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Tips for Accounting for Restaurants

When you are running a restaurant, it can be easy to focus on the food and hospitality and brush off accounting a,s a secondary task. Like any business, however, you are looking to gain and maintain a profit, and good accounting systems are crucial in order ensure your success . Here are our tips to help you on your way:

Choose the right accounting software

Not all accounting software is created equal. The right system should not only help you track your sales and expenses, but should also help track your inventory.

In addition, choose the right POS system that, ideally, is integrated with your other accounting software. This saves the additional step of entering POS information into your accounting software and will help you keep your reports up-to-date in real time.

Constantly monitor the most important reports

Many different reports will help you manage your business, but the most important are typically your food inventory costs, food sales, beverage sales, and operating expenses. Running these reports on a monthly basis may not be sufficient; you may find it most beneficial to maintain these records and analyze them on at least a weekly basis. A detailed plan and breakeven analysis are also critical to help you understand your costs and how to improve your profits.

Be aware of Industry benchmarks and KPls

Understanding other businesses is as important as knowing your own business in the competitive restaurant industry. Benchmarks help you to know where you stand and where you can improve in relation to your competitors. Stay on top of paying your expense. The restaurant business moves quickly and it can be easy to fall behind if your payables are not organized. Ensure that your bills are cycling efficiently for cash flow purposes, but never make the mistake of paying late. A vendor could refuse delivery if they have not been paid on time, which could be a disaster when it comes to fresh food inventory.

Use a payroll service provider.

Many restaurant managers monitor hours and wages very closely. When it comes to actually paying staff, however, manually keeping track of benefits and payroll deductions can become quite time-consuming, and possibly open you up to liability in the case of payroll errors.

Consult a professional accountant

The right accountant will have expertise in the restaurant business and will help you to analyze your financial information and provide guidance.

Contributed by Carly Matheson CPA,from DMCL. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore North America.

Effective Divestiture Process

In previous articles we discussed various liquidity alternatives and how to prepare for a liquidity event.

This article focuses on one particular liquidity alternative, the sale of a business, and discusses factors that are critical to making the process effective, ensuring optimal outcomes are achieved.

An effective divestiture process needs to accomplish the following:

Create Competitive Tension

The divestiture process can be structured as a targeted approach directed at one potential buyer, a broad auction – or anything in between.

A highly structured broad auction process maximizes competitive tension by signaling that many prospective purchasers are at the table and offers must be competitive.

However, in selecting and executing the appropriate process, one must weigh the benefit of a higher valuation against the downsides of a broad auction which include confidentiality and timing issues.

A broad auction exposes confidential information about the company to a larger number of potential buyers. This is particularly challenging to manage in circumstances where the most likely buyers are also the company’s most direct competitors.

A broad auction process typically takes upwards of six months and may take upwards of a year to complete. Targeted processes can typically be completed in a much shorter time frame.

Ensure the Most Relevant Potential Buyers are Identified

A broad auction process involves ensuring “no stone is left unturned” and all relevant acquirers are identified. Potential acquirers are vetted for strategic fit and financial capacity.

In a more limited auction process, acquirers are vetted and ranked (based on financial capacity and synergistic interest) to determine which should be included in the short-list that will form the limited auction process.

Ensure the Most Relevant Information is Presented to Potential Acquirers

The sale process involves providing potential acquirers with adequate information to articulate an expression of interest, while maintaining confidentiality around key critical competitive elements of the business.

Information should be released sequentially, with the more sensitive information being released in later stages, subsequent to potential acquirers demonstrating their commitment to the process and acceptable transaction terms.

The information should “put the company’s best foot forward” and guide potential purchasers to understand the vendor’s value expectations including presenting a normalized earnings analysis that illustrates the recurring level of recent historical earnings, and a forecast that illustrates the growth potential of the business.

In addition to running an efficient process, other important issues that need to be dealt with / negotiated during the divestiture process include:

  • Deal structure and taxation
The form of transaction, whether it will be an asset or share deal, can have a significant impact on the after-tax proceeds in the hands of shareholders.

  • Retained ownership
Despite an owner’s desire to divest of 100% of their holdings and walk away, investors often demand owners “roll-in” 10%-40% of their ownership as confirmation of the existing owner’s continued bullish outlook for the company and confidence in the strategic merits of the transaction, a means of ensuring alignment of interest between the parties and lowing their up-front cash investment.

  • Form of consideration
Vendor take-back and earn-out arrangements are common with private company sales. These may impact the cash amount received by the vendor upon closing and be subject to differing tax treatment.

  • Representations, warranties and indemnities
While many representation, warranties and indemnity clauses are fairly “standard, vendors should be focused on limiting their exposure and pushing back to have the risks identified and quantified during the acquirer’s due diligence process.   In summary, the divestiture process needs to be designed, managed and executed carefully to ensure optimal results are achieved. The existence of many important process and agreement related issues make having experienced M&A. legal and tax advisors by your side during the process critically important.
ABOUT THE AUTHOR

Nathan Treitel is the Practice Lead for Segal’s Valuations and Transaction Advisory group that provides financial and business advice to mid-market companies in a wide array of industries.

With over 20 years of experience, he is a trusted advisor to business owners, senior management, boards of directors and other professionals.

EMAIL

Jason Montgomery Honoured by Wilfrid Laurier University

Segal LLP is proud to announce that our very own, Jason Montgomery, has been awarded the Laurier Alumni Co-op Employer of Excellence Award.

The Laurier Alumni Co-op Employer of Excellence Award recognizes an alumnus/a who has made an outstanding contribution to Wilfrid Laurier University’s Co-operative Education program. Jason, a former Laurier student himself, did several coop terms here at Segal before joining our team full-time. In his 15 years with the firm, he has been an integral part of recruiting new Laurier students to join us. He has always made our coop students a priority and continues to be readily available to give advice and offer help when needed.

“He also plays an important role in our recruitment efforts at Laurier. He is definitely worthy of the nomination. A great ambassador for our firm and for Laurier.” – Dan Natale, Managing Partner

Congratulations, Jason!

Business Valuations In The Long-Term Care Homes Sector

Nathan Treitel, Partner at Segal Valuation and Transaction Advisory, co-authored this article for the Chartered Business Valuator Institute’s Journal of Business Valuation.

The expected growth in the seniors’ age demographic in the coming decades has garnered considerable attention in the social, political and financial discourse of late. This has brought attention to expense and capacity issues around seniors’ residential care. In addition to the costs of administering care, residential facilities involve substantial capital costs in the form of land, buildings and equipment. Further, while provincial governments have historically provided funding to the sector, we are likely to see significant policy changes in the coming years, particularly in jurisdictions facing intense budgetary pressures. These dynamics are common to most jurisdictions within Canada.

Within the seniors housing and residential care industry, market participants typically segment properties as retirement homes (RHs) or long-term care homes (LTCHs). While the two segments are related, the businesses are different enough to warrant the distinction, particularly as it relates to the level of care delivered within the residence, the extent of government operating funding and regulatory involvement in the business operations. Residents of LTCHs most often have more significant care requirements and benefit from government subsidies to cover the personal care services delivered within the property, whereas the cost of RH services and accommodation is most often exclusively the responsibility of the resident.

The valuation of firms that own and operate LTCHs must take into consideration numerous market and government policy factors. Critical market factors include demographics, cost of capital, resident choice, competition, economies of scale, availability of staffing, and the impact of negative media coverage. The principal policy factors can be divided, practically, into those affecting government funding, and those related to governance, which include licensing, regulation of services, inspection and compliance.

To learn more about business valuations in the long-term care home sector, click here to download the full report.

Liquidity Alternatives

In my previous article, I discussed how to prepare a business for a liquidity event. Proper preparation ensures a business is well-positioned when encountering any unexpected events that may result in a liquidity event. It is recommended to give consideration to various liquidity alternatives in order to yield results that are optimal to shareholders and allow them to best meet their objectives.

Shareholder Motivations for Liquidity
  • Business owners may desire to “take some money off the table” and reduce personal financial risk by diversifying their assets.
  • Business owners may be looking to take a step back from the business in order to pursue other interests or retire.
  • A shareholder can elect to leave the business due to challenging interpersonal situations resulting from mutual ownership with other individuals with different personalities and/or visions for the future growth of the business.
  • An unexpected personal circumstance, such a death, deteriorating health or divorce, may require the division of family assets.

Liquidity Alternatives
Numerous liquidity alternatives exist that allow individual shareholders to realize their objectives. These alternatives include:
  • Management /Employee-Led Buyouts: a company is sold to its existing management or employees
  • Recapitalizations and Financial Restructurings:  new capital is infused into a company to facilitate growth and the partial buyout of existing shareholders
  • Divestitures: selling a company to a strategic or financial investment that is external to the business
  • Raising Private Capital: raising debt and/or equity capital to facilitate growth or ease liquidity constraints

Characteristics of Liquidity Alternatives
The transaction alternatives, as noted above, each have certain characteristics which make it a better option for achieving the shareholder motivations and objectives. Some of these characteristics include:

  • Confidentiality: the ability to maintain a higher degree of confidentiality about the existence of the process and the fact that existing shareholders are looking for a buyer or investor
  • Speed: certain of the alternatives have the advantage of being able to be executed more rapidly due to the familiarity of the buyer/investor with the business and the fact that the required capital for the transaction is readily available.
  • Growth & Upside: certain of the alternatives allow existing shareholders to continue to retain an interest in the company where they believe considerable future growth and upside potential exists. These alternatives involve partnering with experienced investors with access to tangible resources, experience and knowledge not available to the existing management and shareholders.
  • Price: by their nature, some of the alternatives will be directed to a broader pool of potential buyers/investors and a more formal auction process will likely be undertaken. Broad auction processes that target strategic investors are typically considered optimal from a price perspective.
  • Use of Proceeds: certain of the alternatives, by design will result in existing ownership being diluted, taking chips off the table and diversifying their assets. Other alternatives do not necessarily (immediately) allow for these options.
  • Ongoing ownership and management: certain of the alternatives result in existing ownership severing the relationship with the company immediately while others result I n continued ownership and possibly management roles going forward. One also needs to contemplate the various alternatives in light of the shareholder’s com with having additional/new stakeholders at the table.
Conclusion
We oftentimes find shareholders desiring a liquidity event fixated on a particular transaction alternative. Given the range of transaction alternatives available, it behooves business owners to carefully consider all the options so that they can identify the alternative objectives available to them.

This is the second article in a series by Nathan Treitel, MBA, CBV, from Segal LLP’s Valuation and Transaction Advisory.

This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.