Marketing strategy

Your marketing strategy is one of the most important weapons in your toolkit to find and keep customers, reach sales objectives, and secure a high income for yourself. When developing a marketing plan, the most important rule to keep in mind is to know your market. Know your product/service well and know your competition even better! Every business owner needs to be able to answer at least all of the following questions in order to be able to develop a sound marketing strategy:

What is the age of your customers? Do the customers tend to be more males or females or equal? What is the education level of the customers? What is the approximate income level of the customers? What occupation(s) are most representative of your customer? What are your customers preferences when it comes to eating out? Do your customers have any particular buying patterns?

These questions need to be answered not just at the beginning but throughout the restaurant ownership process on a regular basis. As you answer these questions, be sure that all your marketing efforts are reaching your target customers. To help answer these questions, seek help from trade publications, vendors and your own personal research into the neighborhood and competing restaurants. Remember that markets are dynamic; they change and evolve over time. You must keep up with these changes and adapt your business to match these changes, if you intend on staying in business for a long time. An important distinction in marketing any business is the subtle difference between its features and its benefits. A feature is used to describe what you sell: for example, the service may be fast. However, a benefit is used to describe why the customer is buying your product or service: for example, the service may save the customer time. Put yourself in the position of one of your customers and try to answer the question: Why would I want to go to this restaurant? Use your answer to come up with a list of benefits (not features) associated with your restaurant. This list will help keep advertising costs down because you will focus directly on the restaurants benefits. Do not make the mistake of assuming you automatically know your customers preferences without researching it! Starting a restaurant is a timeconsuming and costly endeavor. Researching your target market is too important of a step to try to save some time. One way to keep track of your competition is to create file folders for each one of them. Collect ads that they run in the newspaper and put the ads in their file. If the competing restaurant runs sales a certain time every month, note that down in their file. Has the restaurant been targeting the business lunch crowd recently? Jot that down. By creating folders for your competition, you can keep all your research organized and in one place.

Starting restaurant .com

Balancesheet

As a restaurant owner, you may occasionally want to know what your business is like on a given day. The balance sheet is like a financial snapshot of your restaurant. It lists the value of all your restaurants assets and liabilities. Total liabilities are subtracted from total assets to generate a net worth or net value of your company on a particular date.

When looking at a balance sheet, it is important to keep in mind that you are only looking at the financial situation of your restaurant on a specific date. The balance sheet might look entirely different on another day. Investors use balance sheets to look for trends to determine the overall health of your business. Does your restaurant usually have a positive or negative net worth? Is it gaining or declining in net worth? They are interested in long-term trends and are not looking at balance sheets for specific periods in time. The following is a sample balance sheet. You can input the values depending on your restaurants situation. You may have different types of assets and liabilities. Here is what a typical balance sheet looks like:

ASSETS Current Cash Accounts Receivable Food Inventory Beverage Inventory Supplies Inventory TOTAL CURRENT ASSETS Fixed Land Building Equipment Fixtures Vehicles TOTAL FIXED ASSETS NET WORTH

LIABILITIES Current Salaries Owed Accounts Payable Taxes Owned Loans

Long-term Mortgage Term Loans

TOTAL LIABILITIES

Assets are listed on the left hand side and are categorized as either Current Assets or Fixed Assets. (Current assets are any assets that are expected to or can be easily converted to cash within a year. Fixed assets are any assets that take longer than a year to convert to cash.) Add up all your assets to determine the total assets for your restaurant.

Liabilities are listed on the right hand side. Like assets, liabilities are classified as current or noncurrent/long-term. (Current liabilities refer to items that are expected to be satisfied within the next twelve months, such as paying your food vendor for a purchase. Noncurrent liabilities are those liabilities that are not expected to be satisfied within the next twelve months.) Determine the total liabilities of you restaurant by adding up all the liabilities. The net worth of your restaurant is the difference between the total assets and the total liabilities. This is the value of your restaurant on a particular day.

BalanceSheet
The health of a restaurant can be analyzed from the Balance Sheet at any point in time (i.e. today, last month or tomorrow). The Balance Sheet allows operators to forecast short and long-term cash flow. As important as it is to review the Balance Sheet, few restaurants ever bother to prepare it. By checking the accuracy of the Balance Sheet, an operator can ensure the accuracy of the Income Statement. The Balance Sheet lists all the assets, liabilities and equity of the restaurant. The formula for the Balance Sheet is:

Assets = Liabilities + Equity

In the simplest terms, assets are what the business owns such as equipment, inventory or cash. Liabilities are what the business owes such as vendor bills, loans, notes and leases. Even a gift certificate is a liability because the restaurant owes someone a meal at a future date. Equity is the ownership of the business. The most common form of equity is stock. Whoever owns the stock owns the equity. (For example, the 5 million shareholders of Microsoft own the company. Bill Gates just owns the largest number of shares). It is important that assets and liabilities are properly classified on the Balance Sheet. To get a clearer picture of the business, an operator should break down the Balance Sheet into sub categories. The breakdown is explained as follows: Current Assets - assets with life less than a year (i.e. cash, credit card receivables, inventory and prepaid expenses). Fixed Assets - assets with a life greater than a year that directly attribute to producing revenue (i.e. equipment, computers, furniture and leasehold improvements). Other Assets - assets with a life longer than a year that are not directly involved in the production of revenue (i.e. security deposits, trademarks and artwork). Liabilities require a similar classification and are broken down as follows: Current Liabilities: debts due within one year (i.e. accounts payable, accrued expenses, short-term loans and even gift certificates).

Long Term Liabilities: debts due that extend beyond one year (i.e. notes payable or long-term leases). There is so much information to be gained from the Balance Sheet. For example, a restaurant that has large debts may have major cash flow problems. Identifying the current debts from the long-term debts on theBalance Sheet help determine the short and long term cash needs, as well as the business potential success. Restaurateurs who take on large debts upon opening could be shooting themselves in the foot. The restaurant may show large profits based on the Income Statement, but the restaurant may not have money because it is paying out the outstanding debt (which is revealed in the Balance Sheet). Most restaurants are set up as Partnerships or Sub Chapter S corporations. These entities pass the profits on to the individual owners personal income tax returns. Note, if a large tax liability develops, there would be no funds available to make a distribution to cover these taxes. The Balance Sheet of Garys Tavern is shown on the next page. Garys Tavern was financed with a lot of debt (see liabilities section of the Balance Sheet). There is a total notes payable of $775,000 (sum of the notes payable current portion and notes payable long-term portion) and $175,000 of this balance is due every year. Accumulative interest is shown at the bottom of the Income Statement (interest payments are in excess of $4,000 a month). The first $232,000 of Garys Tavern net cash flow will be used to amortize and service its debt. The following illustrates the funds paid back to Garys Tavern investors: Interest Principal Total $ 57,000 $175,000 $232,000

To gain an even better understanding of the financial condition of Garys Tavern, a ratio analysis should be calculated. The following key ratios should be used when reading the Balance Sheet: 1) Current Ratio = Current Assets (CA) Current Liabilities (CL) Current ratio should be 1:1 or greater. Garys Taverns ratio is .9:1. This ratio measures the current health of the business and indicates short-term cash flow. To get a better sense of its liquidity and cash flow constraints, the quick ratio is a better indicator. GARY'S TAVERN BALANCE SHEET OCTOBER 31, 20XX ASSETS
CURRENT ASSETS CASH CHECKING CASH PAYROLL CASH MONEY MKT. TOTAL CASH AMEX REC. $782 2,500 10,000 13,282 25,120

VISA/ MC REC. HOUSE ACCOUNTS PREPAID EXPENSES INVENTORY FOOD WINE LIQUOR BEER OTHER BEV TOTAL INVENTORY TOTAL CURRENT ASSETS FIXED ASSETS FURNITURE & EQUIPMENT LEASEHOLD IMPROVEMENTS ACCUMULATED DEPRECIATION NET FIXED ASSETS OTHER ASSETS SECURITY DEPOSITS LIQUOR LICENSE ARTWORK TOTAL OTHER ASSETS TOTAL ASSETS

10,500 15,000 10,000 60,620 20,000 200,000 35,000 7,000 5,000 267,000 340,902

215,000 1,000,000 1,215,000 (140,000)

1,075,000

20,000 5,100 75,000 100,100 $1,516,002

LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES CURRENT PORTION ST DEBT ACCOUNTS PAYABLE ACCRUED WAGES ACCRUED INCOME TAXES ACCRUED PAYROLL TAXES GIFT CERTIFICATES PAYABLE TOTAL CURRENT LIABILITIES $175,000 150,000 20,000 5,000 15,000 16,000 381000

NOTES PAYABLE LT. PORTION

600,000

TOTAL LIABILITIES STOCKHOLDERS' EQUITY CAPITAL STOCK PAID IN CAPITAL RETAINED EARNINGS

981,000

1,000 199,000 75,000

NET INCOME TOTAL STOCKHOLDERS' EQUITY

260,002

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY

535,002

$1,516,002

2) Quick Ratio =

Current Assets-Inventory Current Liabilities

Garys Taverns ratio is .2:1. This ratio indicates the liquidity of the business and should be .7:1 or better. Garys Tavern may have too much money tied up in inventory. This could affect cash flow as well as purchasing power with vendors. 3) Working Capital Ratio = Total Assets Total Liabilities Working capital ratio should be 1:1 or greater. Garys Taverns ratio is 1.55:1. Longterm cash flow does not appear to be a problem. 4) Debt to Equity Ratio = Total Debt Total Equity Garys Tavern ratio is 1.8:1. This ratio determines if a business is undercapitalized. Garys Tavern may be slightly over-leveraged. 5) AP (Accounts Payable) to Sales Ratio = Accounts Payable Sales AP to Sales should be 50% of sales. This ratio measures how current a restaurant is with vendors and indicates future cash flow. Garys Taverns ratio is 68%. This is a high ratio and may indicate short-term cash flow concerns. Based on the Balance Sheet and Income Statement analysis, Gary's Tavern is a successful restaurant. It has strong profits and controls a majority of its costs. However, it does have some cash flow constraints due to the large inventory on hand and the amortization of debt. To free up funds immediately, Gary's Tavern should shrink inventory and maximize its bottom line profits. If sales drop off, it may have trouble meeting its debt service. Without an accurate Balance Sheet, this kind of crucial financial information would tend to be overlooked.