Can a bar with great food and service still fail? Absolutely, and today's episode of the Bar Business Podcast reveals why. Join me, your host Chris Schneider, as I share a personal tale about my parents' fine dining restaurant in Indianapolis. Despite the glowing reviews and stellar reputation, their venture ultimately failed, underscoring the critical importance of keeping an eye on where your money is going.
This week, we shine a spotlight on why cash flow is the lifeblood of any bar or restaurant. Trendy spots might attract buzz, but without steady cash flow, they can quickly fade away. We break down how to regularly review cash flow statements, differentiate between P&L and cash flow, and the impact of loan repayments, amortization, and depreciation. The episode also highlights the perils of over-leveraging and taking on high-cost loans, which can put even the most lucrative businesses at risk. Understanding these elements is crucial for sustaining your business and ensuring its long-term success.
##### Welcome to the Bar Business Podcast, the ultimate resource for bar owners looking to elevate their businesses to the next level. Our podcast is packed with valuable insights, expert advice, and inspiring stories from successful bar owners and industry professionals. Tune in to learn everything from how to craft the perfect cocktail menu to how to manage your staff effectively. Our mission is to help you thrive in the competitive bar industry and achieve your business goals.
Special thank you to our benchmarking data partner Starfish. Starfish works with your bookkeeping software by using AI to help you make smart data-driven decisions and maximize your profits while giving you benchmarking data to understand how you compare to the industry at large.
Can a bar with great food and service still fail? Absolutely, and today's episode of the Bar Business Podcast reveals why. Join me, your host Chris Schneider, as I share a personal tale about my parents' fine dining restaurant in Indianapolis. Despite the glowing reviews and stellar reputation, their venture ultimately failed, underscoring the critical importance of keeping an eye on where your money is going.
This week, we shine a spotlight on why cash flow is the lifeblood of any bar or restaurant. Trendy spots might attract buzz, but without steady cash flow, they can quickly fade away. We break down how to regularly review cash flow statements, differentiate between P&L and cash flow, and the impact of loan repayments, amortization, and depreciation. The episode also highlights the perils of over-leveraging and taking on high-cost loans, which can put even the most lucrative businesses at risk. Understanding these elements is crucial for sustaining your business and ensuring its long-term success.
##### Welcome to the Bar Business Podcast, the ultimate resource for bar owners looking to elevate their businesses to the next level. Our podcast is packed with valuable insights, expert advice, and inspiring stories from successful bar owners and industry professionals. Tune in to learn everything from how to craft the perfect cocktail menu to how to manage your staff effectively. Our mission is to help you thrive in the competitive bar industry and achieve your business goals.
Special thank you to our benchmarking data partner Starfish. Starfish works with your bookkeeping software by using AI to help you make smart data-driven decisions and maximize your profits while giving you benchmarking data to understand how you compare to the industry at large.
You're listening to the Bar Business Podcast where every week, your host, chris Schneider, brings you information, strategies and news on the bar industry, giving you the competitive edge you need to start working on your bar rather than in your bar.
Speaker 2:
Hello and welcome to this week's edition of the Bar Business Podcast, your ultimate resource for bar owners. I'm your host, chris Schneider. In today's episode, I'm going to share some personal stories and really make a case for why managing from your P&L and focusing on cash flow are keys to success in the bar business, and we're going to dive into a few different things here, but the big takeaway from this episode and I'm going to give it away at the very beginning, but the big takeaway today is that cash flow matters really more than anything else in your business, because if you don't have good cash flow, you don't have a good business. And unfortunately, you'll hear from a lot of other consultants, other influencers in the bar and restaurant space that you don't need to focus on your P&L, that you need to focus on your guest experience and your team experience, and hiring is more important than watching your numbers, and to an extent, that's true. You have to have all those pieces in place, but it's also possible to manage well, to have great hospitality, to have all this in place and still fail if your cash flow does not support your bar, and that's something that not a lot of people are talking about, because nothing matters. It doesn't matter how good your hospitality is, how good your food is, how good your cocktails are, if you cannot, if you don't have the money to keep your doors open and unfortunately that doesn't always go hand in hand right, you can't always say, well, you're not making cash because you're doing things wrong. Sometimes you're doing things right and you still can't make cash, and there are a few different reasons for that that we will get into as we go through this episode. We will get into as we go through this episode.
Speaker 2:
But again, the whole purpose of the conversation today is to really focus on and to illustrate for everyone listening that money matters, cash flow matters. We're in business to make profit and, unfortunately, regardless of how great you are, regardless of how many people like you or don't like you or anything else, cash is what matters and the way I'm going to approach this. So I said I was going to share a personal story, and I'm going to share a story that I have not shared before, partially because it's a story about my parents and the restaurant they had, and they're both dead, so I wish them no ill will and I wouldn't want to speak publicly about what they did and say they did a bunch of things wrong and they really didn't, but they didn't have cash flow. They had to close the doors. And so this story starts when I was about eight years old and my parents bought a restaurant that existed in Indianapolis called Something Different and it had a bar attached to it called Snacks, and it was Snacks was small plate tapas, really good beer for the time period, which meant, you know, in the mid-90s we had 20 beers on list because craft beer was nothing like it is today.
Speaker 2:
And something different that was next door to it was a fine dining restaurant, and when I say fine dining I mean old school fine dining. Tablecloths, you know, very formal, a little rigid, definitely something that you don't see much in today's restaurant scene. You might find some old school fine dining in larger cities where there's, quite frankly enough, old people that still want to dine that way that it exists, because even now when you think fine dining, you can see Michelin star restaurants that don't have tablecloths. So the perception of what people want has changed and we'll get into this as we go through, but that's really what caught my parents up and that's what stopped their cash flow.
Speaker 2:
And so there's restaurants, something different. They had phenomenal chefs throughout the time they owned it. They had it for about 10 years, I think it was 94 to 2004. And they had great chefs and they had great service and, frankly, critically, we're one of the best restaurants ever in the state of Indiana and anyone listening to this from Indiana that's in the business if you are over 40 or so, you've probably heard of it, because it was a big deal and it was not uncommon for one of the chefs that was there, a guy named Steve Oakley who is a phenomenal chef that has his own restaurant now, but Steve was nominated for James Beard Awards a number of times. It was not unusual for two or three times a year to be featured in Nation's Restaurant News or to have the cover. And they were the first restaurant in Indiana and, I believe, the only restaurant in Indiana ever inducted in the Fine Dining Hall of Fame.
Speaker 2:
Now, when they were inducted into the Fine Dining Hall of Fame for those of you that are familiar with it and I'm not even sure it exists anymore, to be real honest, but it is restaurants that you've heard of. Most of them are still around. A lot of them aren't, but most of them that were in that Fine Dining Hall of Fame in the 90s and early 2000s. They're still around and it was Nation Restaurants News it's the top restaurants in the country period. They had Five nation restaurants news it's the top restaurants in the country period. They had five diamonds from triple a too.
Speaker 2:
Like critically, they did very, very well. And it's hard, uh, now looking back at it. Obviously I have a biased view, but it's hard to say that the food wasn't good or the service wasn't good or the the wine wasn't good or the atmosphere wasn't good. They had a gorgeous building, everything about it, from the sense of service and the sense of hospitality and quality and making sure the staffing was right all that was there. You know, one of the things I talk about a lot and that I like to focus on is the idea of a cohesive concept. I'll tell you right now this was two concepts in one business, but they were both cohesive, they worked, they interacted well with each other too. So even though it was two concepts, one business, one kitchen it really worked well. And for the conversation of, did they have a cohesive concept? Absolutely they did. Everything lined up with exactly what you would expect for that type of restaurant.
Speaker 2:
So what happened? If all these things are good, what actually happened and what happened was partially. Actually, a lot of what happened was outside of their control and changes in society and things that we'll talk about, but some of what happened was failure to adapt and decreasing cash flow. So there were two big for those of you that are younger there were two big major economic events in the late 90s and early 2000s that really stopped fine dining in this country. And I don't mean nice dining right, there's still that, but I'm talking old school, traditional, very regimented fine dining, if you will. And yeah, the dot-com crash in the late 90s. And then you had 9-11. And one of the things that 9-11 caused that a lot of people don't think about nowadays, but that really affected the restaurant industry. Is it basically halted international travel? So we're in 2000.
Speaker 2:
Eli Lilly, which is a giant employer in Indianapolis and obviously a giant drug company around the world, rented out, I think one or two weekends in 2000, rented out my parents' restaurant for the weekend. They'd fly in all their executives from all over the world, they'd go there, they'd dine, you know, friday night and Saturday night. They had events there during the day too. We're talking huge, huge revenue, had events there during the day too. We're talking huge, huge revenue because these guys were drug company execs literally from around the world and they were there the whole weekend. They bought out the whole restaurant for the whole weekend, both the restaurant and the bar parts of it, and so giant revenue.
Speaker 2:
And obviously after 9-11, you have less executive travel, you have less travel in general, so that pretty much died off and it didn't come back the way it was before 9-11. It's still not really that way in a lot of cases few years before that, but obviously that took a lot of energy out of the market. It took a lot of energy out of the economy and people were less likely to go drop huge money eating food. And just for the record, because I think this should be said at this point, it's not like the restaurant was that expensive compared to other people that were doing similar food at similar levels in the late 90s, early 2000s. It actually was cheap. Indianapolis has never been the market that say Chicago is, and it's definitely not California. It's not like the prices were ridiculously high, but they were high for the market.
Speaker 2:
There were three or four or five other restaurants that kind of lived in that sphere in Indianapolis and what's interesting is, only one of them survived past 2004. Two of them closed in, I want to say, 2002. My parents lasted until 2004. One of those places lasted to 2012. Now, the guy that lasted he lasted because he made changes, and that's the bottom line here.
Speaker 2:
My parents did not fail because their service was bad or their food was bad or their concept was bad. They failed because the market changed around them and they didn't adapt and fail is a hard word. They closed. They closed because it was the correct economic decision and they lost some money in the process, but really not huge. My dad was good about cutting his losses when he needed to, but the entire market shifted and instead of shifting with the market, they kept doing what they had been doing because it worked and they had won awards and everything was great, but the cash flow wasn't there, and so something my dad used to always say and lament about, he said in the restaurant business, you can do everything right and still lose your ass.
Speaker 2:
I disagree with that, because what they didn't do right, if I'm being honest, is they didn't adapt to the market. They didn't change with the times and what was going on and the expectations people had. They didn't adjust for losing all of this corporate business, because Eli Lilly is just one of many corporations that would rent out the restaurant from time to time. They had a cash flow issue and that's the whole thing. So you can have everything pretty much right and if you don't adjust with the times and things change around you, you have a cash flow issue and you're out of business issue and you're out of business.
Speaker 2:
And again it's really hard, if you have a restaurant or a bar that is doing very, very well, to say to yourself hey, the market's changing around me. I need to get out of this. I need to change what I'm doing. I need to pivot, because everything looks good, except that cashflow number gets smaller and smaller and smaller and smaller and then one day, instead of getting money from your restaurant, you're putting money into your restaurant and you're going. My God, well, this worked two years ago.
Speaker 2:
My parents closed in 2004. They were inducted into the Fine Dining Hall of Fame in 2002. So in 2002, they were known for being one of the best restaurants in the country and everything was wonderful. Two years later, they're going broke and so the cash flow killed them. And that is part of the reason why I personally have always focused on the finance side of the business, because your finances always suffer. If your service isn't great, your finances always suffer. If your service isn't great, your finances always suffer. If your food isn't great, your finances always suffer.
Speaker 2:
If you have a non-cohesive concept, if you confuse people, if you're not giving people what they expect. But you can have a great concept that's worked for a while, for a long time, and it can still fail because the market changes and the cash flow doesn't come in the door. And the whole reason I share that story is I was talking with a client of mine and we were talking about cash flow, because everything in business comes down to cash flow. Nothing else really matters. And this is not true just for bars or just for restaurants. This is true for business in general. If you have the cash to succeed or just to live until tomorrow, you don't have a problem. You have a business. You can change everything in your business.
Speaker 2:
But the second you don't have that cash flow, the second a business starts costing you money instead of making you money, you have a serious, serious problem. And, quite frankly, if you're not monitoring your cash flow properly. If you're not taking care of your cash flow, you're likely to end up in a situation where you don't realize you're losing until it's too late, whereas if you pay attention to your cash flow, if you pay attention to your P&L, if you really watch your numbers, you can hopefully see these trends way ahead of time and say, shit, things are not going well, and then root cause that issue. Now the problem can be, like my parents said, with something different, everything looked great until it wasn't, and by the time you realize it, it's too far. Things have moved around you in a way that you didn't anticipate, and that happens. But that's fine dining.
Speaker 2:
That's not the bar business for the most part, and I mean you can see this somewhat in bars, especially in like nightclubs and things where you have trendy spots that are really have a short shelf life because they're what the market wants right then. And then the market moves and somebody else is now cool, but bottom line again, if your cashflow isn't there, you don't have a business. And then the market moves and somebody else is now cool, but bottom line again, if your cash flow isn't there, you don't have a business. It doesn't matter what you do, it doesn't matter how you do it, it doesn't matter who you are. None of that matters Unless you have cash flow. And, quite frankly, I've seen so much by folks that support the bar and restaurant industry in the last few months.
Speaker 2:
It says if you fix your hospitality, everything else will follow. If you sell more, everything else will follow. If you make sure that your guests are getting a great experience, everything else will follow, and nine times out of ten that's 100% accurate. There is nothing wrong with taking that approach, but I'm here to tell you you can do all of that, and if there's no cash flow, at the end of the day it doesn't matter. And so this is the conversation I was having with my client.
Speaker 2:
That kind of gave me this idea, and so I want to take the rest of the episode to dive in and talk about what is cash flow, because I think we talk a lot about balance sheets, we talk a lot about P&Ls, but one thing people don't normally look at is their cash flow statement, and the cash flow statement frankly tells you how much cash went in and out the door. That's what its basic function is. Now, from a P&L, can I deduce what your cashflow probably is. Yeah, if I have your P&L in your balance sheet, I can read those and see cashflow, but that's because, well, I've worked in bookkeeping for QuickBooks and, frankly, I've spent a lot of my life focused on the numbers. If you don't, if you're not used to focusing on the numbers, your cash flow statement should be something you look at all the freaking time.
Speaker 2:
Now, what separates your cash flow statement from your P&L? So your P&L includes expenses, but not expenses that don't count for tax purposes or not, expenses that are repayment of loan principle. And repayment of loan principle is one of the big ones and I have seen this with plenty of ours where they have taken out loans. Their pnl shows they're making money, but to pay their loans, they're eating up all that cash. So maybe, maybe they have a $4,000 monthly loan payment that a principal and they have interest on top of that. That gets expensed off the P&L, but they're paying $4,000 that month in principal and they made 3,500. Well, if you only made 3,500 in a month, yeah, we should have a whole conversation about what can we do to improve what is going on here. How can we fix this? But if your profit's 3,500 bucks and your cash flow is negative 500 because you had a $4,000 loan principal payment. You're in a lot worse situation than what that P&L is showing you.
Speaker 2:
The other thing about a P&L is that sometimes P&Ls include expenses that aren't affecting your cash. So think about things like amortization or depreciation, or if you're expensing things on an accrual rather than cash basis and we've talked about the differences between accrual and cash. But real quick example you buy insurance. Your insurance is $12,000, for easy math, and it's in May. So on a cash basis accounting, in May you would spend $12,000. In accrual basis accounting you take that $12,000. You put it on the balance sheet as an asset called prepaid insurance and every month you expense a thousand bucks insurance and every month you expense a thousand bucks. So that means that in May I spent 12 grand on insurance but I only expensed a thousand. So my P and L is going to show an expense of $1,000, but my cash I put out $12,000. So it's an $11,000 difference. Now the next month, because I didn't actually spend any cash on my insurance, it's already been prepaid. It's just a accounting maneuver, essentially. At this point, insurance expenses a thousand bucks but my cash outflow is zero on that portion. So my P and L is going to show a lower number than my cash flow.
Speaker 2:
Now, with amortization and depreciation it's even worse because, especially if you just bought a place and you bought an existing place or you bought a bunch of equipment that amortization and depreciation that cash was spent a long time ago. In the United States, most restaurant equipment is going to be about a seven-year depreciation schedule, so you're expensing what you bought seven years ago, this year still, and again that shows as a negative on your P&L. But the cash isn't there. The cash is already gone. And whenever you bought that equipment, guess what that cash left? But it wasn't expensed at that point in time.
Speaker 2:
So if you don't intricately understand the back and forth between your P&L and your balance sheet and your cash flow statement, and even if you do, the easiest way to look at this is just to pull up a cash flow statement from time to time and actually see where your cash is going. I would recommend reviewing it every month because, again, whether you made 10 grand or negative 10 grand on your P&L, it's important, it's good data for your business. It's something you need to be on top of. It's important, it's good data for your business. It's something you need to be on top of. But what matters more to a small business is do I have 10 grand more or 10 grand less cash than I did at the beginning of the month? And, quite frankly, there are tons of scenarios that I could play out for you where your P&L is positive 10 grand or negative 10 grand and your cash flow is zero. So you have to understand cash flow and the cash flow statement being just measuring the money in and out of your account.
Speaker 2:
Now, one thing you should absolutely not do, and a lot of people do, as a proxy to looking at cash flow, is that they just look at how much money is in their bank account. Right, there's 10 grand in my bank account. I can spend 10 grand. Well, no, probably not. A do you have cash reserves? B how have you budgeted that money to be spent? And C, how many checks do you have floating? I mean, I know most of us don't write that many checks anymore, but I know, at least in the Midwest, where I am in the South, it's not uncommon for bars still to write a lot of checks. And so if you have 10 grand in your account but you're floating five grand in checks. You don't have 10 grand to spend, you have five. The other thing about just looking at your bank account is that, as anyone that's in the bar business knows, credit cards don't get deposited instantaneously. Things like fees don't get pulled out instantaneously. Spending ability you have for your business it doesn't affect what we could call your free cash or the cash that you actually have available, and so the cash flow statement helps you understand that better, and so the cash flow statement helps you understand that better.
Speaker 2:
Now the big reason why cash is so important, and I think it's probably pretty obvious at this point. But let's break this down real quick. You need cash to do anything. I mean you can use credit cards, but at some point you got to pay that credit card bill, and if you don't pay that credit card bill, well then those interest payments are going to add up and make it harder for you to make cash. It's an unfortunate cycle that happens far too often in this business, and it's not necessarily with credit cards, but with a lot of loans. You get a loan to cover a problem, then you end up getting a loan to cover the loan and next thing you know you're buried under five or six loans and you could profit a huge amount month to month. But the sheer amount of principle that you have to pay off for that debt make sure that you never make cash. And if you don't have the cashflow you are out of business.
Speaker 2:
And the other part about this is and this is part of the reason why I care so much about the numbers when it comes to bar owners, especially people that own one bar or two bars and that's their primary source of income is that that's their primary source of income. So my parents were lucky. My dad was a doctor. They had other jobs, they did other things and they also had cash on the sidelines that wasn't involved in the business, put into the business to help keep it afloat for a little bit. But when your only thing is a bar, when that's all that you have, when that's all that you do and that's your primary source of income for yourself and your family, if that cash flow isn't there month to month, it has a direct negative correlation on your life. And so, essentially, as a small bar owner, as a sole profession, if that's all that you do and you're relying on that money to support yourself and your family, cash flow literally is the difference between life and death. It's the difference between your world falling apart and your world not falling apart.
Speaker 2:
And, just like with anything else, if you get into a hard cashflow situation and you are relying on that bar money, it becomes depressing, it makes it hard to maintain a good mindset. Your company culture will suffer because you're going to maintain a good mindset. Your company culture will suffer because you're going to be a stressed asshole. And you're going to be a stressed asshole because you're going broke because there is no cash. And I feel like I cannot emphasize this enough. And I know there are people out there that will say well, cash flow is a natural product of doing your job. Okay, yeah, fine, you can think that, but you can also do critically a good job and not have the cash flow. There's a reason why, particularly in fine dining, a lot of restaurants don't last that long. They may be popular, they may win awards, but they don't have the cash, and so without cash, you have nothing.
Speaker 2:
Now, that's not to say that your cash flow statement and just looking at your cash can replace your P&L. Your P&L does relate to your cash flow, right? Obviously, the profit you make gets added into your cash flow. If you have a loss, that gets subtracted out of your cash flow. But your P&L is important for all the reasons we've talked about, with having actionable data for monitoring different metrics, for being able to find innovative ways to grow your business, for finding ways to support your team better All that you can see in the P&L Cash flow. Cash flow is about your life as the owner, especially if you're a sole owner relying on that bar for your livelihood, and because of that, you always have to make sure that you are viewing things from the angle of how does this impact my cash flow, that you are monitoring your cash flow and, moreover, that you are constantly evaluating everything you do in relation to cash flow Because, again, your P&L can be good. You do in relation to cash flow Because, again, your P&L can be good. You can be doing critically well and not have the cash flow and you end up in the same shitty spot as if you were doing everything really, really poorly.
Speaker 2:
Hopefully I haven't scared any of you guys that was not my intention today, but it's just interesting to me and it took me years to process and really years to process, and really my parents closed in 2004. It's been 20 years, it's taken time to process and say, okay, why did they fail? And the only answer because it's not hospitality, it's not service, it's not food and I'm sure there are some people from Indianapolis that will disagree with me on that, but let's just rely on what the critics said and so it's not those things. What is the answer? The answer is cash flow. The answer is, frankly, not having the right concept for the market. But it's so, so easy to get stuck in the trap that I am doing great on all these things while your cashflow is declining and you're on your way slowly to a dead bar. So don't do that.
Speaker 2:
And if you have any questions about your cashflow or want to talk about PNLs and stuff, as always, schedule a strategy session with me and let's talk through that Now as a few final notes here with me. And let's talk through that Now as a few final notes here, because this is one thing that I really cannot emphasize enough the death to cash flow is over leveraging. So the more money you borrow, the more principal you have to pay back, the lower your cash flow is. And if you think about something like merchant service loans, that a lot of bars and restaurants get pulled into because it seems so easy. I'm going to get five grand. They're going to take it out of the credit cards before they get processed. That's wonderful.
Speaker 2:
Well, a? I've read a number of those contracts and trust me when I tell you you're not getting a good deal. You're not getting your money cheaply. It may be the only person that can loan you money, but you're paying through the nose for it, because nobody really should loan you money. The other thing that is true about these loans is they're taking out your cash before it even hits your bank account. You don't have a choice on where your cash goes. They are grabbing your cash from you before you get it, and if you don't have cash flow, your chances of surviving are low.
Speaker 2:
Everything else I mean you. You, frankly, you could have the shittiest bar on the planet, and if your cash flow is positive, you're not gonna be closed. You could have the best part on the planet, and if your cash flow is negative, you're not gonna stay open. So everything else, very every other variable in the business can be whatever you want it to be. It can be good, it can be bad, I don't care. Cash keeps businesses open. A lack of cash makes businesses close, and that is the message that I wanted to give you guys today. So the way out, the way to avoid all this, obviously, is manage your books, find good people that will help you watch your metrics, but, most of all, keep a really good pulse on the finances of your business, because a lack of cash will always put you on edge. I think I've said that enough for today, so let's wrap this up.
Speaker 2:
If you enjoyed today's insights, if you're weird like me and you like talking about cashflow, make sure you like subscribe and leave a review. We are doing more and more interview episodes. We're also doing still just episodes of me talking, so hopefully you enjoy the balance of both of those, but please leave a review or shoot me an email Let me know what you think. There's a link in the show notes. You can actually uh, text me from that link. Give us feedback, let us know what you are thinking about podcasts.
Speaker 2:
Also, if you're looking to interact with other bar owners, get more insight, just kind of learn and have people to bounce ideas off of, make sure you join our Facebook group, bar Business Nation. There's a link for that in the show notes as well. And, as I mentioned a few minutes ago, if you ever want to talk numbers with me, if you want to talk finances, hospitality, anything about the bar business, go ahead. Schedule a strategy session with me. I can tell you a little bit about what I do to help my clients be more successful. You can tell me about your bar and we can figure out if that's going to be a good fit and if there's anything I can do to help make you more successful, make sure you have a positive cashflow and put more money into your pocket. So links for all that again in the show notes below. Make sure you like subscribe, leave a review and with that guys, I hope you have a great day and we will talk again later review.
Speaker 1:
And with that, guys, I hope you have a great day and we will talk again later.