5500

Insurance 1500

Payroll Taxes 1000

Total Labor Expense   13,500

Operating Expenses

Laundry 500

Utilities 2800

Supplies 500

Gas 1500

Rent 6500

Accounts Payable 4000

Interest 200

Total Operating Expense   16500

Total Expense 30000

Net Income   13,500

Chicken or the Egg?

1. Manage and Understand Your Numbers

2. Calculate Your Budgets

Budgeting

For Cash: Projected Cash Sales vs. Projected Cash Expenses• Helps control the timing of bill payment and

working capital cash position.

For Profit: Projected Total Sales vs. Projected Total Expenses• Helps form pricing and investment strategies

Keeping a Pulse on the Business

Because of the items discussed a business owner is able to:

control their business because they know exactly where they stand financially.

increase sales, save money, and avoid bad situations. make informed decisions. Know when their business is ready

to expand. be bankable so that a bank will consider their business for a

loan as needed. make a budget to know how much and where they should be

spend their money, including marketing dollars.

3330 N. Causeway Blvd., Suite 422 Metairie, La. 70002 www.lsbdc.org (504) 831-3730 Email: [email protected]

Questions and Answers

Thank you for Attending

Financial Food for Thought

Presented by

Dianne F. Sclafani, Business Consultant-Food and Restaurant Specialist LSBDC Greater New Orleans and Bayou Region

Jarrett Woods, New Orleans Regional Manager Accion in Louisiana