The Value Of Having An Accurate, Timely Financial Report

While there are various advantages to having accurate and timely financial accounts, we have chosen a few of the most important ones.

1. Recognizing the Financial Condition of Your Business

A professional financial statement may display the overall financial position of your organization. The balance sheet, income statement, and cash flow statement are the three primary financial statements. The balance sheet displays the owner’s equity after subtracting the obligations from the assets. The income statement, commonly known as the profit and loss statement, displays the profit generated from revenue over a certain time period. A cash flow statement is a useful tool for determining if a firm has sufficient cash flow to cover its operating expenses. Cash flow projections may be made over many months. The Income Statement illustrates the restaurant and hotel’s performance over a certain time period (i.e., a week, month, or year). It accounts for all restaurant and hotel costs, both those prepaid and those paid in the future. Overall, the income statement indicates whether or not the firm is profitable. The operator may then begin making policy adjustments and adopting tactics that will assist the restaurant in accomplishing its objectives. Should new sales programs be implemented? Are food costs consistent with menu pricing? Is the restaurant’s budget being met? Are distributions to the partners permissible? These are some of the most important questions that must be answered. The fundamental formula for a Statement of Income is:

Profit/Loss = Sales-Cost of Goods Sold-Expenses

Everyone’s favorite financial statement to analyze is the income statement, since it indicates the nature of the restaurants’ and hotels’ performance. Financial statements for restaurants and hotels should be separated into the following categories:

Controllable • Occupancy • General and Administrative • Depreciation • Interest • Other Income

If sales and costs are split down into particular categories, the operator may readily compare and assess the percentages of his or her restaurant and hotel against industry norms. Timely financial reporting will aid in controlling the cost of commodities sold, such as the cost of beverages and meals.

At any moment, the health of a restaurant or hotel may be determined by the balance sheet (i.e., today, last month, or tomorrow). The balance sheet enables businesses to predict their short-and long-term cash flows. Despite the importance of reviewing the balance sheet, few restaurants actually prepare one. An operator may validate the correctness of the income statement by confirming the accuracy of the balance sheet. The balance sheet details the restaurant’s assets, liabilities, and equity. This is the formula for the balance sheet:

Assets = Liabilities + Equity

In the most basic sense, assets are the things that an organization possesses, such as equipment, inventory, and cash. Liabilities include invoices from vendors, loans, promissory notes, and leases. Even a gift voucher is a liability since it obligates the restaurant to provide a meal in the future. Equity is the business’s ownership.

The classification of assets and liabilities on the balance sheet is crucial. An operator should subdivide the balance sheet into subcategories to have a better understanding of the company. The breakdown is described below.

• Current Assets: assets having a duration of one year or less (i.e., cash, credit card receivables, inventory, and prepaid expenses).

• Fixed Assets: assets having a useful life of more than one year that contribute directly to generating income (i.e., equipment, computers, furniture, and leasehold improvements).

• Other Assets: long-lived assets that are not directly engaged in the generating of revenue (i.e., security deposits, trademarks, and artwork).

Similar categorization is required for liabilities, which are categorized as follows:

• Current Liabilities: bills due in the next 12 months (i.e. accounts payable, accrued expenses, short-term loans, and even gift certificates).

• Long-Term Liabilities: bills due more than one year from now (i.e., notes payable or long-term leases).

The balance sheet provides a tremendous amount of information. For instance, restaurants and motels with huge debts may have severe cash flow issues. On the balance sheet, separating current obligations from long-term debts helps assess the short- and long-term financial requirements, as well as the business’s potential for success. When restaurateurs and hoteliers incur substantial opening-day debt, they may be shooting themselves in the foot. The restaurant’s income statement may indicate huge earnings, yet the business may not have any cash since it is paying down its debt (which is revealed on the balance sheet).

As the majority of restaurants and hotels are organized as partnerships or Subchapter S businesses, all business costs and revenue must be disclosed to all partners.

2. Sales Pattern

The annual revenue of a restaurant owner or hotelier is shown by the financial statements. The sales may vary, but financial planners should be able to discern a trend in the sales data throughout the years. For instance, restaurant and hotel owners may see a rise in revenue when a new product is introduced. After a year or two on the market, the product’s sales may decline. This is advantageous since it reveals sales potential and tendencies, allowing management to anticipate a sales decline.

Financial statements will aid in budget preparation and financial decision-making.

Timely financial reporting can help you establish a budget and make it easier to make business-growing financial choices.

4. Improved financial management

Timely financial reporting facilitates the examination and correction of any financial system shortcomings. Better money management enables you to concentrate on current financial concerns and build goals for the future.

5. Better resource management

Due to timely financial reports, restaurant and hotel owners will get correct resource counts, allowing them to make optimal use of all available resources.

6. PERFORMANCE EVALUATION

Under this sort of accounting technique, business owners may evaluate the contributions of employees to the company’s financial success.

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