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Financial Elements Of Opening A Restaurant

3087 words - 12 pages

This is a 10 page research paper over the financial elements of opening and operating a restaurant. It covers everything one needs to know before jumping into the restaurant business. It relies on 7 sources in APA format.Financial Elements of Opening a RestaurantThe decision to open your own restaurant is an exciting one. You get to be yourown boss and you do not have to worry about making money for anyone other thanyourself. Being independent has its perks but it also has its costs-literally andfiguratively. One of the most important considerations are the financial aspects as theywill make or break your business. I will go over some of the key elements of financialrisks and rewards that you must be made aware of before making the leap into restaurantownership.Buying An Existing RestaurantIf you are looking to purchase a restaurant that is currently in operation, it isimperative you do a financial analysis of the establishment. If possible, hire anexperienced accountant to assist you with this process. Having a professional who isfamiliar with the restaurant business will be able to recognize trends from their past andhelp predict their future profit potential. One of the main aspects of your analysis shouldbe assessing all applicable tax filings that include:Federal income & unemployment tax reportsState income & sales tax reportsFICA filingsReal and personal property tax reportsWorkman's compensation reportsYou may also be interested in looking at the balance sheet as they will uncover factsabout the following:Accounts payableAccounts receivableInventory amountInventory turnoverNet worthIncome Statement-This part of your research is of paramount importance as it will tellyou the cash flow you can reasonably expect after making payments on necessary itemsin the restaurant (which I will later discuss). Important elements in analyzing the incomestatement include:Analysis of sales expenses - will show the current advertising and marketing expenses incurred.Analysis of sales statistics - will give you an idea of typical clientele that currently frequent the restaurant. Shows check averages, gross margins, salesvolume potential as compared to actual sales volume and seasonal tendencies and fluctuations.Analysis of sales volume - explains what influences sales volume, its potential as well as potential to increase income outside of food and beverage sales such as retail shops, parking fees, etc…Pro Forma income statement - this will be most relevant to the buyer as it predicts what the statement will look like in six months after the buyer has taken ownership. This is where an accountant can figure all expenses and sales to determine where you will stand income wise in the future.Other files and accounts to take into consideration are:Annual shareholder reports - buyer will be apprised of sellers forecast of restaurants financial future.Credit reports - buyer can find out credit history and whether or not they may have problems...

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