Financial Tips For Restaurant Owners (Ep 204)

In this episode of the Running Restaurants.com, host Jaime Oikle interviews Jonathan Rosa, the President at Moura CFO. Jonathan shares his experience growing up in a restaurant family and working at Burger King headquarters. He discusses the financial challenges restaurant owners face and offers strategies to improve profitability, such as reviewing financial reports, managing costs, and calculating waste. He also emphasizes the importance of cash flow forecasting and exit planning.

Other highlights include:

• Differences between big corporate operations and independent restaurants
• Slim profit margins in the restaurant industry
• Tips for increasing restaurant margins, including raising prices and managing costs
• Importance of regularly reviewing and analyzing financial reports
• Story of a client improving gross profit through changes and monitoring inventory
• The 80/20 principle and focusing on key systems and details
• Importance of cash flow forecasting and waste calculation
• Exit planning for restaurant owners and factors for a successful exit
• Importance of building processes, systems, and delegating tasks for a profitable exit

Be sure to check out the episode. Find out more at https://www.mouracfo.com & https://www.runningrestaurants.com.

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Financial Tips For Restaurant Owners With Jonathan Rosa

Welcome here to the show. We're bringing you the tips, tools, and techniques you need to make your restaurant more profitable and successful. Got a great episode for you with Jonathan Rosa, president at Moura CFO. Jonathan, welcome. Let's get started with some backstory. Tell us about how you grew up. I know you had families in the restaurant business, so maybe you start there and we'll just let it roll what you got.

Jamie, thank you for having me. I really appreciate it. I am a Bostonian. I was born and grew up in Boston we're actually from similar areas. Dad has been in the restaurant industry since I was born basically 30 plus years in the restaurant industry. Has been a restaurant owner for 20-plus years. I grew up in restaurants. When I went I went to school in Boston, went to BC, and then my first job out of college was at the Burger King headquarters in Miami.

I moved to Miami in 2015. While I was there, I was in the financial planning and analysis department, helping with budgeting, forecasting, goal setting, analysis of the financials, and reporting. I left in 2019. I always wanted to start and have my own business and to be able to help business owners like my dad. Since 2019, more CFOs has been helping restaurant owners to understand their finances, to better organize their finances, and use that to help them make better decisions, grow their profits, and accelerate their cash flow.

Understand Your Fundamentals

It's funny. Yeah. We talked briefly before we started recording and we had some similarities. We grew up in the same area, and have lived in the same area. I remember when I lived in Miami, I remember the BK building over towards the airport unless I'm totally mistaken. You could see that and so forth. Let's maybe stick there for a quick second. Big corporate operation. I'm sure a lot of systems, a lot of controls, and we talk more to the independent audience. A lot of times we see that they don't necessarily have that. A lot of it is on the fly. This is how I do it. This is how I think it should be done, but not a lot. We'll probably get more into that, but what did you see right away when you landed at a big corporate behemoth like Burger King?

I saw that contrast because I've been in both worlds. I grew up with my dad's very basic gut-feeling intuition business decisions. When you get to a big firm like Burger King, it's completely different. Everything has a system. They spend millions of dollars on what they call ERPs, which are basically the big systems that they use to generate the dashboards and the analytics. We have access to a level of detail that you wouldn't even imagine but the one thing that I learned was despite the size of the business, the fundamentals are always the fundamentals, and the big decisions always come down to basic math, but you need to understand your fundamentals. That's what I learned well at Burger King.

Know Your Numbers

The math of the restaurant business, it's a fascinating undertaking. Everyone who is not in the restaurant business believes has this false belief that restaurant owners are millionaires or billionaires. Look at all the people in here. Why am I paying $6 for a beer? They must be raking it in. We know that's not true because ultimately profit margins slide back to 5%, 6%, 12% if you're doing greater, hopefully, a little bit beggar if you're doing really well. Talk about some of that math. Where can restaurant owners find maybe some quick savings, some medium savings, or some long-term savings? That's kind of hash it out a bit.

The big risk with restaurants is despite people thinking you're rich, there are so many processes, there's so many things that go on, uh, to deliver that beer or to deliver that plate. There are many opportunities for you to get something wrong and anything that you get wrong can basically get rid of your margin. Understanding your margins is fundamental. Having a good understanding of how profitable you actually are. You need to understand that. You need to know your numbers in order to make better decisions. Easy tip or quick tip. This isn't easy, but it is very simple. One of the first things that I always want to look at with restaurant owners is, do we have any opportunity to take the price or to increase the price on menu items.

If we do, and we're not going to lose a significant amount of business by doing that, that is the quickest way to increase your margin without hiring more, without investing anything, without buying anything. As business owners, we are usually the hardest negotiators with ourselves. We tell ourselves a million reasons why we cannot take the price or increase the price and that works against us. That's one of the things that I often push and challenge restaurant owners to understand is, can you increase the price of things? If you can, most of the time you can. That is a very easy additional profit.

We've seen, obviously inflation everywhere and restaurants. I think a lot of restaurants have started that process kind of naturally, but what I think your point is getting to is there may be even more opportunities. What happens at a restaurant and maybe you forget about this when you're in the day-to-day running? You have that, we call it, I know my buddy, Roger, you have that captive audience. They're there, they're willing to spend.

As long as you're delivering that experience, $1 more for the steak and 50 cents more for this and that. Those things go away as long as the experience is being delivered. Price is absolutely an opportunity. What about the cost side, what are some things people can look at right away? Where are things getting dropped? What mistakes can be made that really hurt? What do you think?

I'm going to sound like a broken record a bit, but I'm going to go back to, if you start looking at the numbers, for example, when you're talking about lowering costs, two major costs that we need to look at our food costs and labor costs. Obvious, right? Every restaurant owner knows that. Now the question is, how often do you actually look at those numbers? If you look at them and they are correct on a monthly basis and you're looking in detail, you're doing your inventory, which I was surprised, very surprised when I went and started to work with restaurant owners, how common it is for restaurant owners not to do inventory or to do it very sporadically. Just doing the inventory will almost automatically start to unlock savings. It's that saying, I think it was Peter Drucker, I don't remember who it was what you measure.

Yeah.

Just by looking at it, just by paying attention to it, it will improve.

How Often Should Inventory Be Done

Now you talked about Burger King, for example, and I know they would have spent a zillion dollars on their analytics bringing in data from all the chains into somebody's desktop and they're making decisions across the region and so forth. I know a lot of times independence cannot do that. How often should the numbers be looked at? How often should inventory be done? I mean, I know ideally, it'd be weekly, certainly monthly, but like, what do you recommend when you talk to folks? What advice do you give?

I think the lowest hanging fruit, and I like to use the  80/20 principle. 80% of the results come from 20% of the activities. You don't need to do all the things. You need to figure out what's the most important that's going to bring you the biggest results. When I look at that from how often to look at the numbers, once a month is a good sweet spot to have a good detailed review of your numbers. If you are one of the minority that actually looks at your books closed and they're well organized and you're looking at your reports, once a month 10 to 15 days after the month is over and you're understanding your food costs, understanding your labor costs, and you're looking at it detailed enough, that will be enough for you to start to unlock insights to improve your numbers.

That's a great start. I hear some of the feedback would be, that if you wait too long, you obviously cannot catch something that's ongoing. Any stories from your past where somebody maybe they said, “I cannot believe we missed that mistake.” If been attentive to it, they would have saved a lot of dollars over time. It could be a waste thing, a theft thing, a spoilage thing, where a routine inventory could have caught them, or what other sort of mistakes do you see people make that, man, if they were just more attentive?

That's a good question. I just finished a project with a client and after the pandemic, everything changed. They lost a very significant amount of sales, but last year they had a different chef in place who was a little too generous. The owner wasn't keeping a good eye on the numbers and that was really hurting his gross profit. Their food cost was sky high. Then the GM that he brought on helped to start to rein things in. They changed the chef. When they brought me on, it was kind of like they had already made a bunch of the right changes.

When I looked at the numbers, I saw how drastically the numbers started to change in terms of food costs, just because I saw with the new GM that he was looking closely at the numbers, closely at the inventory. They redesigned the menu, they rethought the portion sizes, and this all contributed to them drastically reducing their food costs. One of the things we identified is that even though he had pretty good control, this is something that's not super easy to get. Burger King has this level of detail, but independence doesn't always. It can be done, but understanding what your waste is.

Calculating waste is basically understanding what theoretically your food costs should be. If you're taking a recipe, costing out the portion of each ingredient, how much the cost of a burger, for example, should be? Then comparing that to what your real food cost was and that difference should be your waste. What your theoretical use should be versus your real use and getting to your waste. Once you understand how much you waste, then you get to start figuring out how to improve it. That's usually a really important thing.

Something you said when you think about, you were talking about the  80/20 rule and I just, I don't know if you've seen this one, but the 80/20 principle. It kind of goes to a whole bunch of things in life. I mean that you get 80% of the results from 20% of the effort. If you, if you really focus on some of the systems you do, it doesn't mean you have to look at every crumb and every detail, but if you do that 80% or the 20% work, sometimes you get 80% of the results. The opportunity is definitely there. Go for a second to me to the family business. You say grew up in a restaurant. Like, did you help with the cash register as a kid? What did you do? As a kid growing up, did you see a stressed family? Did you see like, what was it like?

I grew up in the business. I saw my dad own his first restaurant when I was about I think 6 years old. He started a new restaurant near where we lived in Boston. It didn't work out. I think it was open for a year. He had to close and took on debt. I was super young, but I remember when I was there, I was at the cashier some days. I always loved numbers. I actually knew at 6 or 7 years old already how to give change and actually do that math. That was kind of my first experience, like with my parents as owners.

Then a couple of years later, my dad kind of paid off his debts and then tried a second time with one of the restaurants that he worked at as a dishwasher and then became a manager. He bought that restaurant like 10 years later around when I was 10, 11-ish. From then on, he owned this restaurant. I was every summer working there. It's in Faneuil Hall. I'm sure Faneuil Hall. I was there every summer. What I distinctly remember growing up with my dad operating restaurants there was that every winter was very slow. January was very slow. It was always a huge cash crunch.

My dad always had to figure out, how was he going to cover payroll. How was he going to pay rent during January, February, and March? I always remember thinking to myself, why does every year does this repeat itself? Why cannot we plan in the summer for the cash we're going to need in the winter and we’re having to take a loan or to figure out how to pay things off? This was me as a kid. There wasn't too much I could do at that point. Later on, when I decided to start my business and I had my experience at Burger King, this became the core thing that I always look at first is having a cash flow forecast. Understanding what your cash needs are going to be in the future so that you can plan ahead.

Seasonality is a factor for a lot of restaurants and locations. He's talking about a Faneuil Hall is a very touristy location in Boston. I'm sure in the summer, it's the type of place that's just busy and slammed and going crazy with tourists and visitors, but hit the breaks in January, and February, where it's cold outside and people aren't walking around and so much and being social. Planning for that aspect of it is a big deal. Talk about this, I guess we glossed over it in the beginning, but the main operation of your business is called a fractional CFO. It's like having someone in your business, but they're not always there. It's kind of like a part-time expert help. You can obviously explain it a lot better than that.

A fractional CFO is nothing more than having a CFO, but part-time. They will fulfill the duties and not work for you full-time. You get most of the benefits, again, 80/20. Most of the benefits of having that advice, that guidance, without having to pay the full-time salary of the CFO, which can be very significant. What is that service? I like to compare it to just about every restaurant has an accountant, has a bookkeeper, and accounting and bookkeeping are very important for you to understand what got you to where you are now.

How much profit you've made up until this point? How much cash do you have? How much debt do you have? Accounting and bookkeeping is rear-view mirror looking. I'm looking back and seeing what happened. Most of our goals, our desires, and our fears live in the future. A fractional CFO is the person that's going to look at where you're trying to go, what your goals are and starting from your personal goals and your business goals, and help you with the map to get to those goals using the numbers.

That's kind of a fun sweet spot for you to be in. I'm sure you enjoy that aspect of getting with restaurant owners because they're oftentimes obviously passionate, but there's a lot of challenges in the business so helping them get from point A to point B and so forth is very exciting. Something made me think about exit planning while you were talking. A lot of restaurant owners would like to have a successful exit at some point.

Exit Planning

In my experience, that cannot happen unless a few things are in place, but systems are in place, proven revenue and so forth, and profits are in place, and so forth. Obviously, having good structure and location and buildings and leases and all that stuff plays into it as well. Is that something that you help folks with the exit part and thinking about how to grow the business so it's strong enough to walk away or sell it?

Absolutely, because we're always starting from what's the end goal. What are your long-term goals? That's going to inform what we do in the short and the medium term. We need to think first, what are your personal goals with the business? At some point, people want to retire. Is that in a five-year window, a 10-year window, a 20-year window? What is that? That informs us about what we need to do to get you from point A, which is where we are now to point B, which is that exit point, and everything in between. Exit planning is definitely a part of it.

Restaurant owners, especially the smaller ones, can get up to pretty large sizes as well. There's often so much that is on the owner's shoulders. That just hinders them from exiting profitably because if the business depends a lot on the owner, guess what? The person who's going to buy it, the investor, whoever it is, they're going to have to discount the value of the business because of that, because they're going to have to build a lot of processes, a lot of systems that don't exist because it's all in the restaurant owners lap. The building process, building systems, taking, delegating, removing stuff from the owner, and making sure that the business and its operations are separate from the owner is a key component of getting ready for an exit.

The saying work on your business, not in your business, because yeah, if it's completely reliant on you and you either go down, sick, injured, or want to retire, then the value of the business is greatly diminished. Talk about yourself in terms of geography. Maybe you work with restaurants all over the country or maybe it's regional and all, you can add to that. Is there a restaurant size? Is it independent? Is it two locations, or five locations? What sort of is the sweet spot for you?

We work nationally. A lot of the work we do is virtual. I work a lot, obviously in Boston where I grew up and my dad's a restaurant owner up there. I obviously have a network up there and down here in South Florida where I live. I work with clients from all across the country. I think a sweet spot for us is usually restaurants between 2 million in revenue to 10 million in revenue. It can be one location can be multiple. Ideally, single owners or not too many owners. Sometimes we'll work with restaurant owners that are restaurants that are a little bit smaller maybe for a million and a million and a half in a year in revenue, but I sweet spot between 2 and 10.

Quick Tips

Good. We hit quite a bit in a short little take there, but what didn't we talk about that you'd want people to know some other quick-hitting tips for restaurants that people aren't paying attention to maybe, what do you think?

To learn cash flow forecasting. That's the first thing that we help business owners with is understanding the cash flow in their business and forecasting it. It's not as complicated as it seems. That's the thing that I think that restaurant owners get stuck in a lot of metrics in pulling the reports and the KPIs. One question that I want to ask you is, do you have a true understanding of how cash flows in and out of your business? Can you predict that? If you can, fantastic. You're the top 10% of owners. If not, do some research on how to cash flow for your restaurant. That's one of the best things that you can invest in learning.

Good. I like that. Something else came to my mind. I'll kind of ask you as a last question, anything you've seen staff-wise and where I'm going is it's become more expensive in the restaurant business to hire people versus 2 years ago, 5 years ago, 10 years ago, minimum wages changing all over the place. Staffing was difficult to get. Restaurants had to up that. How has the budget of labor impacted restaurants? What do you think?

Restaurant owners are having a difficult time recruiting and budgeting for that higher labor. My advice has been to make sure that you have the right culture in place to attract the right people and retain the right people. Improve your process, improve your system so that you can be more efficient, and try to hire less headcount with higher quality because the reality is if you want to track good people, you're going to have to pay more. In order to pay more, sometimes you need to learn how to do more with less. That's about having better processes, and better systems. That's the advice that I give.

Good tips there. Send them to the website or if there are social you have or other channels you have. Where do you want them to go?

You can find me on my website. MouraCFO.com or look for me on LinkedIn. Again, you can search for more CFOs and search for my name and I'll be glad to connect.

Perfect. Awesome. Good stuff there, Jonathan. I appreciate it, folks. That's Jonathan Rosa of Moura CFO. You can find them on the web at MouraCFO.com for more great restaurant marketing and operations service people and tech tips. Stay tuned to us here at RunningRestaurants.com. In the meantime, we appreciate it if you could like this episode, refer it, or make a review that really helps us. We appreciate it. Thank you so much. We'll see you next time. Thanks, Jonathan.

Thank you, Jamie.

Important Links

• Jonathan Rosa
• Moura CFO