Financing And Leasing & Legal And Tax Matters Pertemuan: 4 Matakuliah: V0246 - Operasional Tata Hidang 1 Tahun: 2009-2010

Financing And Leasing & Legal And Tax Matters

Pertemuan: 4

Matakuliah : V0246 - Operasional Tata Hidang 1Tahun : 2009-2010

FINANCING & LEASING - LEGAL & TAX MATTERS

Bina Nusantara University

FINANCING & LEASING


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SUFFICIENT CAPITAL

• Many would-be restaurateurs try to start restaurants with only a few thousand dollars in capital. Such ventures usually fail.

• Lack of finance and working capital is a close second to lack of management when it comes to reasons for restaurant failure.

• Working capital is the standby amount of cash to open the restaurant & get through possibly several unprofitable months of operation.


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THREE IMPORTANT FINANCIAL QUESTIONS TO ASK IN THE FIRST PLACE:

1. How much money do you have?

2. How much money will you need to get the restaurant up and running?

3. How much money will it take to stay in business?


WHERE DOES ONE GET THE MONEY FOR A RESTAURANT?

6Bina Nusantara University

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LOAN SOURCES

• The local bank.• The local savings & loan

association.• Friends, relatives, silent

partners & syndicates.• Limited partnerships.• Small Business

Administrations (SBA).• Small Business Investment

Companies (SBICs).Bina Nusantara University

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TYPES OF LOANS

• Loans are made for varying periods of time:– A term loan is repaid in

installments, usually over a period longer than 1 year.

– Intermediate loans are made for up to 5 years.

– Single-use real estate loans typically run less than 20 years.


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BUDGETING• The purpose of budgeting is to “do the

numbers” & more accurately forecast if the restaurant will be viable.

• Sales must cover all costs, including interest on loans, & allow for reasonable profit, greater than if the money were successfully invested in stocks, bonds, or real estate.

• Financial lenders require budget forecasts as a part of the overall business plan.


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PROJECTING SALES & OPERATIONAL COSTS

Seven basic categories are used: 1. Sales2. Cost of sales3. Gross profit4. Budgeted costs5. Labor costs6. Operating costs7. Fixed costs


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FORECASTING SALES• Sales forecasting for a restaurant is, at best, calculated

guesswork. • Many factors beyond the control of the restaurant, such as

unexpected economic factors & weather affect sales.• Without a fairly accurate forecast of sales, it is impossible

to predict the success or failure of the restaurant because all expenses, fixed & variable, are dependent on sales for payment.

• Sales volume has two components: the average guest check and guest counts.

• The average guest check is the total sales divided by the number of guests.

• The totals from each of the accounting periods add up to a yearly total sales forecast.

• The sales forecast for the first few months should consider the facts that it takes time for people to realize that the restaurant is open and that a large number of people are usually attracted to a new restaurant.


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BUDGETING COSTS

Two main cost categories:1. Variable:

• Change proportionately according to sales.

– Food and beverage costs

2. Fixed:• Unaffected by changes in sales volume.

– Real estate taxes, depreciation, insurance premiums


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PRE-OPENING EXPENSES

• Such costs are pre-opening offices; the initial purchase of all equipment, including china, cutlery, & glassware; the hiring & training of personnel; & pre-opening advertising costs are encountered.

• Fixed Costs (if restaurant building is owned)– Depreciation– Insurance– Property taxes– Debt service

• Variable costs change in direct proportion to the level of sales: food, beverage, labor, heat, light, power, telephone & other supply costs.


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INCOME STATEMENT

• Provides information to management & owners about the financial performance of the restaurant over a given period of time.

• Allows for analysis & comparison of sales & costs.

• Shows income after expenses have been deducted (net income or loss).


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GROSS PROFIT

• Money left from sales after subtracting the cost of sales.

• Must provide for all other operating costs & still leave enough dollars for a satisfactory profit.

• If gross profit is insufficient the business must be redone.Bina Nusantara University

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INCOME STATEMENT POINTS EXAMPLEI. Sales

A. FoodB. BeverageC. Other

Total SalesII. Cost of Sales

A. FoodB. BeverageC. Others

Total Cost of SalesIII. Gross Profit

A. Other IncomeTotal IncomeIV. Controllable Expenses

A. Salaries and WagesB. Operating Expenses, etc

Total Controllable ExpensesRent, interest, depreciation, etc

V. Net Income Before TaxesA. Income Taxes

Net IncomeBina Nusantara University

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UNIFORM SYSTEM OF ACCOUNTS FOR RESTAURANTS

(USAR)

• Outlines uniform classifications & presentations of operating results.

• Allows for easier comparisons to foodservice industry statistics.

• Provides a turnkey accounting system.

• Is a time-tested system.Bina Nusantara University

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BALANCE SHEET

• Used to determine a sole proprietor’s or company’s worth.

• Lists all assets & liabilities.• Must always balance:

• Assets = Liabilities + Net Worth

• Snapshot of the restaurant financial standing at a given moment in time.

• Usually at the end of a financial period or fiscal year.


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SAMPLE BALANCE SHEETCurrent Assets

Cash, Accounts Receivable, Allowances, Inventories, etcPrepaid ExpensesTotal Current AssetsFixed Assets

Land, Buildings, Furniture, etc.Deferred ExpensesOther AssetsTOTAL ASSETSLiabilities and Net WorthCurrent Liabilities

Accounts Payable, Accrued Expenses, Deposits, Income Taxes, etc.Current Portion of Long-Term Debt

Total Current LiabilitiesLong-term debt, deferred taxes, etc

TOTAL LIABILITIESNet Worth (for individual proprietor)TOTAL LIABILITIES & CAPITAL


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PRODUCTIVITY ANALYSIS & COST CONTROL

• Various measures of productivity have been developed:– Meals produced per employee per day. – Meals produced per employee per hour. – Guests served per wait person per shift.– Labor costs per meal based on sales.

• The simplest employee productivity measure is sales generated per employee per year.


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SEAT TURNOVER• Number of times a seat turns over

in an hour.• Some consider it to be the most

critical number in operation.• Goal rates vary from as high as

seven an hour to less than one an hour, depending on the type of establishment:– The rapid-turnover style of restaurant

generally has a low check average, which produces high sales volume.

– The fast-turnover restaurant features rapid-production menu items—those that are already prepared or those that can be prepared quickly.


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STOCKPILING CREDIT

1. A personal financial statement:a. Education and work historyb. Credit referencesc. Copies of federal income tax statements for the previous 3 years d. Financial statement listing assets and liabilities & life insurance

2. If in business:a. Business historyb. Current balance sheetc. Current profit-and-loss statementd. Cash flow statement for last yeare. Copies of federal income tax returns for past 3 to 5 yearsf. Life and casualty insurance in forceg. Leaseh. Liquor licensei. Health department permit


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COLLATERAL• Collateral is:

– Security for the lender.– Personal property or other possessions the

borrower assigns to the lender as a pledge of debt repayment.

• If debt is not repaid, the lender becomes owner of the collateral.

• Character of the applicant is the most important type of collateral.• Collateral accepted by banks:

– Real estate– Stocks & bonds– Chattel mortgages– Life insurance– Assignment of lease– Savings account– Endorsers/Co-makers/Guarantors


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LEASING• Restaurant buildings & equipment are more

likely to be leased than purchased by the beginner because less capital is required for leasing than for building or buying.

• The signer is obligated to pay for the entire lease period.

• A restaurant lease should be good for both parties—the landlord (lessor) and the tenant (lessee).

• Beginners should try for a 5 year lease with an option to renew for several additional 5 year periods.


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LEASING CHARACTERISTIC

• Leases generally, depending on location, approximate 5 to 8% of sales, but can go as high as 12%.

• Lease costs are calculated on a square-foot basis, with charges ranging from $2 to $50 per square foot per month, depending on the location.

• In making a lease, both parties should consult a lawyer versed in real estate terminology to avoid misunderstandings.


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RESTAURANT WORTH

2 Potential Values:1. Real estate value.

• Usually determined by competitive values in the community.

• Market value of real estate tends to follow the value set by similar properties in the area.

2. Value as a profit generator.


LEGAL & TAX MATTERS• What business entity is the best? • Buy-sell agreements.• Legal aspects of doing business.• Depreciation & cash flow.• Retirement tax shelters.• Business expenses & taxes.• Local, state & federal taxes.• Federal Laws.• Legal aspects of contract services.


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BUSINESS ENTITY

• Types of entities:– Sole proprietorship– Partnership– Corporation

• Under the law, all businesses are operated as proprietorships, partnerships, or corporations.

• Business ventures have a choice of these entities, each with different tax consequences, advantages & disadvantages.

• Federal income taxes.

• Liability to creditors & other persons.

• The legal and/or personal relationships among the owners.

• Legal life and/or transferal of the business entity.

THE CHOICE OF ENTITY AFFECTSBina Nusantara University

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SOLE PROPRIETORSHIP• Individual Ownerships.• As sole proprietor, the

restaurant operator does not draw a salary for federal income tax purposes. • He or she reports as income

the profit for the year or deducts, as an expense, any loss for the year.

• For tax purposes, the proprietor is not an employee; however, his or her income is subject to self-employment tax.

• Advantages:• It is simple.• Reasonable salary .• Funds can be withdrawn

without any tax consequences.

• Business can be discontinued or sold with minimal tax consequences.

• Disadvantages:• The owner cannot be a

participant in the company’s qualified pension and/or profit sharing plans.

• The owner is liable for every aspect of the business including debts.

• No legal existence apart from the owner or owners.


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PARTNERSHIP • Any venture where

2 or more persons endeavor to make a profit.

• General partnerships: Complete liability but full management rights.

• Limited partnerships: Share limited liability with no services performed.

• Advantages:• Can be quite flexible.• No double taxation.• Choice of limited or general

partnership.• Allows flexibility.

• Disadvantages:• Same problems of legal liability as

the sole proprietorship.• Ability of a partner to create debts

for the partnership.• In bad times partners always see

the other as at fault.• Difficult to divide assets if business

fails.• Can be expected to dissolve

eventually.• Death, disagreement and/or ill

health can make perfection into a nightmare!


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CORPORATION• A legal entity similar to a

person, in that it can borrow, buy, conduct business & must pay state & federal taxes on profits.

• Deciding whether to incorporate can often depend on the amount of insurance coverage available. – If insurance coverage is

available, a restaurant may decide not to incorporate because the insurance will cover & limit the sole proprietor’s liability, which might otherwise cause financial ruin in the event of a mishap or lawsuit.

• Advantages:• Limited liability.• Ease of availability and

affordability of insurance through group plans.

• Corporate fringe benefits are available.

• Can sell and distribute stock.• Investor friendly.

• Disadvantages:• Double taxation.• Takes a lot of money to set up.• Usually requires legal and

accounting advice, which can be costly.

• Can lose control if too much stock is distributed.


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BUY–SELL AGREEMENT WITH PARTNERS

• In the sale of a business, a buy-sell agreement preserves continuity of ownership in the business.

• A buy-sell agreement is made up of several legal clauses in a business that can control the following business decisions:– Who can buy a departing

partner's or shareholder's share of the business.

– What events will trigger a buyout.

– What price will be paid for a partner's share.


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LEGAL ASPECTS OF DOING BUSINESS

Steps required to start a business (USA based)I. Form a business entity.II. Identify necessary permits and licenses.III. Identify local restrictions on proposed business

licenses.IV. Obtain environmental or similar permit as

needed.V. Obtain state sales tax permit.VI. Determine applicability of employer

registrations.VII. Get insurance.VIII. Comply with relevant statutes and regulations

with respect to employee’s wages.IX. Fulfill occupational and health requirements.X. Assess applicability of other antidiscrimination

laws.XI. Check for eligibility for government assistance.XII. File fictitious business name.XIII. Assure meeting posting requirements.XIV. Obtain and return tax return filings.XV. Learn reporting and notice procedure in event of

employee injury.


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DEPRECIATION & CASH FLOW• As a business generates income &

pays immediate expenses, including taxes, the money left over is not all profit.

• In a restaurant, the building, kitchen equipment, dining room equipment & furnishings depreciate year after year, until finally they have no value or only a salvage value.

• Theoretically, money is set aside for replacing these items—a depreciation allowance.

• Actually, this money is seldom set aside and very often the building, instead of depreciating in value, appreciates.

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ACCELERATED OR STRAIGHT-LINE DEPRECIATION

• Accelerated:• Allow greater depreciation

during the early life of a building or equipment, less depreciation later.

• Results in lower taxes during early years of business, when funds are tight.

• Straight-line:• Assumes a fixed life for an

item. • Divides cost of item by

expected life to arrive at depreciation allowance.


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LOCAL, STATE & FEDERAL TAXES

• One of the most onerous of the operator’s tasks is keeping records and submitting tax reports.

• The operator not only pays taxes as required on restaurant sales but also is responsible for collecting and paying taxes to the city, state & federal governments.

• Workers’ compensation insurance is federally mandated but administered by the states.

• Every business with at least 1 employee in addition to the owner, must register with the IRS, acquire an employer identification number & withhold federal payroll taxes from employees’ pay.


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EMPLOYEE INFORMATIONOperators must keep employee

records that include:1. Full name2. Home address3. Date of birth, if under 194. Sex and occupation5. Emergency contact6. Time and day workweek begins7. Hourly rate of pay8. Daily and weekly straight-time earnings9. Total daily or weekly straight-time

earnings10. Total overtime excess compensation11. Total additions to or deductions from

wages12. Total wages paid each period13. Date of payment and pay period

covered


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LEGAL ASPECTS OF CONTRACT SERVICES

• Restaurant operators often contract out services such as air-conditioning repairs, maintenance, janitorial services, & pest control.

• Independent contractors have proved popular because they are skilled in their field & the restaurant operator avoids the liabilities for unemployment insurance, workers’ compensation, wrongful discharge, injuries to third parties & other claims.

• To ensure that the tax authorities also view independent contractors as indeed independent and not employees, the operator should have a written agreement with the contractor that specifies the nature & duration of the work to be done.


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COMPLICATIONS IN DISCHARGING EMPLOYEES

• In the absence of a contract, managers used to have the power to fire employees at will for good cause, bad cause, or no cause.

• Today, firing decisions are restricted by a maze of often overlapping statutes and executive orders.

• There are a number of laws in effect that protect employees from wrongful discharge. Bina Nusantara University

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SELLING LIQUOR• Alcoholic Beverage Commission (ABC) regulates

the selling of alcohol.• Hours of sale of beverages, food-bar ratio of sales,

etc.

• Selling alcohol is regarded as a privilege, not a right.

• State laws vary as to age at which liquor can be purchased.

• It is the seller’s responsibility to sell to those legally entitled to buy.

Indonesia law & regulation:Name: Surat Izin Usaha Perdagangan Minuman

Beralkohol (SIUP Minol) atau (SIUP MB)Issued by: Ministry of Trade and Industry


Bina Nusantara University 41

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Documents

Financing And Leasing & Legal And Tax Matters Pertemuan: 4 Matakuliah: V0246 - Operasional Tata Hidang 1 Tahun: 2009-2010