Last month, the New York Post published an article highlighting the shift towards serving fancy soft-serve as a cost-cutting dessert option in some of the most acclaimed higher-end restaurants. As restaurant accountants, our eyes glow when we see the terms cost and cutting in the same sentence, especially when ice cream for the people is
DC restaurants, bars, and nightclubs with less than $2.5m in sales can receive a $5k tax credit annually. This is a dollar-for-dollar refundable tax credit, not just a tax deduction. So even if you don’t have an income tax liability due to not being profitable, you can receive $5k from the DC government. After factoring
The number of documents that restaurants and bars need to handle is overwhelming. You are constantly hammered with invoices, receipts, statements, operating agreements, leases, licenses, liquor board reports, purchase orders, tax returns, K-1s, etc. Luckily, digitization and cloud migration have alleviated some of this burden. Well, has it? We frequently talk to operators storing the
DC already has unfavorable taxes for restaurants – they charge a minimum gross receipts tax, don’t recognize pass-through entities for nonresident partners/shareholders, impose a sales tax on service charges, impose a high-income tax rate, and more. The DC minimum gross receipts tax (franchise tax) is imposed on your gross sales regardless of your profit. The
As much as we try to avoid them, employee advances are inevitable in restaurants, bars, and nightclubs. An employee advance is an advance towards an employee’s pay deducted from future paychecks. Advances are issued to employees for various reasons, but they’re typically issued because they need to get paid in advance to cover personal expenses.
Gone are the days when you could freely generate a loss for a restaurant using bonus depreciation and then offset your other sources of income using those losses. The losses you can claim from your restaurant or bar against your other sources of taxable income, such as wages or investment income, are now limited. These
If structured effectively, issuing sweat equity can reward and incentivize employees in a restaurant group. However, when the equity in an LLC (taxed as a partnership) is granted, the value of that equity is generally taxed upon vesting, thus subjecting the employees to tax without receiving any cash. The value of the equity is also
If you’re frustrated by a massive depreciation expense throwing off your restaurant’s P&L, this article is for you. CPAs commonly record tax depreciation in their clients’ books so that the tax returns match the financial statements. Tax depreciation is generally higher than book depreciation due to the accelerated depreciation system allowed by the IRS. The
You’ve set up Marginedge and have begun uploading invoices. Maybe you have even set up recipes and are tracking actual vs theoretical usage. In doing these things, you have modernized your bookkeeping and have real-time access to your cost of goods sold (COGS). However, you don’t have confidence in your COGS because each time you
Looking for better tax-saving strategies for your restaurant? The 2024 Guide to Filing Restaurant Taxes: Tips and Tricks, hosted by TouchBistro, is here to help! Rather than simply explaining how to organize your tax documents and walking through the basics of how to file taxes for a restaurant, this guide provides a comprehensive roadmap of
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.