Until you have a firm grasp on your restaurant’s financial statement and balance sheet, it will be all too easy to mistakenly think your business is doing much better than it really is.

The 3 Components to Your Restaurant’s Financial Statement

Despite its importance, the financial statement for your restaurant in New Mexico is fairly straightforward and easy to understand. It’s made up of the following four components:

1. Profit and Loss Statement

This one’s pretty much self-explanatory and the basis of the three financial statements. It shows you how much money you have left after deducting all the costs of your restaurant from the total revenues it brought in.

For this reason, you may have also heard this component referred to as an income statement.

To get a better sense for where your money is coming from and going to, break down both your income and costs.

For example, when looking at your profits, you could categorize the different numbers by:

  • Takeout
  • Delivery
  • Dine-in

Use whichever categories make the most sense for your restaurant and do something similar for your costs.

2. Cash Flow Statement

This may seem similar to the above, but your cash flow statement tells you how much money you actually have in your account compared with how much you have “on paper.”

Money coming into your restaurant is called “inflow.” Cash moving out is “outflow.”

Money coming in via credit does not count as cash inflow until it’s actually paid.

Similarly, debts are only recorded as “cash outflow” after they’ve been paid. The total balance of the debt isn’t recorded either because it hasn’t all been paid and, therefore, doesn’t affect the cash in your account.

By keeping an accurate cash flow statement, you’ll always know how much money you have available, which will keep you from overestimating your ability to spend.

3. Changes in Equity Statement

Your changes in equity statement does two things:

  • Measures your establishment’s overall value
  • Measures your personal contribution to the restaurant

The report starts with the initial equity in your restaurant at the start of the period (either a quarter or a year). On your first equity statement, this will be zero.

“Additional contributions” will cover everything you contribute during the period. Make sure you record not just the dollar amount but what the total was for, as well.

You also need to document any withdrawals that you made during the period for personal expenses.

Your Restaurant’s Balance Sheet

Your restaurant’s balance sheet will show you your restaurant’s net worth.

On one side is assets and on the other is debt and liabilities. If you imagine your balance sheet as scales with these two metrics on both sides, this statement will tell you which one it’s tilting towards.

If you subtract debt and liabilities from assets and get a positive number, you’re profitable. If you get a negative number, you’re “in the red” and need to make some changes.

The other way to tell if you are “liquid” is to calculate the quick ratio. This ratio is calculated by adding cash, cash equivalents, short-term investments, and current receivables together then dividing them by current liabilities. The quick ratio measures the dollar amount of liquid assets available for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities.

The current ratio is another calculation based on your balance sheet that gives you good quick information. Simply put, the current ratio is calculated by dividing current assets by current liabilities: Basically this ratio calculates if you have enough liquid cash to pay your current liabilities.

Join the New Mexico Restaurant Association for More Help

Are you a restaurateur who would like more help in the future keeping your establishment profitable or even expanding to another location?

Then join the New Mexico Restaurant Association today for more expert advice and amazing opportunities.