Running a restaurant is akin to juggling a flaming chainsaw while riding a unicycle. You’re constantly managing staff, inventory, vendors, marketing, and of course, your customers and their needs. On top of all that, you need to make sure your financial tightrope doesn’t snap. Is a loan from your POS provider the best safety net for
You’ve tasted success with your restaurant, and now you’re looking to savor more of it, perhaps by adding more seats, sprucing up the décor, or even taking a leap to open a brand-new location. As enticing as expansion can be, it often comes with a side dish of financial challenges. How do you fund this
Calculating your restaurant labor cost percentage is essential to running a successful restaurant. The labor cost percentage is the amount of money you spend on employee wages and benefits as it compares to your total sales. This number is significant because it tells you how much profit you’re making on each dollar that comes through
For restaurants and other businesses that use a Point of Sale (POS) system, it’s very likely you have seen offers to borrow money from your POS vendor through a POS loan. These offers promise “fast” and “easy” money with limited application requirements. Are POS loans a great source of cash for you? Or are they
Processing invoices, developing pricing strategy, managing inventory costs, and keeping the right inventory levels are all challenging functions of managing a restaurant. You can quickly and easily do all of these things by using xtraCHEF, integrated into your management processes and accounting systems! Check out “7 Impacts and Benefits of Accounts Payable Automation with xtraCHEF
This is part 1 of a 2-article series. Please check back to read our article on taxation of distributions and allocation of profits and losses. You are a restaurateur with a great idea for a restaurant and feel it is a cannot-miss investment opportunity. There are several different options to raise the capital you need
Written in partnership with: Restaurants are doing more carry-out and delivery than ever, and maximizing revenue per square foot by using two, three, or more different delivery services to reach the most hungry customers as possible. Unfortunately, each additional delivery service means more taxes, fees, and commissions that must be reconciled in the accounting system.
Written in partnership with: At the very minimum, restaurant operators need a weekly overview of cash flow and labor costs to stay current on how the restaurant is doing, and prevent financial surprises. If the bookkeeping for a restaurant is treated the same as any other business, the data may be incomplete or the reports
In partnership with: Check out this article and interview from MarginEdge with our Founder, Raffi Yousefian. This article highlights the benefits and win/win for restaurants and accountants that use software like MarginEdge to streamline their restaurant accounting operations and increase profitability by gaining visibility and oversight on a real-time basis.
Link to full article via MarginEdge OK, let’s face it, you aren’t in the restaurant business because of your love of accounting. Still, like most businesses, consistent and accurate financial reporting is key to the success of your restaurant and ensures you have a way to assess your restaurant’s performance, identify problem issues and maximize
You shouldn't run personal expenses through your restaurant for multiple reasons, but here are the top 5:
You cannot analyze and assess labor costs and profit without paying or accruing a market-based wage.
If owner-operators are not paid a market-based wage, then the net income/profit and labor costs lie to you; better yet, you're lying to yourself. Until the owner's compensation is reflected in the financials at a market rate, the financial data we're working with is nearly useless.
This is extremely important because net profit and labor cost as a % of sales drive many of our analyses and concepts in this guide.
Without reflecting a market rate owner's comp on the books, you will never know if you have a profitable restaurant.
You could easily claim zero owner's salary and 20% net profit (which is extremely high), but that will not mean anything because if someone were to buy your business and hire someone to do what you do (paying market wages) it could be a losing business.
That is important if you want to eventually transition out of your business either fully or partially, raise money for your business, or sell your business at a high valuation that doesn't require an earn-out payment. If all of the value of the business is tied to you, then you don't have a business, just a stressful job.
Refer to How Much Should Restaurant Owners Be Paid to determine how to set a market-based wage and why it's important.
You must ensure that revenue and expenses are reported in the period they relate to; otherwise, your financials will not tell you anything besides cash flow performance.
Refer to the Importance of Accrual Basis Accounting in a Restaurant to understand the importance of Accrual Basis accounting and how to implement it.
Non-finance people frequently overlook the balance sheet. The balance sheet is equally, if not more important, than the P&L. If the balance sheet is off, then the P&L will certainly be off.
The balance sheet shows a snapshot of a restaurant's health and financial position at a point in time. Imagine knowing all your annual expenses and income but not how much money you have in your bank account. That's what the balance sheet tells you: what you own and owe.
Many important ratios and formulas used to analyze financials and a restaurant's health require an accurate balance sheet.Besides the simple reference to cash balance above, another example of balance sheet accuracy is ensuring loans are represented accurately. You need to remove any loans from the balance sheet that are not truly loans.
This refers to amounts owed to/from affiliates and partners or shareholders that are not loans or have no intention of being paid back. This will be necessary for calculating your ROE (Return on Equity), one of the most important ratios investors use to assess the value and viability of a restaurant investment.
For example, assume investors contribute $500k to open a restaurant, then another $150k loan because the $500k is not enough, and the restaurant generates $150k in profit.
$150,000 Profit / $650k Total Net Equity =Return on Equity=23% ROE
$150,000 Profit / $500k Total Net Equity =Return on Equity=30% ROE
In restaurants, the cash and working capital you keep on hand are determined by liquidity ratios, such as the current ratio, which measures the ratio of your current assets to current liabilities.
If your balance sheet is inaccurate, one of the most important financial measures of your restaurant's viability and health will be thrown off.
For restaurants, the chart of accounts must match the restaurant uniform COA provided by the National Restaurant Association.
For example, the paper cost in a quick-service restaurant is coded to the Cost of Goods Sold account, but in a full-service restaurant, they are coded to Direct Operating Expenses. This can affect COGS as a % of sales by 2-4%. Another example is bar consumables/supplies, which should be bifurcated and coded to liquor cost, not food cost.
If transactions are not coded according to the restaurant uniform COA, you cannot assess your performance compared to industry standards.