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Revealing illusions

ASR gives better financial picture


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Appearances can deceive, whether we’re misled by a magician’s illusions or financial spreadsheets that conceal operational flaws and profit-building opportunities.

Operators of expanding multi-unit restaurant groups let blind spots restrict their vision if they rely solely on reporting systems that were adequate during startup years and first-phase growth. When enterprises reach 10 or more locations, it’s essential to have easy, fast access to a wide-angle view of key performance indicators and operational trends. This assures that what looks like a financial snapshot focuses on accurate, meaningful information needed for responsive management.

For two decades, computerized point-of-sale (POS) systems have provided a one-dimensional view of a restaurant’s operations. These conduits relay only information tabulated through the cash register, such as check averages, labor, top-selling items, traffic peaks and narrowly defined customer counts. They use canned report formats and don’t integrate other equally important information sources to show hidden patterns, create dynamic comparisons, spotlight trends or analyze financial health.

Stand-alone POS systems generate data overload without clarity or interpretation. They don’t deliver what operators really need to monitor the pulse of their business and make timely changes by adjusting menus, pricing, staffing, purchasing and marketing.

Knowledge empowers

As a result, most growing multi-unit groups don’t see all their data and can’t customize what they do have. Operators, including operations and finance staff, need a more sophisticated yet simple approach.

Using Microsoft Excel, data can be manipulated and reported but it’s a cumbersome, time-consuming process that doesn’t give a real-time picture and is fraught with potential errors. Additionally, at its best it shows only what has happened (again in one dimension) rather than what is or what will happen under different scenarios.

Immersed in columns and rows of figures, management can’t recognize patterns, variances or opportunities for improvement. Like a ground-level explorer who sees endless trees but has no idea of a forest’s size and shape, most restaurant groups accumulate data that is never used to drive productive decisions or answer “what if” questions.

Breakthrough capability

Inevitably, technology rides to the rescue. Above-Store Reporting (ASR) systems, introduced in recent years, let operators look deeply into their business from all angles and make immediate adjustments. This new category of systems integrates POS data with external information from beyond the store level to refine performance management and strategic planning.

ASR systems from Mirus Restaurant Solutions, Decision Logic, XFormity and other firms deliver user-defined reports and custom-tailored graphics. Screen “dashboards” show patterns at a glance or allow for what ifs.

One of these approaches is suitable for any multi-unit restaurant group:

Data warehouse: Information is imported into an Internet application from a variety of sources that surround the restaurant. Examples include POS terminals, outside payroll processors, purchasing systems, human resources programs, marketing programs, customer affinity promotions, mystery shopper reports, weekly/monthly budgets from accounting applications and other internal/external resources. These systems focus primarily on easily identifying key relationships between seemingly disparate information. Mirus’ easily navigated program lets users slice and dice a vast amount of information, including vendor data. It’s simple to create “dashboards” showing up to 20 indicators with color-coded traffic lights.

Supply side: Decision Logic is among the developers that put supply chain information in the forefront. This model appeals mainly to small- and mid-size casual dining groups, which can place electronic orders from main vendors, calculate serving costs and find product use alternatives to reduce waste. Its bottom-up inventory focus is on cost of sales and what product quantities a store should have gone through, compared with actual consumption. Similar to back-of-the-house programs such as Eatec, Food-trak and the like, these new systems combine POS data with vendor data and become the main reporting tool of the multi-unit group. Like the data warehouse alternative, these systems are also Internet based. Avoid data avalanche

Each type lets corporate and regional franchise managers put financial reporting and analysis—business intelligence—at the heart of their operation. Instead of conducting unproductive spreadsheet reviews, they run restaurants with practical, timely information. Leadership executives isolate opportunities for efficiency, growth and profit building. It becomes vastly simpler to make daily or midweek adjustments to food purchases, staffing levels and other variables, as well as monthly or bimonthly decisions about menus, prices and marketing campaigns.

To put it in food industry terms, ASR systems prepare made-to-order portions of data that are ready to consume. And there’s no need for an abrupt technology change.

Owners preserve their investments and familiarity with current systems while migrating to a blend of technologies. POS data becomes part of the information stream flowing into an ASR system. Excel can play a supporting role, albeit a much more valuable and efficient one.

My company, CFO Partners, Inc., considers ASR systems to be a critical acquisition by clients in establishing active operational reporting and effective financial controls. We actively participate with clients in establishing such systems and use them extensively in monitoring and advising senior management on the health and direction of the business

Key steps allow a multi-unit group to determine which type of ASR system is best for their operation. These steps include:

• Perform an inventory of key data sources inside and outside of the company.

• Determine what information is important. Use Excel to show reporting relationships that should be tracked as well as products such as Crystal Xcelsius to determine the most effective way to present the relationships.

• Confirm the cost-efficiency and time-effectiveness of automating the process instead of paying a bookkeeper, comptroller or IT specialist to crunch numbers. The savings in general and administrative costs can often be significant.

• Explore advantages and drawbacks of each type of ASR system.

Fast payback

ASR systems are typically hosted on a service provider’s secure web site for a monthly fee per location. Significant savings from tighter product and labor controls are counted within months, thanks to more efficient ordering, reduced waste, better scheduling, smarter marketing, menu tweaks, pricing changes and other operational efficiencies. Some operators see their average costs of sales drop, and virtually all report a flow-through to the bottom line of at least one percent of sales.

That’s not small change. A group with $50 million in annual business could save nearly $500,000 the first year—an attractive return for system-access fees that may be in the $30,000 range.

Above store reporting brings a turning point in the evolution of multi-unit restaurant groups. Applied effectively, these affordable tools let small and mid-size chains operate the way major national players do. They empower any company to cut costs and boost profitability—a powerful payoff available at your fingertips.

Gregory M. Thomas, CPA, is founder and president of CFO Partners Inc., a company that has been providing outsourced CFO services to multi-unit restaurant groups across the country since 1994. Gregory can be contacted at gthomas@thgcfo.com.

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