He dines out several nights a week, often at his clients' establishments, and for the most part certified public accountant Greg Jonson is able to enjoy the meal without fretting over the financials. He's an accountant for about 120 independent Richmond restaurants, and has seen them through the thrills and spills of success and shut-down. Style Weekly asked for some of his insights into a business where every dollar counts:
The primer before the paint: As far as my advice to restaurants, determine what the cost is on a plate of food down to the ketchup and mustard, including the payroll, the rent. You've got to have financial data.
Sometimes when people open up a restaurant, they may not have a clear picture of the actual costs they're going to incur. They may be missing big pieces, so their initial projections are invalid. Then when they actually open, all of a sudden they're trying to pay all their vendors and their bills and their rent — and guess what's on the back burner? The taxes. Months go by, they're late on payroll taxes, they're not paying the sales tax. Once you get behind, you can't always catch up.
You need a high-energy personality, a staff where the customer is first, a smiling face, being attentive, having a place that's clean, where the bathrooms are clean. Realizing that profitability is not what they might perceive it to be, and they should look at that before they even open up.
Getting on the money train for a new restaurant: When they don't have the money, they try to get financing, and lenders run the other way unless you're a franchise. So then they go to family members or private sources, and in many cases, they just don't have the money to make it happen. They open and drain every dime and they can't make it. They think they'll spend $100,000 and it ends up being $200,000, that's very common.
Competition is stiff, which makes profitability a relative term: In Richmond right now, we're seeing a lot of new restaurants, but they're also closing and selling. It's gotten fiercely competitive. Maybe you saw one restaurant on a block, and now you're seeing two, three, four popping up. Then you've got a pricing issue, and the big chains have kept their prices down and are discounting.
A lot of our clients are small, and their average sales are probably $50,000 to $100,000 a month — that's a typical, small independent restaurant in the Fan. The three main things that restaurants are looking at are food and alcohol costs, which have continued to escalate, labor costs and the percentage of rent as a percentage of sales.
For food, 30 percent is ideal, and pasta and pizza can get closer to that than steaks and seafood, which might be 35 to 40 percent. Labor and payroll taxes should be 25 percent, and rent we like to see under 7 percent. If those three components are in line, that allows a profit of 5 to 10 percent. If they're not busy and the rent is high, they're getting squeezed and it's virtually impossible to make a profit.
Trends are a curse or an opportunity: People are much more health conscious now. The younger generation wants the organic, the local. These restaurants need to be aware of customer wants and be proactive with their menus. They definitely get stressed out about trends. They're comfortable with their routine, but sometimes you have to get out of your comfort zone to be competitive. Some places don't have to change, but many places do. Some of my clients have menus that are very elaborate. But for some, the smaller, simpler menus are better.
Tip in cash, not plastic: It's probably best to tip in cash. The servers get it more quickly and the credit card companies don't get their cut [as they would when the tip is charged].
The pain of closing a restaurant: It's difficult. In many cases that was their dream, and they've gone through a lot of personal wealth or their life savings and it's extremely distressing. You try to help them stay positive, but there's nothing easy about that.
I think it's a misunderstood industry. People walk in and they see the big busy Saturday night, but they don't see the other 70 hours. Some people make it work even when they're struggling. It's kind of amazing how they keep at it. This is what they've chosen to do.
When it's good, multiples might follow: Those owners who are successful are very happy and motivated. When they see the success it motivates them even more. They're excited when they see the financial statements. They're very proud of what they do — they're out there every day working hard. I want all of my clients to be successful, especially the chefs. They're artists and sometimes they need help on the financial side. S