Thursday, June 25, 2009

In the News / Break Even / Cash Flow Statement

In the news rolled along nicely. Dave was excited about this French restaurant, Relais de Venise, famous for a menu that has only one dish - steak frites (which reminds me of the original concept of Kentucky Fried Chicken) They're opening a new location in NYC, and we're all a bit skeptical that it will make it here. How often do you have 4 people going out to dinner together who ALL want steak frites?

L.I. Jenni was featured in this week's LI Newsday in a feature about the best places in L.I. to get iced coffee. Spice Market, a monstrous and pretentious restaurant in the Meat Packing district, went from 3 to 1 star in a recent review in the NY Times. In optimistic news, in the "Off the Menu" section of Dining in the paper, there were no closings listed.

Since the bebe, I grabbed one quick meal at McDonalds and one quick meal at Burger King, and was impressed by how superior the former one was (but still not that good over all.) Unsurprisingly, fo the best half decade, McD's has been clobbering King, and the horrible ad campaigns that BK has been waging has not helped. Recently, a smutty BK ad from the Hong Kong market has been making it's way around the internet, which certainly doesn't help their case.

As bizarre as the gross burgers of McD's and BK are, you can always get stranger over seas. Most beverages don't involve meat and animal product, but it doesn't have to be like that....Swine placenta soda from Japan, Eel essence flavored beverages, garnishes of penis, etc...

The next part of class was working out a P&L statement and calculating various cost percents and break even points.

Dave, while working on his business plan, tracked down a quote from a contractor who is installing a restaurant kitchen from scratch. Going through the $400K item by item comparing to prices on the internet, the whole thing was outrageously padded. If one were to just buy the stuff themselves, it would probably knock a solid $100K off the bill.

The last thing we looked at was a cash flow statement: where the cash comes from, and where it goes. Pre-opening, cash comes from personal funds, loans, investors, etc, because there is no income from the business. As you move across time across the statement, business income is accounted for, but the outflow is, too. It shows in stark detail why many restaurants fail: the outflow overwhelms the inflow early on because it takes a few months minimum to get to a point where you can start paying off the debts. If you don't have a reserve to get you through the opening months, don't bother.

Wednesday, June 24, 2009

Break Even Point / Bar Design

To be perfectly honest, I wasn't very awake in class today. The first part of the day was spent manipulating the break even point, to see what information can be gleaned out of the equation.

A straight break-even statement will show you how much business you need to do to neither lose or make money, but if you have investors who want a return on investment (ROI), you can do a break-even calculation that doesn't go for zero, but goes for a dollar amount that would be an attractive ROI for investors.

The second part of the class was a discussion of the physical design and equipment needs of a bar. Behind the bar you need a lot more than just booze. Storage both dry and cold, compartment sinks, ice (various forms depending on the biz), glassware, tap systems, beverage guns, trash areas, all arranged in a way for maximum flow and hygiene. Various equipment, from blenders and mixers to bar spoons and muddlers all make up the specialized tool of the bartender, which in a serious bar can be regarded as a "liquid chef".

We spent some time looking at business plans of past classes, which all had a wide variety in the choices of information given and level of design, but all the competent ones had a minimum level of financial reports .

Monday, June 22, 2009

Break Even Point, Budget, Spirits

We started the morning off with odds n' ends. Dave visited a new restaurant in his neighborhood in New Jersey. An 8000 square foot casual Italian eatery took 5 years to open, spent 600K for it's liquor license. There are only 7 liquor licenses in the whole town, so while the disadvantage of the license is the price, it also limits the competition.

Maria's bar and restaurant in Queens had an unruly table on Father's Day, with a group of 3 kids at a 6-top running wild, upsetting many customers in the room. Thing is, the adults at the table were regulars of the last 15 years, Maria had gone to the woman's wedding, and other customers were yelling at them to control their kids. Not an easy spot.

Val and her husband went to Blue Hill and experienced some extremely over the top good service. When a piece of beet skin on a salad appeared to maybe be a bug, they took the salad back and brought out another app on the house. Then the waiter asked if the chef could change the vegetable component of their entree to match their wine, and THEN gave the a complimentary desert to smooth out the beet incident at the beginning of the meal.

On the other hand, Liz is working in a large Italian eatery by Yankee Stadium. A customer and his girlfriend/mother left their table after paying and the bussers cleaned the table, but then returned because he left his grillz (gold teeth) in a napkin. The manager basically said tough titties, but feel free to go through out garbage. The guy proceeded to pick through a few barrels of trash for an hour until he found the grills, but cursing and being loud and disorderly the entire time.

We looked at wine and beer last week, and today was a brief discussion of distilled spirits. Start with a sugar or starch and ferment. Something sugary like grapes becomes wine, grain becomes beer. Then distill by heating, which makes the alcohol evaporate first. It's captured, cooled, and collected.

No matter the source, at this point all distilled spirits are clear and neutral. They can be blended to make the product the same over large runs, or left to be unique. The spirit can now be aged in something like wood barrels for color and flavor (whiskey), or left alone (vodka), or infused with flavors (gin) or infused and sweetened (liqueur).

Next up was a practice example of a profit and loss statement with some predictions of the coming year, and we had to make the budget based on those predictions. A budget, after all, is just a profit & loss statement that is projected into the the future.

The balance of the class was dedicated to reviewing the concept of the break-even point, where you leave the land of loss and enter the utopia of profit. Remember there are two kinds of costs: fixed and variable. A fixed cost like rent is paid and then it is done -- it is independent of sales. A variable cost is incurred by sales. If there are no sales, there are no variable costs. But if you sell a burger, and it costs $2 to make, if you sell one or 10,000, it's still $2 a burger. So if you reach your break even point and you sell a burger for $5, your profit ain't $5. Sure, your fixed costs are done, but your variable costs are with you. So that first $5 burger after your break even point means a profit of $3.