Collecting the Information You Need…let’s start with Sales

The first restaurant we opened had it’s own cash register. I can’t even remember now if I could call it a point-of-sale because it didn’t even vaguely resemble the devices we use today. This was 1998. I think I had just bought my first cell phone. The cash register was a primitive thing that held cash and made change. This is what it those things looked like:

It couldn’t tell me much about what we sold, just how much money we were supposed to have at the end of the night. The credit card machine wasn’t attached to the cash register, I think you could swipe the card, you didn’t have to call a number for an authorization code, but we were barely beyond those days.

But I digress…we are now in the 21st century and all that is thankfully behind us. Transactions are smooth and fast, traveling at lightening speeds across wifi connections. And one of the most beautiful inventions for the retail world is the new-and-improved point-of-sale, aka the POS.

Without going through the amazing growth in this industry, I will start by saying that as late as 5 years ago, if you wanted to purchase a POS that would give you more agility than a cash register would give you, you needed to purchase a very expense system. It had monitors, printers, and back office CPU, cords and wires coming out everywhere. It was a huge investment but it made it possible for restaurant owners to track everything. How much of each dish was being sold, which server was selling what, what time of day was slow, etc. With a regular cash register, you could enter in dollar amounts, and maybe the receipt might have had a time of day on it.

When figuring out how my restaurant was going to make money, I realized also that I needed to be able to complete a certain number of transactions in an hour. Those old cash registers…well, the world operated at a much slower pace.

In addition, if like me, you wanted to have your finger on the pulse of your business without pouring over receipts and spreadsheets all day, you invested $10-$20K in a system. Lots of hardware to break. And it did. In the middle of service. On Christmas eve.

Today, it is a completely different story. Thank God…I guess. I haven’t decided yet, but I think it’s a very good thing for new business owners. Transactions are so seamless and fast. However, as a bookkeeper, I have found some issues.

Today many POS systems are cloud-based. All you need is a tablet, costing less than $1K, and a subscription to a service and you are in business. Square, Revel, breadcrumb are a few that I have had clients use. And they are always evolving so when you read this, things may have changed. Where I found these systems suffer is in the reporting functions. These systems are excellent information gatherers. But the important thing is how that information comes out so it can be used.

I can’t stress enough how important these reports are. The reports are important on two levels.

The Compliance Level and The Strategic Level….more on this in my next post.

Do You Know Your Numbers? Part 2: The Income Statement AKA The Profit and Loss

So here’s a continuation of the discussion about numbers, the chart of accounts and the second part of those “all-so-crucial” financials….

Now there are Income and Expenses.  These items are part of the Income Statement or what is often referred to as a Profit and Loss Statement. The income bucket gets filled by the water spigot. The water in the income bucket should be used to pour into the expenses buckets….These buckets will be emptied at the end of the month.

Some of these buckets are more important than others. For example, food cost. This is also known by accountants as Cost of Goods Sold or COGS for short. These are special expenses because, without these, you have nothing to sell. And you guessed it, you want only a small amount of water going in here as possible…ideally somewhere around 30%. Because this water gets dumped at the end of the month. The next bucket that the water goes into…Labor. Here you ultimately want only around 25%. The remaining expenses….I call these Operating Expenses. All the water in all the expenses buckets gets dumped at the end of the month.

At the end of the day (figuratively speaking) you want about 10% profit at the very bottom of your P&L, in the bucket labeled Retained Earnings and you will be well off. (at least in the food business)..Retained Earnings accumulate in the bucket and at the end of the year flow onto the Balance Sheet as an equity item. If it is negative, it is reducing your equity. If it is increasing it builds equity and value in your business.

So here is the scaffolding for the accounting system. I hope I’ve managed to make it a bit easier to understand. Please post below if you like this, if it makes sense, or if something is confusing.