Balance Sheet / Beer

Class started with In the News, beginning with a classmate who never speaks, was totally unprepared, and makes one wonder why she bothers. The New York Times had an interesting article on how the recession is making stupid people with too much money "down-scale" their weddings, though they're still spending a whole hell of a lot, just on burgers n' shit instead of canapes and caviar. Another good article on the Shinn Estate of the Northfork -- only 8 years old and producing good quality wine, the fact of which runs counter to Richard's outline of setting up a new vineyard (which seems near to impossible to get a good wine out of a vineyard within 8 years).

So two gals dined and dashed from an IHOP, then promptly crashed their car into said restaurant. The father of one of the girls were befuddled, due to the fact she had $200 in her pocket...

Next up, we were given some numbers and we constructed a balance sheet, slotting items into current or fixed assets, short or long term liabilities, then figuring out the owner equity, no biggie. I can see the appeal of being an accountant -- figures are both reassuring facts, but at the same time by the way you arrange and make them interact, you can make them tell very different stories. And by the same measure, figures that seem to say very little can say a whole heck of a lot with a little bit of poking and prodding. What I'm learning: I'm definitely going to have to hire an accountant when I have my own biz.



Back into alcohol today's topic was liquid bread, a.k.a. beer. We reviewed the steps of brewing beer, then watched a film clip f a show I actually watch at home - the "Making Beer" episode of Modern Marvels. Malt is barley soaked in water to slightly sprout it, before roasting. Only in the U.S. are "adjuncts" allowed in addition to malt: corn, rice and cheaper grains that give a lighter product....and a different taste. In Europe, add these grains and you can't call it beer legally.

Funny, sake is called rice wine here in the U.S.....for tax reasons related to it's alcohol content. In truth, it is technically rice beer, as it is brewed, but without malt, with rice taking on the starring role.

The Balance Sheet / Wine History

Back to school! Everyone was very sweet and curious about Ediebird, and I get the impression I didn't miss too much. The rest of the class gave menu presentations (I do regret missing Zach's "Cheesequake" concept...), Marc Murphy gave a lecture, and Richard went into details of a financial statement.

Today we looked at the basics of the balance sheet. A profit & loss statement is a summary of the past. A budget is a prediction of the future. A balance sheet is a snap shot of where a business is at at a singular moment in time. Typically done at the end of the fiscal year, the balance sheet has two main categories: Assets and Liabilities. Assets can be current (cash or easily turned into cash) and fixed (things that typically last longer than a year, like equipment and furniture.) Liabilities are either short term (need to be paid soon, like pay roll, rent, inventory invoices) and long term (loans and mortgages)

A third category is owner equity -- what the biz owns outright. Assets = Liability + Owner Equity. The total value of a business, everything that it is, is adding up everything that is owned by the business and everything that is owned by the bank or lenders.

Richard, whose passion is wine, got into the nitty gritty of wine history, much of which I had already heard when I took a 7-class wine course with him last year. The first wine is thought to have been made in what is now Georgia (in Eastern Europe). The grape varieties of Europe have always made better wine than American grapes, but a mite in the American soil killed off most European grapes in the 1850s, only saved by grafting old world vines to new world root stock. The U.S. had it's own natural disaster with Prohibition, with many old, mature vineyards being torn up for other crops. Richard ran through all the steps and choices it takes to start a vineyard -- not a simple or cheap task. It could easily be 10 years before the first bottle of wine can be brought to market from a new vineyard. That's a pretty steep entry cost!

We watched a film from the 1980s about the origins of wine. They showed an old Georgian farmer who still makes wine like they did 1000s of years ago. Pluck grapes, step on them, put them in clay cisterns, put them in the cold ground with a cover and let 'em ferment. After a month or so, take out and drink, that's it. Looked dirty-funky, but probably fun.

Interruption

Due to the lil' critter above, I am missing class this week. Will be back on it Monday.

BTW, that's Edie Bird, about 36 hours old, and she loves to drink milk straight from the source, raw and unhomogenized.

In the News / Student Concept Presenations

We began with in the news. After seeing a few documentaries about prohibition, it was pretty funny to see an article in the New York Times about the recent trend in new bars to be stylized after Prohibition-era speak-easies. The problem? Since the supply was illegal the quality of the booze was low and a lot of drinks had to be mixed with strong, sweet stuff to mask the flavor. I think this new trend should involve poor-quality bathtub gin, a total lack of licensing, and incorporate other illegal activities -- drugs, prostitution, and dancing without a cabaret license! Now THAT would be authentic.

Time Out New York had a pretty typical spread hyping a handful of new pizzerias in NYC, but more interesting was the recent article in Newsweek, which questioned the viability of all these new trendy pizzerias -- what about the old school slice joints that are getting squeezed out? I think the argument is specious -- the old school places have never had it so good, and the new places are riding their coattails. At some point the new places will shake out, but the places that have been around for years and years will survive.

The Times had a pretty ridiculous opinion piece about the U.K. judiciary that just ruled that Pringles are, for tax purposes, potato chips, unlike what Proctor & Gamble were calling them, "savory snacks," to get out of paying millions of pounds in VAT taxes.

Most of the day was dedicated to Jenni, Guytano, and Niko giving presentations on their concept menus. Both Jenni and Guytano's concepts were expansions to the restaurants where they are currently working. Jenni's restaurant owners are opening up a cafe and gelato shop, where they will roast their own beans and make their own ice creams, out in the North Fork of Long Island. Guytano's pizzeria is opening an attached wine bar with a small trattoria-style menu, out in Long Island. Niko gave a long and rambling talk about a Georgian wine & jazz bar, but with his thickly accented low monotone, he literally made me fall asleep.

Class concluded with a short P&L statement, working out the variance and variance percentages between years by costs and profits.

No class Monday, talk to ya Wednesday!

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.

Monitoring Various Costs / Responsible Alcohol Service

Class started with a brief odds n' ends. I described the odd experience on Saturday of being in Coney Island at 10:30 in the morning meeting friends coming off a half marathon, and finding mobs and mobs of healthy runners lined up to buy hot dogs at Nathan's. Health freaks! Dave described a restaurant where he was there with a few people for dessert, it was empty, 1 of the four deserts they ordered was out, were charged for it anyway AND all the prices on the bill were higher than on the menu. Richard described a time when the bill for a glass of wine was higher than the menu price, and when called on it, the waiter returned to say that the menu was wrong and the bill correct. To which Richard replied, well, I'm going to pay the advertised price. Which is also the legally binding price. Liz was in Las Vegas over the weekend and was surprised how empty every single restaurant was, even the big names. Overbuilt, over hyped, overextended, goodbye to the last gilded age of over consumption.

Anyway, we continued talking about the other expenses of a restaurant, outside of food and labor. There is rent. There are three ways to pay.

• Fixed: simple, the same every month, just like residential rent. Whether the business is crap or your raking it in hand over fist, it's the same.
• Variable: The landlord gets a percentage of gross income. This in effect makes the landlord a partner, where its in his interest to generate customers for you. Mall and hotel situations see this. Makes most sense in a seasonal operation, like in a summer community.
• Mixed: Fixed fee with a variable percentage on top. Most common. As with variable, has to be an element of trust between both parties.

We spent some time on a few examples, showing how the Cost % ratio can be applied to anything in a restaurant. Cost % = Cost /Sales, so Linen Cost % = Linen Cost / Sales or Linen Cost per guest = Linen Cost / # of Customers. By comparing these number from day to day, month to month, an idea of how efficiently they're being used can emerge.

Class finished with a discussion of alcohol. Until prohibition, the law's attitude was from the medieval period. If you were an able-bodied adult, you were responsible for your own actions. If you went to a bar and got drunk, then went out and killed someone with your car, you and you alone were responsible for the harm your caused. Since prohibition, there are what are called "dram shop laws", which assign different percentages of responsibility to 3rd parties who provided alcohol to the 1st party who harmed the 2nd party.

The big no-no with 100% liability is selling alcohol to a minor, which in the U.S. is anyone under the age of 21. It's odd to regard someone who is 20 years old, who can vote, be drafted and die in the military, drive, have sex with whoever, run for elected office, work for a living, sign legally binding contracts, BUT can't drink alcohol.

Another big no-no is causing a person to become intoxicated by providing alcohol. In the U.S., the legal definition of intoxicated is .08% blood alcohol, which is 1 drink per hour for a small person and 2 drinks per hour for a medium sized person. Most bars and booze-serving establishments pretty much break this law regularly. Related to this, it is illegal to provide alcohol to someone who is already intoxicated.

We saw part two of the video about prohibition, and what a cluster-f@ck all that was. Like marijuana today, drinking alcohol became so commonplace under the ban that it eroded respect for the rule of law. Three groups were helped: criminals got a market to themselves, corrupt police and politicians buddied up to the criminals for a huge payday, and...women were now drinking in social establishments alongside men, drinking, smoking, dancing and generally getting jiggy with it like never before. Basically, everything the Prudes wanted to happen, the opposite happened. Within 4 years of the laws going into effect, city and state-level authorities gave up and handed over the responsibility and HUGE cost of enforcing prohibition to the Feds. The Feds, understaffed, underpaid and overwhelmed, became even more corrupt than the smaller bureaucracies, with Herbert Hoover's (who was a drinker himself) cabinet notorious for being totally on the take. As the criminals got sharper and more organized, it's leadership amassed so much wealth they were able to spread around their cash enough to enter the legit world. Bronfman brought Seagram's from a bootlegging operation to a multinational conglomeration, and a man named Joseph Kennedy was known as a Prohibition-era alcohol middle man who never quite got tagged for it, though his clan certainly benefited from the dirty money.

In the News / Labor Cost / Misc. Expenses / Benefits o' Booze

During today's In the News segment, I defended pizza: in the $25 and under section of the NY Times dining section, they reviewed Roberta's of Bushwick. They said it was good pizza, but despite that they offered some good interesting dishes. Hrumph!

A good portion of the class was dedicated to labor cost. Based on how busy a dinner shift was, we scheduled servers, bussers, hosts and bartenders, taking into account how much they were paid, expected number of covers and average check. I don't like exercises like this because the feedback you get from it can be guesstimated from just vibing the business of a room. In the resto biz, when things are slow, it's acceptable to send extra staff home, and it's also normal to call up people who are on informal call. Filling us students with formulas and numbers...I don't know, there needs to be a balance, an expectation that we will learn when things really need to be calculated, written and statistically analyzed, and when things can just be winged.

Up to this point, we studied cost control in terms of food and in terms of labor. Today we looked at "other expenses". While a restaurant only has one primary source of income, there are plenty of sources of expenses aside from labor and food.

• Operating expenses (linen, uniforms, china & glass, kitchen utensils, cleaning, decoration)
• Music and entertainment (live or mechanical, ASCAP, booking agents, meals to musicians)
• Marketing (mail, phone, internet, comped food, ads, signs, copies, public relations, agents)
• Administrative (data processing, office supplies, postage, cash over or under, bank fees)
• Facility maintenance (fixtures, equipment, air conditioning, refrigeration, electrical, floors and carpets)
• Occupancy (rent or mortgage, equipment lease, real estate tax, insurance, depreciation, licenses)

This is a very annotated list. If I was working up my business plan, I'd be tearing my short hairs right now...

To control costs like this, there are two key ways to categorize them. The first way is by fixed, variable or mixed. Ask this question: If no one comes to the restaurant one night, will the expense cost less? If people come, will the expense cost more?

Whether people come in or not, rent and salaries will remain the same -- fixed. If no one comes in, I can send lower level salaried people home and the food can be served tomorrow -- variable. If no one comes in, I still have to pay for air conditioning and side towels, but if people come in, I'll have to crank up the air and use more side towels -- mixed.

The other way to categorize costs is by controllable or uncontrollable. Hourly wages are controllable -- if the biz starts to go south, I can cut people's pay or lay people off to adjust in the short term. Rent for a restaurant is usually determined by a multi-year lease -- if the biz is tanking, it could be years to a lease renegotiation, therefore it is uncontrollable.

The last part of the class was more talk of our friend alcohol, which is leading to Monday's discussion on liability issues. Alcohol has beneficial qualities. The wine industry had to sue the FDA to go public with scientifically proven evidence that alcohol can be a positive influence, but still the government insists that bars post signs warning pregnant women away from booze, despite the fact that all the studies from the 80s that claimed alcohol hurts fetuses have all been disproven. It's been shown that moderate alcohol consumption through out pregnancy does NOT hurt babies, and it's been shown that alcohol abuse in the 2nd and 3rd trimesters also does not hurt unborn children. Only alcohol abuse in the 1st trimester, a time when many women don't know they are pregnant, has been shown to cause all sorts of developmental issues.

There's the whole French paradox thing, where despite eating much more animal fats than the U.S., the consumption of red wine keeps down cholesterol. In fact, in recent years the French have had an anti-alcohol (oh, excuse me, anti drunk driving) move that has directly lead to a spike in heart disease. Alcohol thins blood, letting less stuff clump up -- the same rason docs recommend an aspirin a day, only this is so much more tasty and pleasurable. Moderate (2 glasses or less for the averaged size person) on a daily basis has health benefits, but 14 glasses one day a week would lead to all the alcohol problems reviewed yesterday.