Business Financial Planning: Counting Every Penny is Crucial - dummies

Business Financial Planning: Counting Every Penny is Crucial

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

Knowing where every penny goes can be the difference between success and failure in any business plan — especially during challenging economic times. Take the example of a small chain of restaurants in northern California, which had expanded when the economy was going gangbusters. When the recession hit, sales began to slip.

Fortunately, the restaurant owners were tracking sales month by month, outlet by outlet. Furthermore, their financial tracking allowed them to see what customers were spending their money on. By the end of 2010, sales were down 15 percent from the year before.

By the end of 2011, they had slid another 10 percent. Most analysts predicted that discretionary spending — the kind the restaurant chain had depended on most — wasn’t going to recover any time soon.

The company moved quickly and proactively, guided by what their numbers told them. They decided to close the restaurant that had taken the biggest hit. They revamped the menu for the others, replacing some of the more expensive dishes with “comfort food” alternatives priced several dollars less.

Noticing that wine sales were off, they also added several choices under $20. In one location, they experimented with adding a catering business on the side. When that proved a success, they phased it in for the other locations.

“A lot of restaurants, when the downturn hit, were guided by wishful thinking. They went month to month, hoping the economy would recover. And a lot of them went out of business,” the owner told us. “We had the numbers in front of us. We knew exactly what our operations cost to run and exactly how much we were taking in.”

“As soon as profits began to fall, we started planning to adapt and survive. And that made all the difference.”