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.

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.

P and L Statements / Concept Presentation / Bar Design

Today began with a passioned discussion over why people go to bars. There are different kinds of customers. Though some people fit more than one description, they are broken down thusly:

• Diners at restaurants which have drinks
• Drop-in customers on their way elsewhere
• Meet-and-go customers
• Entertainment seekers looking for relaxation or stimulation
• Sports fans
• Regular patrons of a neighborhood establishment

"Meet-and-go customers" was perhaps the corniest euphemism for people looking to get laid; the textbook description is kinda hilarious, so here ya go:

Meet-and-go customers. These individuals are looking for a relationship connection, whether a date for the evening or a longer-term plan. They go to singles-bars or "meet bars" that are attractive to others like themselves. They stay long enough to meet someone whom they would like to spend the evening with, and the tow may or may not move on to a place where the food and/or the entertainment is more suitable for leisurely conversation and an evening together. Today most singles bars include dancing and very-late-night hours.

Yeah, another place where the food and/or entertainment is more suitable....like mah pants!!

Anyway, as with any restaurant, the needs and wants of a bar's customers determine the concept, which breaks down into three fundamentals that reinforce each other: Design & Decor, Service, and Food & Beverage. Each group of bar customers, as listed above, has its own needs that must be catered to in these three areas.

There are certain standards that all bar customers expect in the U.S. Number one is a large variety of alcohol. Unless you desire something esoteric, chances are a typically stocked bar will offer you hundreds, if not thousands, of combinations and concoctions. The other main expectation among customers is that the quality of the drink matches the quality of the establishment. For example, one who orders a gin and tonic at a local dive bar can expect well gin and tonic out of a soda gun. From a 4-star restaurant bar? An expensive brand gin and house-made tonic with a juniper berry garnish.

We looked at the space requirements of a properly designed bar. Between the back bar, the space for people inside, the front bar, the rails, the space in front and behind a stool, the total space for ONE bar customer is 28 square feet (2 feet wide by 14 feet deep). That's a hell of a lot of space to dedicate to one seat. We also looked at layouts: How one places the bar in relation to the seating, dance floor, and restaurant will influence flow and either work with or fight against the concept (and the kind of customer that's being served). An airport bar will be long and skinny with an open front so that people can get in and out quickly to make their plane. A pick-up joint will have a central bar where people can congregate in 360 degrees and check each other out from all angles.

Mid-class, Maria and I gave presentations on our concept. Maria's idea centered around a very straight-ahead tavern with an extensive American bar menu. I used a PowerPoint presentation to give some details of a neighborhood pizzeria and pasta shop, about 30 seats, maybe in Brooklyn, named after my mom's maiden name (with my mom's image as a young hipster all over it -- see enclosed).

The last part of the class was an exercise in reading and understanding a profit & loss statement. It looks like a big scary sheet of numbers flying out in all directions, but when looked at part by part, it's actually quite simple. First part is the money you take in, broken down by food and bev, then added up. The second part is what you spent just on food and bev, and the third part is what you spent on everything else. The money you made on food and bev after paying for the food and bev is the contribution margin, and that margin should cover all expenses AND give a profit to the owner. And man, the expenses just go on and on. By analyzing cost percents (cost of an item divided by total sales) across different years, one can figure out what's efficient and what's slacking. Really, there are multiple ways to read the numbers, all true but all suggest different actions to be taken. Accounting, it's a hell of a game.