Bookkeeping Basics for Bar Owners Part 1: Master Balance Sheets & Boost Profits

Obviously , bookkeeping is how we record the money that comes in and out of our business . If you don't understand bookkeeping , if you don't understand your financial statements , if you don't have a really good control of what's going on in regards to your money , there's no way you can make as much money as you want or as much money as is possible .

Bookkeeping becomes fundamental to running a good bar and really it's fundamental to any business . As I've said many times and as I fully believe , the purpose of being in business is to make money .

If you don't know where your money is , if you don't know where you're spending it , if you don't know what assets you have , what liability you have , if you cannot properly account for the money that you have , you have no way to know if you're winning or losing . That's why bookkeeping is absolutely fundamental .

Because bookkeeping is actually a very broad topic , we're going to break this out into two parts . This week . We're going to talk about some fundamentals of bookkeeping . We'll delve into the very basics .

I have a little bit of conversation about what bookkeeping is , why we need to worry about it , and then we'll launch into a conversation about the balance sheet , how balance sheets work and why it's important for your business . Next week we'll get into the P&L and cash flow and go into those statements in detail . A few basic notes as we get started here .

One thing to always keep in mind with bookkeeping is it's a backward-looking indicator . It doesn't tell you how you're doing today . It doesn't tell you how you're going to do next week . It really tells you how you did last week , last month , last quarter , last year . Because it's a backward-looking indicator .

One thing you always have to keep in mind is that the conditions that caused one set of numbers may not exist today . If you have had a chance to listen to our conversation about KPIs why they're important , how to measure them all that there's actually a two-parter as well .

That conversation has a lot of ideas for metrics you can track now that help you guide your business in the present . But with bookkeeping we're looking at historical information .

So always keep in mind that just because you have a bad month , a bad quarter , does not mean that the conditions that caused that bad month or that bad quarter still exist or that your information is actually actionable at all .

If we all think back just a couple years , with COVID and closures of businesses and bars and restrictions , most of the financial data that would exist during that period for a bar restaurant does not apply to anything today and really is only going to be useful if we ever find ourselves in a similar situation in the future , which hopefully we never do .

You have to keep in mind again . It's a backwards indicator and , while it can be used to make some great decisions and to guide your business , it is not an end-all be-all . You always need to consider what your current state is . A few other things I will mention as we get this conversation started .

One is that , well , balance sheets and P&Ls and cash flow is a universal topic . Some of the stuff we'll discuss today is US-based , and that's just because I'm in the US . This is what I know . I've actually worked in bookkeeping quite a bit , so I understand it .

Beyond just the bar ownership aspect , about 35% of our listeners are outside of the United States and I really thank you guys for listening . I think it's amazing to have this kind of international reach .

However , just be aware some things may not apply to you And for those of you in the United States or anywhere in the world , not all of this is going to apply to you at all anyway , and part of that is because , when it comes to bookkeeping , when it comes to company organization , when it comes to what type of company you should be , any of those sorts of

things that are going to impact the legal setup of your business or the tax setup of your business , that's very individualized And there is no way that I can give you guys information that is specific and applicable in all situations .

Regardless of what we discuss today and next week , i would strongly encourage you to reach out , find a CPA , find someone in the accounting space , a bookkeeper that is highly familiar with bars and restaurants , that has worked in this space , because they will know what you need To an extent .

If you don't get someone that is in this space , you may not be getting the best advice . So one of the biggest questions when it comes to bookkeeping is who's going to do your books , and you can do it yourself or you can hire that out for someone else to do it . As I just mentioned , it's always good to have qualified advisors .

It's always good if those people especially understand the bar business , because if they don't , you're not going to get necessarily bookkeeping that works best for a bar . But another option with bookkeeping is always , of course , to do your bookkeeping yourself , and it's something that I did and I actually recommend .

The reason behind that is then you see your numbers , you're interacting with your numbers , you know them backwards and forwards , and every week you can get a feel for what your expenses should be , what your income should be , and it really gives you a much more personal feeling of those trends . But , as I just mentioned , i've worked in bookkeeping .

I do work in bookkeeping . It's not something a lot of bar owners want to do , so if that's not you , that's fine . Go ahead and find someone to help you , but make sure they understand the industry and make sure they're providing you books that allow you to make good managerial decisions .

Because with bookkeeping essentially there comes down to two separate types of bookkeeping . If you will , you can keep books for taxes or you can keep books for management purposes . As a bar , we really want to keep books for management purposes . You get a CPA . They can file your taxes , they can change it to match the tax forms and make it work for them .

But for us we need data , and the data that we need has to be actionable . So if you don't have books that give you the proper information , there is no way for you to be successful and for you to get from your books the information you need to make the right choices . When we talk about managerial books , it's all about being actual .

Most of the difference between a set of books that set up more managerial or decision making and actionable data versus tax based , you're going to really see that difference in the P&L , not so much in the balance sheet , and , as I said , we'll get in the P&L next week , but for now , just think about the fact that a set of tax books may just reflect sales .

This is what you sold , which is a great number , but that's not terribly helpful in the bar business . Which you really need is sales broken down by category . So it doesn't matter if you sold $100,000 .

It matters that you sold $30,000 worth of beer , $30,000 worth of wine , $30,000 worth of liquor and $10,000 worth of food , because that's what we're measuring , that's what we're tracking , and just like we need to track that on the income side , we need to track that on the cost side , because at the end of the day , there's no way to understand your beer cost ,

wine cost , liquor cost , food cost , unless you know exactly what you spent on those items and exactly what you earned on those items . So it really is important that you're breaking down your P&L in that way .

Another great thing when we're talking about managerial books that you can do is you can make your gross margin , or what some accountants will say is above the line , that is , your cost of goods sold , and you can put your labor in there , so you can kind of modify it to prime cost .

It's not exactly a tax-based way to do your accounting , but with bookkeeping you have some leeway And so you can make your prime cost all on your P&L and then have your fixed cost , your variable cost and those sorts of expenses coming after your prime cost .

When it comes to keeping your balance sheet more managerial , it's really just about making sure that you have your asset details and your liability details properly laid out in a way that's meaningful , and also your equity details who owns what , how much they have in the business . That is important as well .

Now , before we get into the balance sheet itself , i want to take a step back here real quick and talk about cash versus accrual accounting , because this is something I'm sure you have heard and it's freaking confusing , because most of us use what would be termed modified cash , which is neither really fully cash or fully accrual .

It's somewhere in the middle , and what denotes modified cash can actually be different depending upon the business . It's really just a matter of not being quite fully accrual and not being quite fully cash-based .

Cash accounting , by definition , you record an expense or an income at the time you receive the money , not when you produce the product for sale , not when you write a bill , but at the time you receive the money .

Accrual accounting , on the other hand , you're trying to more accurately reflect your income and expense in the period that it is incurred , rather than the period that you receive that money or pay that expense , oftentimes in bars . Like I said , we're going to be somewhere in between those two .

We're not going to record everything at the time it happens rather than the time we receive the money , and some things we're going to record at the time we receive that money or spend that money . We'll get into a little bit here where you may decide to be more on the cash side or more on the accrual side in your balance sheet .

But again something to remember managerial bookkeeping is based upon what you want to do . There are no real hard and fast rules . Obviously , if you have a CPA , they're going to have opinions . They're going to say , hey , i want you to do this , i want you to do that . That is between you and your CPA .

So not all CPAs , not all tax preparers that you may use are going to agree with me , but it is fundamentally your books . You can do what you want . Sometimes when you talk to old business owners , they'll tell you you know , i keep two sets of books . Now , most of these folks are not mafia dons .

They're not keeping a set of books that has real numbers and a set of books that has fake numbers that they give to the government , although it's the bar business . Some people might still do that , but it's really not as common as it was 70 years ago .

Most of the time now , if you hear about somebody keeping two sets of books , that's because they're keeping a managerial set for them to use and a tax set for their accountant and for tax filing purposes . Not that they can find different information , just that information is organized differently because the reports have a different purpose for the business .

Let's go ahead and start diving in a little bit to the balance sheet , and the reason why I want to start with the balance sheet , not the P&L even though I'm sure many of you would much rather talk about P&Ls than balance sheets is that the balance sheet is your financial position .

It's what you have , it's your assets , your liabilities and your equity , and it's fundamentally what your business is worth in a lot of ways .

So it's really important how you do that , and in the US , your assets and how your assets are classified are also going to determine things like your depreciation , how much you expense them , over what period of time you can expense them .

So your balance sheet is really fundamental to understanding the health of your business and understanding what it is that you actually have . What is the book value of your business ? Book value of your business is going to be the number on your balance sheet , so keep that in mind .

All balance sheets are composed of three sections , and those are assets , liabilities and equity , and the equation that we use on a balance sheet is assets equals liabilities plus equity . So that's where we have the balance The value on the balance sheet for the assets must equal the value of the liabilities plus the equity .

What we'll go ahead and do here is we'll spend some time talking about each of these subjects . First we'll start with assets and then we'll delve into the equity and liability side of things .

With assets , there are a few different assets that you're going to see on every bar balance sheet , and when we think about an asset , that's essentially things you own of value . What is your stuff worth ? And you're going to have current assets . You're going to have long term assets . Current assets are things that are cash or could be cash very quickly .

Long term assets are things that you own that have value but are not necessarily easily transferable to cash . For instance , if you own the building your bar is in , that's going to be long term . It's not cash . You can't spend that next week unless you sell the bar .

Let's start by talking about just the current asset side of things , the assets that you have now that are considered quickly able to be turned into cash , and the first thing that your current assets will normally have is your cash , so that's going to include the cash in your drawers , the cash in your safe , whatever petty cash you keep .

If you have gaming , if you're doing pull tabs or Kino or slots or something like that , all the money that you have stocked up to pay those out and for your gaming activities in your bar .

The first part of your cash is actually just physical cash you have on hand And then also included when we talk about cash from a bookkeeping perspective is all your bank accounts .

And when I say all your bank accounts , we're talking about business bank accounts , and actually this is a really good time to mention One thing that you should always do is keep your business and personal finances separate . There are a number of reasons for that .

Largely , it's so that you know what money is which , and there are some legal implications within the United States on that .

There are also some implications of what they call pierced veil , where you can actually eliminate the limited liability protection of your LLC , because you're commingling your LLC's expenses and money with your personal money , so that government sees no difference .

There's no legal barrier between your person and your company , but any bank account that's in the name of your business , whether that's your checkings , your savings . If you have a money market account , that's all part of your current assets .

The other thing that you may have and it's not terribly common in the bar business , but this exists in a lot of other industries and some bars have the money to do this Say , you have a brokerage account that's owned by your business where you invest excess funds .

That is also part of your current assets and generally considered part of your cash , because it can quickly convert that into cash in your bank account . So that'll be the first big chunk of your assets on your balance sheet . After that , what you'll find most bars have is their inventory .

This is one of the reasons why it's actually very important to do an inventory account at least monthly . I think they should be done weekly , do a full physical inventory , but a full physical inventory at a minimum needs to be done monthly in order to ensure that the inventory value on your balance sheet is proper .

And the big reason why you need your inventory value to be correct , why you need to know that ending inventory balance every month , is because that's directly going to infect your cost of goods sold And your cost of goods sold or what you spent on beer this month will affect your beer cost percentage , and if we're going to ever be able to analyze your actual

beer cost versus your theoretical beer cost , it requires an inventory that's properly done . In order to do that , when we talk about inventory , there's the basic inventory equation , and the basic inventory equation is going to be beginning inventory plus purchases , minus ending inventory equals cost of goods sold .

Now that sounds probably a little bit complicated , but let's break that down real quick . So your beginning inventory is what you start the month with , which also will be the ending inventory from the month prior .

You take account on June 30th , because that's the day coming up , and then you're going to count your inventory again on July 31st And that will be your beginning and ending number . Your July 31st inventory account will be the beginning number for your August inventory calculations . You're going to add to that your purchases .

So if we're talking beer , you're counting all the beer you have . You know the value of that beer . You're adding to that all the beer you bought during the month And then you're going to subtract what's left at the end of the month . So , beginning plus purchases minus ending , the difference between the beginning , plus purchases , and the ending .

Inventory is that cost goods sold . That's what you actually the value of the items you actually sold to your guests , your cost on those items . And it's also important to mention here , when you're talking inventory and all this , you should be updating your inventory pricing . We all know right now that inflation is through the roof .

Our prices are changing rapidly . You could keep inventory on a more regular basis and worry about cost allocation for each inventory item . And when you talk inventory , you'll hear things like FIFO and LIFO , or weighted average or actual cost , which are just ways to value the inventory .

Fifo is what most restaurants and bars are going to use first in , first out , and that's because we serve a perishable product , so the product we bought first is the first product we're selling Manufacturing . Sometimes they'll use LIFO , which is last in , first out .

The most recently purchased item is the one that's thought to be being used first , because there is no perishability to a sheet of steel . So you can let it sit on a shelf for a decade and it doesn't change , but in our industry it's generally going to be first in , first out .

You may think okay , that means then that I have to update my inventory numbers all the time . Well , to be absolutely accurate , yeah , you probably should do that , but that's not really practical in the real world .

But every month when you do inventory you should update the values of your inventory items to match the current price of those items that you're paying . Beer at the beginning of the month a beer cost $1.00 or two And at the end of the month it's going to cost you $1.05 .

You need to update that Because presumably most of the inventory you have on hand you've purchased very close to the end of the month Number the last amount that you paid for . That should be relatively accurate .

But the absolute point here is that you must do a monthly inventory and you must have the right prices in for that inventory at the end of the month so that you can properly value your inventory and therefore properly figure out your cost of being sold , which in turn allows you to get the most accurate cost percentages whether that's liquor , beer , wine or food

and then properly compare your theoretical cost against your actual cost .

After cash and inventory , the next item that you're going to see included in your assets is accounts receivable or money that is due to you , and there's really not too much in accounts receivable for most bars . Part of that is because in a lot of locations it's not legal to serve alcohol on credit . But let's say you did have house accounts with people .

Let's say you let people come in and drink and then charge them later . That would be accounts receivable . That's money that someone owes you , that you've already given the product to them . In that case you would want to record accounts receivable and have that on your balance sheet , because at the end of the month that's absolutely money you are due .

The other thing here is that when you record accounts receivable you're putting that money against sales and accounts receivable . So you're recording the sale of that item in the month that occurred when you served that drink or gave somebody that meal on credit , and then you're recording the IOU . Obviously when they pay you . That's not sales .

You already sold the food , but you're just going to mark the payment you receive from them against the accounts receivable , which is again essentially an IOU . This could also come into play if you're loaning people money .

Say you advance an employee some money on payroll which I don't recommend , we can have a whole separate conversation on that But say you did advance an employee some money , then that would be money that employee owes you . It would show up in your accounts receivable .

The other receivable that you may have and this is one that can be a pain to figure out but especially around the end of the month can be valuable is credit cards receivable .

So , as we all know , if you come into my bar tonight and you buy a bunch of drinks and I close , and it's three o'clock in the morning when I close , and so I am not going to send out that credit card back to my credit card processor to finalize until sometime the next day , so I sell you the beer today , i batch my credit cards tomorrow , my credit

card company pays me a day or two after that . In that way your sales can be off . The credit card deposits into your bank account can come two , three , four , five , six days after the actual sale occurred , and that's normally not a big deal .

But where that can be a big deal is , say , the month ends on a Saturday And so you have this huge weekend of sales at the end of the month . Well , if we record that money when we receive it as sales in the following month , then that month is going to have sales overstated and the current month is going to have sales understated .

And if it's a Tuesday or a Wednesday it's not too much money . You don't do a lot of credit cards , it's really not a huge deal . But if you're doing a high volume and you have a weekend that falls right at the end of the month , those sales in the next month will distort both months and give you less accurate data .

So in that way when that happens , you can make a credit card receivable adjustment . And again , this isn't something I do within a month because I just don't think it's worth the time and effort At the end of the month . I think it is backdoor scenario .

The month ends on a Saturday , so your Friday and Saturday night get paid out the following Monday from the credit card company or Tuesday . That money's in the next month .

What I would do is I would take the credit card sales value at the end of the for those days that have not been paid out at the end of the month and I would put them against sales , just like we would with a house account , and then also against our credit card receivable . And that way we've said hey , this money occurred in this month .

Then when that money comes in the following month from the credit card company , we put that against the receivable rather than sales , so that we're not overstating the next month's sales And we're counting for the money in the proper period , so that we have again more accurate data .

Because if you have a knockout Saturday night at the end of the month and you run through a lot of product but you don't record those sales , guess what happens ? This month you're going to look like you have a bang and liquor cost And next month your liquor cost is going to suffer and it's all because you did not record this credit card receivable .

So credit cards receivable can be very important or not that important . Again , it depends upon the value of the credit cards you're running through . What percentage of your business is credit cards ? what day the end of the month falls on ?

There's all these variables that are involved , but I would recommend , whether you're doing your books yourself or you have a bookkeeper doing them , to have a credit card receivable at the end of each month to help better account for what happens in what period .

So we have cash inventory accounts receivable and then we have our final piece of assets , which is going to be fixed assets . These are like things that you own , that are hard Furnitures , fixtures , equipment , buildings , land , anything that is actual , physical , that you own all your personal property in your business .

And when we talk about fixed assets when it comes to the United States , we're worried about amortization , appreciation and original costs . And the reason we're worried about those is because fixed assets are not expensed at the time you purchase them . If you go buy a new grill , you don't expense 100% on that grill this year when you purchase it .

That grill has a serviceful life , so that gets expensed over a period of time . Now there are ways that you can record it all this year and that's part of the reason why you need a CPA to talk to or an EA or a tax preparer .

That's really good Because , depending upon the item in the United States there are things like bonus depreciation , 179s ways that you may be able to expense that all this year rather than drawing it out over multiple years .

But generally speaking , when you purchase an asset , it's going to be expense not just this year but over a period of years , and that period of years could be five years , could be seven years . On some property it's 15 years , so it depends on what the property actually is and how you expense it .

On a side note here if you're going to purchase a bar , it becomes very important how you allocate your purchase price to the different assets in the bar .

Because obviously if you allocate a huge portion of your purchase of that bar , to say goodwill , that's a 15 year amortizable that's a hard word to say amortizable asset And so that goodwill , if you put 100 grand in goodwill , that's going to be expense over 15 years . If you put 100 grand in kitchen equipment , maybe that's seven year equipment .

So in about in a little less than half the time you're making the same expenses . It's going to decrease your income in the short term , increase your income in the future which , generally speaking , is valuable when you're first starting out to have higher expenses now , lower taxes and then have more profit down the road .

But again , you should get a CPA , you should get an EA , you should get a tax preparer and discuss this with them .

But be aware that when you're purchasing , how you determine what money you got spent towards which assets is actually very important to your bookkeeping and to your bottom line moving forward .

But with all your fixed assets , one thing I always recommend doing is making sure that you have your original cost , what you spent on that asset and then the depreciation listed for each asset . And there are two reasons for that . There is a legal mechanism that is in the tax code called depreciation recapture .

So if I buy a piece of equipment for two grand and I expense it down to $0 , i've had it for its full depreciable life , but then I turn it in and sell it for 500 bucks , i have $500 of income .

Conversely , if I have a product that should last seven years and it doesn't , so I spent two grand on it and I still have $300 worth of cost , and it breaks well now that $300 is immediately expensive . That makes it very important to know what money you have in each asset , what the depreciation has been and what the original cost is .

Always break those down in that way . Now , after assets , we're going to look at liabilities and equity , and liabilities are money you owe people . Essentially , that's the easy way to think about it . It's things that you owe . It's things you have to pay .

Most bars are not going to have a huge number of liabilities , but there are a couple that almost everyone has . The first thing is just like cash is an asset . Credit cards are a liability and it's money that you've borrowed that you have to pay back .

Almost all bars that exist will have credit cards on their liabilities and those credit cards are money that's due . So you need to make sure that's kept up and current .

Additionally , if you have any loans if you took out a business loan or an SBA loan to buy the business , if you have an EIDL loan or a PPP loan from COVID , that should be on your liabilities , on your balance sheet Loans credit cards that's the majority of what you're going to see there . Then you could have accounts payable .

Accounts payable is bills that you owe . So you get a bill for liquor that has 14-day terms . You enter that purchase on the day it occurs so that your inventory is accurate . Right , because beginning inventory plus purchases minus ending inventory equals cost goods loan .

The purchases need to be accurate to the period in which they occur and not necessarily when you spend the money . So that would be a great reason to have accounts payable . But generally speaking I don't know about other bar owners My thing has always been that if you have the cash , don't owe people money .

Just write them a check If your liquor comes in and you just stroke in a check , hand it to the delivery driver and they're on their way . You don't have any accounts payable if you're paying for everything as you go . Accounts payable only exists when you're purchasing something on terms After your loans and your payables .

Something that all bars , pretty much everywhere in the world , have because all governments need money is taxes that are due On your liabilities . You should have the sales taxes that you owe . If you're in a country that's not the US , your VAT could show up better .

But these are taxes that you owe , that you have not paid the government yet , but that you've collected from your customer , from your guest , when you give them the bill And it's really important to note right That's a liability That doesn't hit your sales . The sales tax you charge someone is not sales . It's not your money , it has nothing to do with you .

It's the government's money . You're just holding it for a little bit before you give it to them . Fundamentally and I hate that I have to say this , but this is very true in the bar business you gotta pay that money . You can't just hold sales taxes and not pay them . Make sure that you're recording your sales tax .

Make sure that liability exists and make sure you're properly tracking it . Then when you pay it right , you're not having cash against the expense because that was never your money . It's cash against that liability because you were just again holding the government's money for them for a little bit before you give it back to them .

Additionally to sales tax , something else that will exist on most balance sheets for liabilities is payroll . Now , payroll , we can look at a couple different ways . There's payroll taxes , so taxes that you may owe the government for your employees . There's payroll money that you just owe people right , they're actual payroll .

You have to pay them what you said you would pay them , and maybe benefits If you have a 401k , if you have health insurance I know those aren't all that common in the bar business , but any benefits you have would be included potentially in your payroll liabilities .

This is an area where you really should talk with your tax payer , your CPA , your EA , whomever is handling that for you , because with payroll , it really is going to depend upon what kind of payroll service you're using and how you want to do the bookkeeping .

If you're using a large payroll provider that's going to collect those taxes for you , they're paying the government for you . You're not really worried about it . They just take a draw out of your account every pay period . They pay your folks . You can go ahead and expense it all . You really don't need to establish liabilities because you don't have a liability .

That company is holding that liability for you . They have your money . They're taking care of paying the government . Now if you're using a payroll system where you're filing your taxes directly with the government and you're paying the payroll directly out of your accounts , then probably the best option is to have those liabilities in your books .

But again , this is a place where you should really reach out to someone that understands your situation , that understands your location , because unfortunately , payroll taxes are different in the United States state to state . So what is true where I am in Indiana is surely not true in New York and California . There are different laws .

There are different taxes involved there . You need to get someone that understands your locality and how that payroll is going to work in order to know how to best do the bookkeeping for it .

But again , generally speaking , if you're using a third party provider that is remitting those taxes for you , that's paying the government for you and doing all the filing for you , you do not need to record the liability , but if you're responsible for those , you should record the liability .

So those are really your major liabilities Loans , credit cards , accounts payable , sales tax and payroll . Now the second part of that side of our equation assets equals liabilities plus equity is the equity .

And when it comes to equity , there's a lot of different things we can talk about here , and one thing that often gets very confusing is there's different terminology in an equity section depending upon the type of business you are .

In the US , most states you're going to file for a limited liability corporation And a limited liability corporation is privately held small company . Well , it can be giant companies , but generally a small company . And that is all done at the state level And that's the fun part . People think LLC means something to the federal government .

It doesn't , depending upon how your tax at the federal level will determine how you should lay out your equity section . If you're an LLC and you are the only person that owns the business , that generally means you'll file your taxes on your personal tax form .

So if you file a 1040 , personally you'd file that 1040 and include a Schedule C , which would have your business's income and your business's financials on it , because in the United States all LLCs are going to be taxed at the individual level , not the corporate level . Now if you had a C Corp a full-blown corporation that would file its own taxes on 1120 .

With a 1040 , with an LLC , that's a single member LLC , generally in the equity section of your balance sheet you're going to see owners draw owners' investment Investment money you put in , draw money you take out .

If you have a partnership and you're still just an LLC , you're going to file a 1065 , which is a partnership tax return And that tax return will have the business's income and expense but the business is still not going to pay taxes And part of that return is going to include K1s which get issued to each individual shareholder to use on their personal 1040s and

pay the taxes at the personal level . The other thing that you could be is an S corp . So an S corp is an LLC that made an election to be treated kind of like a corporation but not really Unlike a C corp that is going to pay its own taxes . An S corp still is going to issue K1s and be paid at the personal level .

But some things on your balance sheet especially are going to look more like a corporation . So , instead of having owners draw an investment , which you have in the single member LLC or you have a partnership for each partner , you're going to have common stock , additional capital paid in some more corporate sounding equity names in there .

And again , this is a place where you need to talk to your tax preparer , your CPA , your EA , and see what they want and what are the appropriate terms depending upon the type of organization you have .

Another thing , too , that I'm just going to note here real quick , and by all means , this is generic guidelines and not actually tax advice , because I don't give tax advice , but a lot of folks wonder should I be an S corp or should I be a disregarded entity and just include it as a schedule C on my 1040 ?

And , generally speaking , if you make a lot of money , an S corp is a better deal For most businesses . That's about 60 grand in profit where it really becomes beneficial to be an S corp and not a disregarded entity .

But again , talk to your CPA , talk to your EA , talk to your tax preparer , because the rest of your tax situation is going to have a huge impact here And obviously , a bar owner that just owns a bar and works in it day in and day out and that's his sole source of income is a lot different than a guy that owns 10 businesses , one of which happens to be

a bar . It really is personal and it really is something that you need to have a conversation about . But many times an election to be treated as an S corp as opposed to a disregarded entity as an LLC is going to be beneficial for you .

The other thing that exists within the equity section of your balance sheet , in addition to owner's draw , owner's investment capital , capital stock , depending upon the type of business you are , is your retained earnings . Retained earnings is the amount of money that your company made or lost in aggregate .

So if I make 10 grand last year and it's the first year I'm open , this year my retained earnings is 10 grand , and then this year I make 10 grand , so next year my retained earnings will show as 20 grand , but that year I lose 20 grand , so the next year my retained earnings is zero .

It's just an aggregate of the money that's been in and out And that is equity , because that is either the real profit or the real loss of the business over time , which affects the value of the business and the assets you have and everything else .

So that really covers the basics of a balance sheet , and I realized this is a little bit of a longer episode and probably a little bit more of a boring topic .

I hope you stuck with me and didn't fall asleep in the process because , as I stated in the beginning , understanding your books , understanding your balance sheet , your P&L and your cash flow is fundamental to what business actually is , because business is all about are you making or losing money ? Your balance sheet is going to show you the value of what you own .

What is it worth ? what do you actually have ? And the P&L will show are you making or losing money . The cash flow statement will show are you making or losing cash as the amount of cash you have going up and down . And so next week we'll dive into the P&L side of things and the cash flow statement side of things . We'll go over those in detail .

I think for many of you , the P&L conversation is very important to understand , because that P&L conversation is really how we're going to dictate finding our theoretical costs , or rather our actual costs , to compare against our theoretical costs for beer , liquor , wine , food And it's also really important for the understanding of our prime cost .

So I really hope you join for that conversation next week And if , for some reason , you're sitting there , you're scratching your head , you're saying , okay , i listened to this , but I have no clue actually what he's talking about . It is a complex topic . A few things that you can do , because I enjoy this stuff .

I'm a bit nerdy when it comes to numbers , so I'd love to talk about it . Head over to Facebook , join Bar Business Nation there and we can have a great conversation about balance sheets , p&ls , whatever . You want to talk numbers wise or always . Feel free to go to the Bar Business Podcast website , barbusinesspodcastcom , and there's a contact us form .

Shoot me a message . We can connect via email or you can just email me directly chrisatbarbusinesscoachcom . On that note , i hope you guys have a fantastic week and I'll talk to you later .