Running the Numbers -- to Someone Else

 
May 2, 2004

After a long day running a pizza shop, no operator wants to do the bookkeeping.

Some, however, have no choice. Either they've not hired a bookkeeper to take on the task, or the one they had quit, or called in sick, or is incompetent, etc.

Some cajole a spouse into tracking the numbers, a typically convenient and low-cost arrangement at first. But when discussion of the P&L replaces pillow talk, things turn tense.

Regardless of the challenges, experts say good bookkeeping is a must if one wants to maximize a pizza shop's profits.

"The restaurant business isn't all about people and food, it's also a numbers business," said Jim Laube, a 25-year veteran of the restaurant business, who now owns operates RestaurantOwner.com, in Houston. One aspect of the site's interactive, educational offerings is instruction on bookkeeping and cost controls in foodservice operations.

But even though Laube teaches operators the nuances of knowing the numbers, Laube said if he were back in the trenches, he'd likely outsource his bookkeeping.

"It lets you operate the restaurant without that hassle," he said.

Accounting outsourcing firms have been around for decades, but in the past several years, a growing number of companies are crunching the numbers just for restaurant operators.

The benefit of their service, they claim, is to let restaurateurs do what they do best: focus on serving customers and managing employees, while leaving the bookkeeping to professional accountants.

"If you're an operator, you've got to weigh two things in regard to doing the books: the cost of doing it in-house; and the quality of the information you get," Laube said. "Operators can only be good at so many things. And when you think about the time and cost required to set up a bookkeeping system, and then to manage those people as your business grows, it starts to make sense to think about turning that over to someone who's really experienced in the area."

"There's a perception of a loss of control if they outsource that. They also have some personal reasons, like the fear of having to displace some people if they move that duty outside the restaurant."

Dale Hoyer
Founder, Owner
Franchise Services Company, FSConnect

Because former restaurant operator Maria Francis has been there, done that, too, she knew how to build her accounting outsourcing business, Restaurant Reporting Plus (RRP). Today, her Houston-based firm services the numerical needs of dozens of U.S. restaurants. When pounding the desktop PC for financial answers becomes too much, that's when Francis said operators come to her for answers.

"They figure out that they need something more than Peachtree or QuickBooks, something that will give them more sophisticated financial statements and analyses of their business," said Francis, whose firm specializes in multi-unit operations.

Additionally, she said, RRP and a handful of others like it specialize in foodservice bookkeeping, which makes their services especially attractive to restaurateurs.

"What we know about the industry makes our services unique; restaurant (accounting) is different," she said. "Usually, general bookkeepers don't understand the restaurant industry, how to calculate things like prime cost, or how to put together a detailed sales report and compare budget versus actual. We know what to do with a balance sheet."

So does Steve Patton, owner of Kansas City, Mo.-based WKRP Management, a 15-store Pizza Hut franchisee. But he doesn't want the hassle of compiling the numbers himself or having to employ in-house bookkeepers.

"The biggest benefit of farming out all those things is that we don't manage any people," said Patton. "I have that information prepared for me, and everything is there at my fingertips when I want it and where I want it."

Outsourcing: It's a tradeoff

Dale Hoyer, founder of Franchise Services Company, an accounting outsourcing firm specializing in helping quick-service restaurant companies, said the restaurant owner who's doing the books himself is his key competitor. If the owner handles it himself, he's not paying anyone. Or if he's paying an in-house bookkeeper, he can at least watch over her shoulder. This type of operator, Hoyer said, is loathe to let loose of his numbers to outsiders.

"There's a perception of a loss of control if they outsource that," said Hoyer, whose company is in Wichita, Kan. "They also have some personal reasons, like the fear of having to displace some people if they move that duty outside the restaurant. To let somebody go, especially now, is a hard decision to make."

But in Hoyer's mind, the plus of letting someone else handle the books outweighs any perceived loss of control, especially since technologies like the Internet allow operators to review all their financial information 24-7.

That happens when data -- be it payroll, sales, inventory, expenditures, labor, insurance, etc. -- stored in a restaurant's POS or computer system, is polled and retrieved via modem (typically after the close of each business day), and stored at the accounting outsourcer's facility. Based on the information the operator requests, the data are turned into reports from which he can gain a detailed snapshot of his businesses -- just by logging on to the Web.

"Because we can poll their POS system, we can get (the operators) whatever information they want, be it guest check average, product mix, food cost, whatever," said Hoyer, whose company manages the books for 2,600 restaurants. "This kind of reporting is especially helpful to someone who wants detailed reporting on multiple units."

Outsourcing Resources

Franchise Services Company
316-689-0049

Restaurant Reporting Plus
713-953-1782

Horne & Company
615-312-9023

Premier Accounting Services
502-329-8969
tomk02@bellsouth.net

Want to be included in our resource list? Simply e-mail your company's name and Web site to stevec@networldalliance.com, and we'll see that your firm is listed.

While both RRP and Franchise Services do service some high-volume single-unit operators, the bulk of their business is made up of multi-unit operators.

Multi-unit owners, Francis and Hoyer say, benefit the most from outsourcing because they can grow their unit numbers without having to add to their own accounting infrastructure.

"Our clients' sizes range from one store to more than 240 stores, so it's a very scalable (service)," said Hoyer.

Scalability, plus the depth of reporting each operator desires does affect the price for services rendered. Some clients, Francis said, only want analyses of numbers that can be polled from the POS. Others want not only that, but they send her staff original copies of invoices and payment records to be used for auditing data captured by operators' POS systems. For some Franchise Services clients, such hardcopy records are posted on the Web for review.

Through its Internet arm, Franchise Services also offers FSConnect, which compiles highly detailed customer and sales information, which it coverts into what Hoyer called "density maps."

For example, via the Web, a pizza store operator could request the computer to amass a specific month's sales activity on a single special offer (say a large three-topping pizza deal), and ask it to plot on a map how the special sold within a given geographical area (such as the traditional three-mile store delivery radius.)

What the operator would see is a map bearing clusters of dots signifying who purchased the special, where they live and how often they purchased it. Areas on the map with the highest dot density would indicate where the special sold best, and where the operator should focus future, similar promotions.

"When you've got very focused marketing, you're going to have a lot higher hit rate than if you applied just a shotgun approach," Hoyer said. "You can be getting more in the 12 to 15 percent return range with this."

What's it cost?

Whether outsourcing a business' books is worth the cost -- especially if an operator or a spouse is handling them for free -- is the key question. Operators with fewer than five stores, Hoyer said, don't enjoy much in the way of cost savings; the benefit gained is more time. "He can do whatever he wants with that time, spend it with family with customers, whatever he likes."

Every unit added to an operator's chain, Hoyer said, reduces the outsourcing cost per unit. "The real hot range is probably over 20 stores, because that enables us to gain synergies and economies of scale easily for them."

Both Francis and Hoyer said it's difficult to pin down an average cost for their companies' services because that fluctuates with service levels. Their cost structures are similar, however. RRP's is largely is based on sales volume, while Franchise Services charges a percentage based on annual revenues.

In most cases, though, Hoyer said, multi-unit operators whose general and administrative costs range from 3 to 7 percent of sales see sizable cost savings. "When we're talking about a cost (for our services) well below 1 percent of revenues, they save money."

For smaller operations that employ a full-time bookkeeper, that person's salary, Laube said, will "buy a whole lot on an outsourcing basis, probably a couple grand a month. In fact, I'd say (that operator) would probably be able to cut his accounting costs in half if he outsourced it."

Pizza Hut franchisee Patton isn't convinced that using an outsourcer is cheaper for him. He believes buying that service costs him more than if he did it in house.

"The restaurant business isn't all about people and food, it's also a numbers business."

Jim Laube
Owner, Operator
RestaurantOwner.com

"I pay a flat fee per store per, period. So the more stores I add, the more pay," said Patton "But if pay one or two accountants and I grow to 20 stores or 50 stores, they can still handle it and I'm not paying any more."

Regardless of whether he could save money, Patton said he has no plans to bring his accounting back to his headquarters.

"I'll be honest, I've not done the numbers, and so I can't say I could save five grand a year doing it in house," Patton said. "But with the service I get, (saving $5,000) isn't even important. It's still worth it to outsource it because it's nearly a turnkey operation."


Topics: Financial Management , POS , Telecommunications


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