"Bottom Line" = profit (or loss) = the low point?

The last few days of class have been long and draggy. Even though Chef Stazi is an organized and energetic teacher who makes a real effort to make the material interesting and relevant, we're discussing all of this at such a rudimentary level that I find it hard to stay engaged. Tomorrow and the next day, we'll be doing some tastings along with lectures, and our final is on Friday, and we move on to European Cuisine next week. I'm hoping that we've hit bottom.

We talked about three main topics today: food and beverage costing, equipment and property leasing, and finance. Chef Stazi defined "fixed" versus "variable" costs: it's not that "fixed" costs don't change, it's that they're not related to changes in sales. Chef repeatedly told us that the concepts we're learning now will come into play in our next business course, in ten weeks or so. Rumor has it that he'll be teaching us again. That would be okay. When he tells the class that we'll be creating our own proforma financial statements, the fear is palatable.

Most of the "meat" for this part of the class, for me, is the specialized F&B information that I'm getting. Things like contracts for (exclusive) soft drink dispensing. A typical expense sub-category, under Marketing, called "IHP," or In House Promotion: "giving away food is more impactful than a flyer." The number one reason for restaurant failure is undercapitalization.

It really is amazing, though, what you can learn in an hour and a half. Chef outlined the steps to take when starting a restaurant in order to determine your funding requirements. First, how much do you have? Calculate your personal net worth. Determine start-up costs: add together design and construction costs, permits, inspections, insurance, opening inventory, money to live on... the list is long. Figure out how much you need to stay in business for a year. Forecast sales volume: use your accumulated knowledge to make a best guess. Look at multiple scenarios. Prepare proforma P&Ls, Balance Sheets, and Cash Flow Projections. When you've done this, you'll know how much you need to borrow. Better yet, find investors.

"The Bank" is apparently a terrible place to go to borrow money, if you want to open a restaurant. (They're not big on risk, and a new restaurant is nothing if not risky.) If you borrow money from friends or family, it's important to document rate, term, and penalties for non-payment, and to have a decent interest rate, or the IRS will consider the "generous no-interest loan" a gift, and tax you accordingly. And there's an inverse relationship between low interest and the ease of effort in obtaining the funds. See: credit card interest rates versus prime plus one.

We ended the class with a discussion of alternate lending sources, most notably the SBA, and grant monies available through economic development and urban development projects. I liked the spirit of this discussion: the "win/win" that is implied when you locate your business in an area that needs you.

Tomorrow: two quizzes, several student presentations, two lectures (one on beverage law, one on beer and spirits), and then a tasting!!