This Is Why Financial Planning Should Be In Every Chef’s Skill Set
The restaurant industry is a notoriously difficult place to do business. There are many reasons why first-time operators fail, but one of the most overlooked factors might just be the simple day-to-day bookkeeping. Understandably, most aspiring professionals, especially those chefs who want to open their own restaurant someday, don’t approach the subject of financial planning with exorbitant enthusiasm. It can be cumbersome work, and a talented culinary leader would probably rather be working on his menu than tracking expenditures. But there’s little doubt it’s a crucial tool for employees at all levels of the industry if they want to survive.
When students walk into my Personal Finance class at The Culinary Institute of America, I challenge them with what sounds like a simple task at first glance: For the next 30 days, financially speaking, track everything that comes in and out. This can be difficult for a lot of people. However, it’s the first step toward setting an honest budget. And having legitimate financial benchmarks can make or break any career, especially one as dynamic as the restaurant profession. In this industry, definitely more so than most, you can watch the bottom line soar and plummet with alarming regularity. This is true of all workers, from a tenured restaurant owner to a first-day server. Given the myriad of fluctuating factors tied to success, such as seasons, sourcing, and changing trends, there are going to be bountiful weeks, and there are certainly going to be difficult ones. With that in mind, understanding how much money is flowing in each direction is vital to developing the foresight to understand what needs to be saved and what should be spent.
Patience is another critical factor that isn’t stressed enough. Trying to do too much, too soon, can be a recipe for financial disaster. Instead of attempting to open a restaurant right out of college, it might be better to accrue some real-world experience and develop a network of positive mentors. I think the perception that most restaurants fail because they don’t have enough start-up capital is misguided. I believe most falter because the owners involved are not paying close enough attention to day-to-day finances. It’s the budgeting and planning part that turns out to be their downfall, not necessarily lacking a stellar bank account.
If this all sounds daunting, the reality is that operators don’t have to be accountants. There are software and third-party options available. Approach with caution and be sure to stay on top of the books, however. No business owner should ever know less about his operation than the accountant does.
Alternative financing is another hot topic. There are relatively new options, like crowd sourcing and Kickstarter, as well as your more traditional methods. I look at it this way, though: Chances are, if a bank turned down your request for a loan you should reevaluate your finances. Being denied credit is a chance for reflection. I always encourage operators to stay away from the quick, high-interest options that will step in when banks shut the door. In that scenario, it might be best to ask yourself, “Is this the right time to do this?” instead of seeking out other lenders.
One financial area where I do suggest seeking outside help is payroll. If a business owner has more than one or two employees, it’s always best to outsource this work. The penalties and interest for filing payroll taxes incorrectly are really harsh, and can be more than if someone files their income taxes incorrectly.
This is also a business where a lot of income goes unreported—and that is stating it lightly. My position as an accountant is to report everything, from the smallest tip to the biggest multi-unit transaction. We spend a lot of time talking about taxes, and it’s a concern that can surely catch up to you later in life.
Like we hear all the time at the CIA, it all comes down to mise en place. This unquestionably applies to finances as well as kitchen prep. Keep everything in order, develop proper habits, and the rest will take of itself. Then, in line with the original goal, chefs can get back to doing what they love most: making food, making guests happy, and, of course, making money.
Cameron Rabe is an assistant professor of business management at The Culinary Institute of America. He teaches the Personal Finance, Corporate Finance, and Intraventure Planning courses in the CIA’s Food Business Management major.