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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 11998
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I'm not sure if this is the correct category but I'll ask!

Customer Question

I'm not sure if this is the correct category but I'll ask! :)
I'm a LP in a craft beer bar that opened 2 months ago in LA. I'd like to know how we're doing financially in our early stages.
What 3 or 4 metrics will tell me that if I sit down with one of the GPs and have the conversation? Gross sales? What else?
Thanks a lot!!
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.

Hi,

...

First just to put things in perspective ... PROFIT, PROFIT, PROFIT ... You you don't have (at the end of any period, monthly, CETTAINLY quarterly and yearly) MORE money coming in than going out ... the all the rest is irrelevant.

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The way a business valuation expert will measure the VALUE, the worth of ANY business, (restaurants, bars, bar & grills indluded) is to take that income (income after expenses, what's really coming out of the black box - profit) and capitalize it ... divide it by the rate one could get on any OTHER investment of the same risk, to get to a Fair Market Value...

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If a business is not profitable, (or expected to be, within a reasonable amount of time), it's worthless./ ... I's a black hole ... amoney pit.

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Not that I've stated the obvious ... some of the metrics that will help you make a CASE that thigs will be (or will continue to be) profitable are as follows:

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If you don’t keep an eye on cash flow, you can realize later you’re in a hole and you can’t recover. Cash flow should be monitored monthly–even weekly–rather than quarterly, like net income. That’s because most restaurants are very cash-intensive, forking over money for fresh inventory and tipping out servers and other staff on a daily basis. Good restaurants also constantly tweak their menu choices, and tracking those effects requires constant attention.

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Another important measure: the percentage of repeat customers. The National Restaurant Association estimates that three-quarters of most restaurants’ sales come from repeat customers. The most successful restaurants aim to get at least 60% of their customers to visit their restaurant once a week, according to NRA.

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Remember that repeat customers are like free advertising, referrals are BY FAR (for ANY service business or specialized product business, very similar to service, and actually a little of both) the mostpredictable AND COST EFFECTive way to drive new business (new customers).

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And one of those things that contribues to SUSTAINABLE competitive advange (competitive advantage over competitors is one thing - that OTHER place that your custopmers gould go an a given night... but SUSTAINABLE competitive advantage is what buikds dynasties is a great staff - the metric? low turnover; On average, management turnover rates run around 20% annually for table-service restaurants, while hourly workers turn over at roughly a 150% clip. No matter how delicious the food or generous the cocktails, abrasive or flaky servers and bartenders can botch the whole dining experience. Treat the good ones well and they might stick around. again the metric there ( an convincing heling GPs to understnd that you're different there) is staff turnover.

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Another thing to look at ... understand which beers/products are your most profitable products ... putting more resources toward the products that are the most profitable is HUGE leverage ... this if a fundamental difference between basic GAAP accountingn an what's called CONTRIBUTION ACCOUNTING - the stuff of CMA's Certified Management Accountants... If you which products are CONTRIBUTING most to your profit, this helps you to press on the levers tht drive profitability.

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Otherwise, it's the same thing that ANY investor/owner/GP wants to know ...; what's my ROI (Return on Investment) ... comes back, of course to profitability again ... profit for a year divided by the capital invested.

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hope this helps

...

lane