Most restaurant businesses are started with debt. Some, unfortunately, are drowning in it as the business environment changes and the leverage becomes too much.
Bad debt management can ruin your business – and, in too many cases, it can ruin the lives of business owners. Getting out of a bad debt situation is very difficult, but in many situations it is possible. To make that happen, it’s critical to have an expert accounting solution on your side.
Here’s what that looks like.
The Typical Role of Accounting
First, let’s push back against the most typical perception of restaurant accounting: many businesses view it as a utility. They believe it should run in the background, working the way it needs to – and that’s about it.
If this is how you view your accounting functions, your debt management capabilities will suffer.
The reality is that accounting is fundamentally tied into the complexities of business equity, debt, and operations in a way that makes it essential to get right.
In other words: if you’re using debt to build your business, you need good accounting. If you’re stuck in a technical default (or to put it another, way debt purgatory) – you definitely need good accounting.
Started with Debt
So, where does the need for debt management come from? It’s based on a long history of restaurants started with owner-guaranteed debt.
Unlike many of today’s startups, which are often started with private equity capital, the majority of restaurant businesses are built on debt that’s often solicited and personally guaranteed by the restaurant owner. It’s common for a restaurant owner to finance a second location or an expansion with a business loan; in fact, every major lender has a dedicated restaurant division to facilitate restaurant lending.
When things go well, everything works out. The restaurant is profitable and is able to pay the bank back under the agreed-upon terms. When things go badly, however, they go really badly.
The restaurant may struggle to make payments, acquire more debt in attempt to dig out, and look up to find that they’ve only fallen further in. As penalties for non-compliance pile on, the situation becomes bleak.
How Good Restaurant Accounting Helps with Debt Management
Here’s the good news: we’ve worked with many companies in dire financial straits and helped them to get organized and get out. It can be done.
Having your accounting in working order helps immensely. In fact, without good accounting, compliance is an accident. We can’t make you compliant, but within the confines of generally accepted accounting principles (GAAP), we will do everything we can to help you be compliant.
Build a budget.
Somewhat surprisingly, many restaurant businesses don’t manage to a budget. As part of our engagements, we work with them to build a budget that guides the business toward compliance. Then we monitor it monthly based on the financial data we process.
Depending on the financial context of the restaurant business we’re working with, we’ll help to negotiate existing debt to make management possible. We’ve done multimillion dollar deals with banks to negotiate lending terms in a way that enables businesses to continue to make payments.
It’s important to note that negotiations are dependent on having good financial visibility into the restaurant business, which is what accounting enables. The bank must be able to accurately see financial indicators like cash flow and expenses in order for there to be any degree of trust.
Maintain financial order.
Of course, in any engagement, a primary role of accounting is to create and then maintain financial order. For instance, we use a calendar schedule for deliverables – vendor payments, payroll processing, required statements, bank reconciliations, etc. – to plan appropriate processes, then stick to that schedule to build a sturdy financial infrastructure.
While the restaurant may not always deliver constituent results, we build transparency in the accounting data so the flow of information is consistent and actionable. Our approach to the accounting process enables management and ownership to get ahead of debt challenges to take corrective actions in advance of a default event.
The Other Side of Debt
While debt can be crippling, there is another side to the coin: it can be a useful tool for business growth if managed wisely. Again, this is how most restaurant businesses finance expansion.
Good accounting can make this possible.
First, the financial visibility that comes with good accounting services allows businesses to accurately assess the level of debt that is appropriate to take on. It’s a safeguard against biting off more than these businesses should chew.
Second, financial visibility and consistency allow for better lending terms when negotiating with banks. The logic is straightforward: banks will offer better terms when they have a higher confidence in being paid back.
Ready to Beat Your Business’s Debt?
Don’t let debt crush your business. Get your financial processes in order and get out from under the weight of bad debt.
Our outsourced accounting services can help. At Global Shared Services, we’ve helped restaurant businesses to overcome difficult financial circumstances brought on by poor debt management. With consistent accounting and finance processes and better visibility into your operations, success is possible.
To take the first step, get in touch with us today.
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With GSS, we meet our franchisor requirements on time and with accuracy. The local CPA could not handle our volume. We are so happy to have made the change. GSS knows our business and our franchisor requirements.Multi-unit fast sandwich Owner