WELCOMEFOODSERVICE

FINANCIAL BASICSWEEK 1

Agenda

Ground Rules Introductions Syllabus Review Chapter 1 – Introduction to

Financial Management

Ground Rules

Be on time – start on time All cell phones should be turned off

during class, if it rings…..I will answer ! No Internet use during class, unless part

of classroom activity Appreciate other points of view Respect others desire to learn End on time

Information Card

Please fill out the index card provided with the following information:

Front Name, phone, & email

Back Industry experience What you hope to learn in Financial Basics.

Introductions

Break into pairs, someone you don’t know

Spend 4 minutes interviewing each other; as you will introduce each other to the class

Name What is your degree/program focus? What do you wish to get from this class? What are your Short term goals? (1 year) What are your Long term goals? (5 years)

FOODSERVICE FINANCIAL BASICS

Syllabus Review

•The Institute for the Culinary Arts is “teaming up” with the National Restaurant Association Educational Foundation (NRAEF) to provide a double benefit for our students.

•By using the Competency Guide offered by the NRAEF, and using the Certification exam as the final exam for this course, the student benefits twice!

• If you complete the Certification Exam with a score of 75% or higher, and complete the requirements of this course, you will receive college credit for the course and certification towards the NRAEF ManageFirst Program.

Validated by over 200 restaurant, foodservice and hospitality organizations

Resume builder

Tangible accomplishment

Can give you a hiring advantage over peers who didn’t use ManageFirst

How will this certificate help me?

The MFP credential recognizes students as having the academic and practical knowledge they need to succeed in the restaurant, foodservice, and hospitality industry. To earn the MFP credential, students must:

• Pass four Core Credential exams and one Foundation/Elective exam

• Provide documentation for 800 hours of industry work experience

ManageFirst ProfessionalTM (MFP®) Credential

MCC offers classes that support the following courses:

NRAEF ManageFirst Core Credential TopicsCHRM 2475 Leadership – Hospitality and Restaurant ManagementCHRM 2460 Cost Management – Controlling Foodservice CostsCHRM 2470 Supervision – Human Resources Management & SupervisionCHRM 1020 Sanitation – ServSafe® Food Safety

NRAEF ManageFirst Foundation TopicsCHRM 2480 Purchasing – Inventory and PurchasingCHRM 1140 Food Production – Food ProductionCHRM 2350 Nutrition – NutritionCHRM 2465 Financial Basics – Managerial Accounting

ManageFirst Professional (MFP)

Additional Info - COMMERCIAL

Inclement Weather Policy

2012 ICA High School Culinary Invitational

Calling all Mentors!!!

Objectives

Upon completion of this class, each student will be able to:

1. Define the meaning of Financial Management.

2. Recognize Generally Accepted Accounting Principles (GAAPs).

3. Understand auditing. 4. Distinguish difference between accounting

specialties. 5. Understand the positions with accounting

responsibility in the hospitality industry.

Who really cares?

Guests Employees Vendors/Suppliers Owners/Investors Government Agencies Hospitality Industry Managers

Guests

Understanding accounting basics allows a Manager to monitor costs involved in providing outstanding guest service at a price that insures the restaurant is profitable.

A Manager’s thorough understanding of their restaurant’s financial condition helps to make operating decisions that positively influence their guests dining experience.

Employees

Employees are the focus of many accounting procedures.

Payroll taxes, wages, salaries and benefits.

If your restaurant is going to provide employees with steady jobs and competitive wages, the Manager must be knowledgeable about accounting.

Vendors / Suppliers

The businesses that sell products and services you need for your restaurant need to know about the creditworthiness of your operation.

Questions about your operations financial health must be provided using standard financial reports that can easily be understood by outside organizations.

Owners / Investors

If your operation is a publicly held company, or held by private shareholders… Timely and accurate financial data is crucial.

Standard reports are necessary so Investors can accurately measure the value of their investment.

Banks and other lending institutions also require the use of standard accounting procedures to make sure you qualify to receive any loans or funds needed.

Government Agencies

There are many Federal, State and Local government agencies that REQUIRE the reporting of financial information. Reports to compute payroll taxes Sales tax on revenue Taxes paid on the operations profit Compliance for non-profit corporations

The Hospitality Industry

An advantage of using generally accepted accounting principles (GAAP) is that you can compare your results to those of other similar operations.

For example you can compare the rent, food costs, labor costs and other operating expenses amongst similar operations to see if you are in line with how other operations are performing

Managers and their Career

Future employers often evaluate a prospective Manager’s past success to predict future success.

You may be asked about your previous impact on the revenue, costs and profits in the operations you have managed.

A Manager must be able to speak knowledgably about accounting related aspects of your business.

A Managers compensation and bonuses are often tied directly to the operations financial performance.

Financial Information

WHAT WHY HOW WHEN

Financial Management?

The Process of analyzing, organizing, interpreting, recording, summarizing and reporting financial information in ways that are meaningful for owners, managers and other internal users and for lenders, government agencies, and other external users.

Sometimes also referred to as “Accounting”

Financial Management

Managers use financial info to manage activities in their restaurant involving money that is earned and spent in the operation.

The financial information must be organized and expressed in ways that are meaningful.

Analysis and interpretation of data is necessary. Results must be recorded, summarized and

reported to those needing to know about the economic health of the restaurant.

Typical Accounting and Financial Activities

Accounting Activities Recording business

information Compiling financial

statements Filing tax returns Preparing cash

budgets Analyzing budget

variances

Financial Activities Evaluating capital

expenditures Determining strategies

for raising new capital Negotiating a building

lease Investing excess cash Determining dividend

policy Purchasing land Managing working

capital

Bookkeeping

The task of analyzing and recording financial transactions of a specific type (for example, sales, collection of revenue, and payroll)

Financial Management and Bookkeeping are not the same, there is a big difference Financial management includes organizing,

analyzing, interpreting, recording, summarizing and reporting financial information.

A Bookkeepers primary task is to analyze and record transactions.

Financial Accounting

The process of developing and using accounting information to make business decisions, which involves organizing and presenting financial information in financial statements. The major focus is on the past.

Examples of Financial accounting reports: Balance Sheet Income Statement Cash Flows

Auditing

The accounting specialty that involves studying the restaurants internal controls and analyzing the basic accounting system to assure that all financial information is properly recorded and reported.

Managerial Accounting

The process of using historical and estimated financial information to help managers plan for the future. The major focus is on the future.

Examples of Managerial accounting reports: Inventory values Products received Sales history records Operating results and budget estimates.

Tax Accounting

The accounting specialty that involves planning and preparing for taxes and filing tax-related information with the appropriate government agencies.

As you can imagine, accurately gathering and reporting your data, and paying the appropriate taxes in a timely fashion is one area that you do not want to be lax in.

Depreciation

The allocation of the cost of equipment and other tangible assets as an expense over a series of accounting periods according to the useful life of the assets.

Usually depreciating equipment for example is preferred because it results in a faster write-off for tax purposes (than for financial reporting purposes)which then lowers your taxable income, reduces your taxes and conserves your cash.

Users of Accounting Information

Owners Those who have invested in the business. May be a sole proprietor, or partnership, or many

people in a corporation. Board of Directors

Usually found in large chains and corporations. These individuals are stockholders who are elected or appointed to represent all stockholders in the management of the business.

Creditors Those who lend needed money to your business

such as banks, or purveyors who provide products to your business.

Users of Accounting Information

Government Agencies IRS NE Dept of Revenue SEC

Employee Unions Financial Analysts

GAAPs Generally Accepted Accounting Principles.

A set of standards that constitutes the framework against which accounting procedures and techniques are measured. These principles assure uniformity in the procedures and techniques used to prepare financial statements.

GAAP’s include the following 8 Principles:

1. Business Entity

The restaurant is distinct and separate from its owners.

It generates revenue (sales), incurs expenses by using assets, and makes a profit, suffers a loss or breaks even even by and for itself.

2. Historical Cost

The value of an asset is its agreed-upon cash equivalent.

When a transaction occurs (such as a piece of equipment being sold) the price paid normally reflects its current fair value.

Normally though the historical cost- NOT the current fair value is represented as the assets value in financial statements.

3. Going Concern

An Accountant assumes (unless there is reason to believe otherwise) that the restaurant will exist in the indefinite future.

So if the restaurant were to close down, certain liabilities would be due immediately. Likewise, certain assets might need to be sold at a considerable loss.

When accountants assume that the restaurant will continue operating there is no need to write down assets to a liquidation value or reclassify long term liabilities as being due immediately.

4. Periodicity

Statements of the restaurants financial condition including the income statement should be developed periodically.

For example: Income tax regulations require annual filing of tax returns.

Owners usually desire monthly statements about the economic health of the restaurant.

5. Expenses Matched to Revenues

Expenses that are incurred must be matched with, and deducted from revenues that are generated in an accrual accounting system. Accounts Receivable- Amounts owed to the

restaurant. Accounts Payable- Amounts owed by the

restaurant (i.e. to suppliers)

6. Conservatism

Losses should be shown in financial records if there is a reasonable chance that a problem will occur. However should not be reflected until the loss actually occurs. (i.e. Lawsuit against the restaurant)

7. Consistency

You should use the same procedures to collect accounting information each fiscal period.

Otherwise you will not have accurate information to make your operating decisions.

8. Materiality and Practicality

The significance of financial events impact the financial viability of the restaurant (long term operation).

Experience and judgment are necessary to determine whether it is practical to report “minor” financial events and or matters related to confidential information.

Effective Accounting Systems

Relevant

Current

Accurate

Source Documents

A source document is a record from which financial information is initially drawn and entered into an accounting system.

Examples of source documents: Schedule of employee hours worked Delivery invoices Sales data from register systems

Positions with Accounting Responsibility

Line Position A job held by an Employee who is in the chain

of command; for example, the Restaurant Manager, Department Heads such as the Chef and Head Bartender, and other decision makers.

Staff Position A job held by a technical specialist such as an

accountant, who provides information to but does not make decisions for line personnel.

Bookkeeper

Bookkeepers are involved in some of the processes by which financial transactions of the restaurant are recorded and summarized.

Bookkeeping services are often used by restaurant managers who supply source documents to external bookkeepers who in turn develop records, reports and financial statements for the manager.

Accountant

Accountants often perform duties that include designing and monitoring the data collection system and source documents, summarizing information in financial statements, developing management reports, coordinating budget development, collecting information required by tax authorities and completing required external reports.

Controller

This is generally the Chief Accounting Officer in a large restaurant organization and oversees development and implementation of the accounting system.

Usually the Controller supervises many employees in accounting departments.

Food & Beverage Controller

Usually develops a wide variety of routine operating and control reports.

For control purposes usually this person is responsible for product receiving, storing and/or issuing.

Internal Auditor

Large restaurant corporations may employ internal auditors to evaluate the operating effectiveness of the accounting information system.

External Accounting Positions

External accountant (Such as a CPA) performs this service for a fee, rather than as an employee.

External Auditors can be used to verify whether financial statements accurately reflect the financial position of the restaurant.

Five Step Processto control resources

1- Establish Performance Standards (set a budget)

2- Collect financial information to measure the results of the operation

3- Make Comparisons between expected performance and actual performance

4- Take Corrective Action when necessary 5- Evaluate the results of the corrective

action

Relationship between the Manager and Accountant

The Manager must be in charge of the restaurant and must be the decision maker.

The most effective balance between the Manager and Accountant is when the Accountant serves in a “Staff” position, which generally is an “Advising” position

Passive Managers Some Managers are very passive because

they are unfamiliar with accounting principles or the use of accounting systems.

These Passive managers usually: “Do what the accountant says” Never question the accuracy of accounting data Use accounting data regardless of how it is

presented, even if they don’t understand it Defer to the accountant the responsibility of

making financial decisions View the accountant as a “Necessary Evil” rather

than as a partner.

Proper Relationship between the Manager and Accountant

The Manager must know the information required for the short and long-term control of the restaurants operation.

Once the Manager knows what information they need, the accountant can offer advice on the best way to gather that information.

After receiving input from the Manager the accountant should design the information collection system that gathers the information needed for both management and accounting purposes.

Proper Relationship between the Manager and Accountant

Once financial statements are developed, the accountant can assist the Manager in analysis and make corrective action recommendations

Wise Restaurant Managers carefully consider the advice of the accountant, however realize that it is ultimately the Manager’s responsibility to make the operating decisions.

The Manager should ask questions about how the information was collected, and any potential for inconsistencies.

Assignment for Next Week

Read Chapters 1 – 2 – 3 in the book, “Restaurant Financial Basics”