Accounting Analysis: Assessing Financial Viability

Evaluating Operational Costs Operating and administrative and general expenses vary from one caterer to another; however, every off-premise caterer must always strive to keep these costs at a minimum in order to attain maximum profitability. A complete explanation of these expenses will follow later in this chapter. Both of these types of expenses contain portions that are fixed, and portions that vary depending on the level of business; however, to complete this illustration of the budgeting process, let us assume the following: Administrative and General Expenses = $800 per month Operating Expenses = $800 per month Armed with the above knowledge it is now possible to complete an annual budget by month for this theoretical off-premise caterer. In the above example it is interesting to note that the majority of the annual profits were generated in December, which means that in effect there was negative cash flow throughout the year. This particular off-premise caterer would be unable to extract any cash from the business until the end of the year, unless able to receive large advance deposits on future business, which is quite unlikely in the case of a firstyear caterer. Also of note is that it is apparent that on a monthly basis the caterer does not generate a monthly profit until sales reach the vicinity of $6,000. This is the breakeven point, which will be discussed later in this chapter. Is a profit of $17,186 an acceptable profit for a first-year caterer? This depends totally on the caterer. Is this a part-time or full-time venture? Was this caterer unhappily employed for a number of years and just happy to be on his or her own? What are the caterer's financial obligations? Are there savings from which to draw until the business becomes more successful? As pointed out earlier in this text, the best way to start an off-premise catering business is from an existing food service facility which operates for other pur-poses, such as a restaurant, club, or hotel. However, there are some instances where an individual may wish to rent a commissary to be used exclusively for off-premise catering. How much will this cost? Although there are many regional and other factors which will affect this, a hypothetical estimate for a 2,000 square foot commissary with projected gross annual sales of $400,000 to $1,000,000 per year follows: Advance rent and security deposits $ 3,000-6,000 Equipment and fixtures 50,000-100,000 Leasehold improvements 10,000-20,000 Licenses, permits and impact fees 1,000-5,000 Marketing expenses 1,000-10,000 Utility and phone deposits 1,000-2,000 Accounting and legal services 1,000-4,000 Food staples 1,000-2,000 Preopening payroll 2,000-5,000 Supplies and uniforms 1,000-4,000 Prepaid insurance 2,000-8,000 Miscellaneous expenses 2,000-5,000 Contingency for unexpected 10,000-20,000 Total startup costs $85,000-$191,000 These figures are simply very rough estimates of what it could possibly cost to setup and outfit a catering commissary. They are in no way to be used as definite figures for anything other than discussion purposes. Persons considering an offpremise catering commissary should calculate their own expenses and not use these numbers for anything but for hypothetical pur-poses. Startup costs will vary immensely depending on unique and individual circumstances.