Cash Flow Analysis: Restaurant Business Plan

RESTAURANT BUSINESS PLAN
THE
CASH FLOW ANALYSIS

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Cash Flow Projections


The cash flow projection is the most important financial planning tool available to you.

Your cash flow analysis will show:

2) When it will be needed
1) How much cash your business will need
3) Whether you should look for equity, debt, operating profits, or sale of fixed assets; 4) Where the cash will come from.
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The cash flow projection attempts to budget the cash needs of a business and shows how cash will flow in and out of your operation over a stated period of time.
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RESTAURANT BUSINESS PLAN Outflow of cash will be for cash payments for expenses of all types. The Cash Flow Statement will point out on your calendar when money will be coming in and when it will be flowing out, allowing you to plan for the cash outflows and avoid unnecessary borrowing.
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RESTAURANT BUSINESS PLAN Remember, illiquidity is a killer, even for profitable restaurants. Lack of profits wont kill a restaurant. Lack of cash to meet your trade and other payables will. Cash Flow ONLY deals with actual cash transactions. Depreciation (a non-cash expense) does not appear on a Cash Flow Statement.

Whereas the Income Statement shows sales (whether or not you have received the cash from them) & expenses (whether or not you have actually paid for them), the Cash Flow Statement shows ONLY the movement of cash. Expenses show up when they are paid, not when they are incurred. Sales show up only when you receive 8 the cash, not when the sale is made.

Where the Income Statement shows only sales, the cost of food sold and expenses, the Cash Flow Statement shows ALL cash inflows and outflows, from operations or otherwise, including such cash movement as:
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RESTAURANT BUSINESS PLAN Some Cash Inflows (Receipts): a) Sales of products for cash b) Collection of accounts receivable c) d) e) f) Cash received from assets sold Cash received from equity investment Cash received from loans Cash received from debt recovery
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Some Cash Outflows (Disbursements): a) b) c) d) New inventory purchased for cash Operating expenses paid in cash New equipment purchased for cash Provisions for bad debts set aside as cash
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Outflow (Disbursements continued): e) f) g) Dividends or Partner Draws paid out in cash Provision for replacement of depreciable assets, if set-aside in cash Beginning Cash plus total cash received, less total disbursements equals cash at end of period
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RESTAURANT BUSINESS PLAN Beginning Cash Total Cash Received Total Disbursements Cash at End of Period
+ -
After the Cash Flow Statement has been developed, use it as a budget. If cash outlays for a given item increase/decrease over the amount allotted for a given month, you should find out why and take corrective action as soon as possible. 13

+ Beginning Cash Total Cash Received Total Disbursements Cash at End of Period.
Cash on Hand (Opening Balance) 12,495 Cash Receipts 38,164 Cash Disbursements 49,184
What is the ending balance cash position?

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Homework Assignment

B n e 'sI c m S te e t a k y n o e ta mn Jn a S le a s Fo od B vr g eea e T ta S le o l as C s o S le ot f a s Fo od B vr g eea e T ta C s o S le o l ot f a s Go sPoit rs rf O e In o e t r cm h T ta I c m o l no e C nr lla leE p n e o to b x e ss P yo a r ll E p y eB n f mlo e e eits D e t Oe E p ir c p r x A v r in detis g U tilitie s A m &Gn r l d in e ea Rp ir &Min eas at T ta C n o b E p o l o tr lla le x In o eb f r Oc p C s c m eoe c u . o t O c p n yC ss c u a c ot Rn et Po etyT x s r pr ae O e Tx s th r a e Po etyI s r r pr nu T ta O c p n yCs o l c u a c o ts In o eb f r In &D p c m eoe t e Ine e t trs D pe iaio erc t n R sa r n Poit e t ua t r f O e D d cio s t r e ut n h In o eB f r In o eT x s c m eoe c m a e 8 ,4 0 6 0 6 ,2 0 7 0 13 0 5 ,6 0 2 ,9 0 5 2 1 ,0 6 2 9 3 ,0 6 8 1 15 8 1 ,5 4 0 15 8 1 ,5 4 17 9 1 ,9 5 Fb e 9 ,2 0 0 1 5 .0 6 ,0 0 0 6 0 .0 1 7 5 .0 5 ,2 0 0 2 ,3 5 7 7 1 ,8 0 1 8 3 ,2 5 9 5 17 9 1 ,9 5 0
Cash Received
Cash Disbursements
6 ,0 0 0 0 0 3 6 ,9 4 1 7 ,8 6 4 1 ,0 0 1 5 ,8 0 69 5 7 ,3 9 2 5 4 ,2 5 3 2 5 0 ,0 0 1 9 ,4 5 0 1 0 ,6 0 8 9 ,0 5 3 ,1 0 5 3 6 0 ,0 0 5 0 ,5 0 2 ,6 0 3 3 0 2 ,6 0 3 3
6 ,0 0 0 8 0 .0 1 0 .0 ,0 0 0 4 2 .0 ,5 1 0 1 8 .0 ,6 0 0 4 2 .0 ,4 0 0 2 0 .0 ,1 0 0 1 0 .0 ,4 0 0 8 ,1 1 3 2 3 ,8 4 4 7 5 0 .0 ,0 0 0 1 9 .0 ,4 5 0 0 0 .0 1 0 .0 ,6 0 0 8 9 ,0 5 2 ,7 9 6 7 6 0 ,0 0 5 0 ,5 0 1 ,2 9 5 7 0 1 ,2 9 5 7
Beginning Cash + Total Cash Received - Total Disbursements Cash at End of Period.
Beginning Cash
15
THE
BREAKEVEN ANALYSIS
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Breakeven Analysis
RESTAURANT BUSINESS PLAN A breakeven analysis is a method used by restaurant owners to determine how much in sales is needed to offset all their expenses and at least break even financially.
Do increased sales mean increased profits?
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Breakeven Analysis
Many restaurants that have gone broke after only a few months of operation would never have been started in the first place if the owners had done a breakeven analysis. They might well have discovered that the costs were so high there was no chance of bringing in enough sales to cover the costs, or break even.
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Breakeven Analysis
To do this analysis, you must know what your fixed costs are, and you must be able to estimate fairly accurately what your variable costs will be.
Break Even = Fixed Costs + Variable Costs
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Breakeven Analysis
RESTAURANT BUSINESS PLAN Fixed Costs Costs that are the same every month, no matter how many days a month the restaurant is open or how many meals are served. These costs are fixed, and the owners know how much they will be before the month starts.
What are examples of Fixed Costs?
20
Breakeven Analysis
RESTAURANT BUSINESS PLAN Examples of Fixed Costs _____________ _____________ _____________ _____________ _____________ _____________ _____________
21
Breakeven Analysis
RESTAURANT BUSINESS PLAN Variable Costs Costs that vary, or change, as the volume of business varies.
What are examples of Variable Costs?

22
Breakeven Analysis
RESTAURANT BUSINESS PLAN Examples of Variable Costs _____________ _____________ _____________ _____________ _____________ _____________
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Breakeven Analysis
RESTAURANT BUSINESS PLAN Time Period for Breakeven Analysis
The breakeven analysis can be calculated for different periods of time, such as a day, a week, a month, or longer. A month is a good period to use because it fits in with other accounting practices and gives a reasonable time for slow and busy days to even out.
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Breakeven Analysis
RESTAURANT BUSINESS PLAN Remember, breakeven sales is the amount where total sales equals total costs. In other words, no profit, no loss.
Break Even = Fixed Costs + Variable Costs

25
Breakeven Analysis
RESTAURANT BUSINESS PLAN You can estimate Fixed Costs fairly easily. You should have a good idea of what fixed costs such as rent, salaries, benefits, insurance, etc., are going to be for the coming period.
Where do you find these costs?
Lets use Stephanies restaurant as an example, calculate the fixed from the following:
26
Income Statements
27
Breakeven Analysis
RESTAURANT BUSINESS PLAN Now calculate what you expect Variable Costs to be as a percentage of sales in the analyzed period. You have to use an estimated percentage, rather than absolute dollar amount, since you do not know what variable costs will be in absolute dollar terms.
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Breakeven Analysis
RESTAURANT BUSINESS PLAN Lets say that variable costs average 68% of sales. The percentage of variable costs, 68%, is subtracted from 100% (which is total sales); leaving 32% of sales to pay for the fixed costs.
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Breakeven Analysis
If the fixed costs are $2,996, and they are 32% of sales. So the remaining question is: $2,996 is 32% of what number, that number being the amount of total sales needed to breakeven.
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Breakeven Analysis
To find what $2,996 is 32% of, divide $2,996 by . 32, the breakeven point in sales.
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Breakeven Analysis
RESTAURANT BUSINESS PLAN We can now see that with fixed costs of $2996 and variable costs of 68% of sales, you need sales of $9,363 to break even. We can prove this answer: (a) $9,363 x .68 = $6,367 in Variable Costs. (b) To this $6,367, add $2,996 in Fixed Costs. (c) This equals $9,363, our breakeven point in sales.
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Breakeven Analysis
Practice Example: Fixed Costs Variable Costs (% of Total Sales)
$1,256,000 65%
Calculate the Break Even Point

33
Homework Assignment

Bn e 'sI c m S te e t a k y n o e ta mn Jn a S le a s Fo od Bvr g eea e Tta S le o l as Cs o S le ot f a s Fo od Bvr g eea e Tta Cs o S le o l ot f a s G s Poit r s rf o O e In o e t r cm h Tta I c m o l no e Cnr lla leE p ne o to b x e ss P yo a r ll E p y eB n f mlo e e e its De t Oe E p ir c p r x A v r in detis g U s tilitie A m &Gn r l d in e ea Rp ir &Min eas at Tta Cn o b E p o l o tr lla le x In o eb f r Oc p Cs c m eoe c u . ot Oc p n yCs c u a c ot s Rn et Po etyTx s r pr ae O e Tx s th r a e Po etyI s r r pr nu Tta Oc p n yCs o l c u a c o ts In o eb f r In & e c m eoe t Dp Inee t trs Dpe iaio er c t n Rs ua tPoit et r n r f a O e Dd cio s t r e ut n h In o eBf r In o eT x s c m eoe c m a e 8 ,4 0 6 0 6 ,2 0 7 0 13 0 5 ,6 0 2 ,9 0 5 2 1 ,0 6 2 9 3 ,0 6 8 1 15 8 1 ,5 4 0 15 8 1 ,5 4
Assume your var. % = 68% Fixed Cost Divided by $_____ _____
6 ,0 0 0 0 0 36 ,9 4 17 ,8 6 41 ,0 0 15 ,8 0 69 5 7 ,3 9 2 5 4 ,2 5 3 2 50 ,0 0 19 ,4 5 0 10 ,6 0 89 ,0 5 3 ,1 0 5 3 60 ,0 0 50 ,5 0 2 ,6 0 3 3 0 2 ,6 0 3 3
Break even =
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THE
DEVIATION ANALYSIS
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Deviation Analysis
RESTAURANT BUSINESS PLAN Deviation Analysis The basis of the Budget Deviation Analysis (BDA) is the comparison of budgeted figures for your operation to actual results. (depicted
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Deviation Analysis
RESTAURANT BUSINESS PLAN The essence of the Deviation is the analysis of the cause of any noted discrepancy between budgeted and actual results, and the determination of the required corrective action, if the discrepancy is viewed as undesirable.
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Deviation Analysis
Budget Deviation Analysis may be applied to any budgeted data, and most appropriately to Income Statements, Cash Flow Forecasts and Budgets, if prepared separately.
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Deviation Analysis
To arrive at any line-item deviation, actual results are subtracted from budgeted results, resulting in the deviation amount, if any. This deviation amount is then divided by the originally budgeted amount and multiplied times 100 to obtain the percent deviation, either positive or negative. This calculation is applied to all items on the analyzed statement. BUDGETED RESULTS - ACTUAL RESULTS = DEVIATION
DEVIATION x 100 = PERCENT DEVIATION BUDGETED RESULTS
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Deviation Analysis
Practice Example: Food Sales Beverage Sales Actual $266,148 $74,224 Budget $287,200 $73,100 % Deviation
Complete the Deviation Analysis
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Deviation Analysis
The resulting deviation can be either a positive number or a negative number. A positive deviation is not necessarily a good thing. Positive deviations in expenses are desirable, while positive deviations in sales are not.
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Deviation Analysis
Budget Deviation Analysis is a direct control on your operation. It will help you hold down costs and increase profits with little expenditure of time or effort, since all the information required is found in previously prepared financial statements.
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Deviation Analysis
The BDA must be performed periodically, at least monthly, if it is to be effective. It provides one of the best sources of current information available to you. It will tell you which parts of your restaurant are out of control and which are exceeding expectations.
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Homework Assignment
Cover Page Breakeven Analysis Cash Flow
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Cash Flow Analysis: Restaurant Business Plan

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