Sales Tax on Gratuities, Service Charges & Cover Charges In the world of restaurant sales tax compliance, some of the most significant audit risks come from everyday practices, like tipping, service charges, and cover charges. You may think it’s just a matter of what you call it on the guest check, but auditors are looking
Use Tax, Myths & Legal Landmines for Restaurants If Sales Tax is the one you see coming, Use Tax is the one that hits you from behind. It doesn’t show up on receipts, your POS isn’t tracking it, and most restaurant owners don’t even know they owe it until an auditor does. But if you’re
Recordkeeping, POS, and Multi-State Risk Part One on Sales Tax Audit Triggers showed what sparks a sales tax investigation; this next chapter shows you how to prepare for one. When the audit notice arrives, what matters isn’t just what happened; it’s what you can prove. The systems you use, the reports you save, and the
Why Restaurants Get Audited If you’ve ever wondered why one restaurant gets slammed with a sales tax audit and another doesn’t, this is for you. In this candid interview, CPA Raffi Yousefian sits down with CPA Mark Stone, founder of Sales Tax Defense, former New York State tax auditor, and one of the most trusted
The most effective way to reduce and control your cost of goods sold (COGS) is to monitor your prime costs every week, take inventory every week, and track actual versus theoretical cost of goods sold. Tracking prime costs weekly enables you to identify waste, theft, spoilage, and other cost of goods sold (COGS) mismanagement before
The FICA tip credit for restaurants may be the industry’s most simple, ubiquitous, and impactful tax incentive. Therefore, it’s essential to understand how the FICA tip credit and service charges work together, especially when considering different wage models. In this article, we’ll walk you through the history and fundamentals of the FICA tip credit calculation,
Rates are Coming Down: Is it Time to Refinance and Consolidate Debt? A Day in the Life of a Restaurant Owner Meet Vanessa. She owns a restaurant with a strong core business. The margins are modest, but she’s profitable and growing. Wanting to enhance the bar and add decorative lighting, she took a quick cash
Understanding whether you should buy or lease a vehicle for your restaurant group requires understanding the financial fundamentals of leasing versus buying. Put simply, a lease is the financing of a vehicle’s depreciation during the period you use it. For example, if you lease a $65k delivery van for three years, and the delivery van
Where do you go for money if you have reached store-level profitability at your existing restaurants and want to expand? As our Restaurant Financial Success Guide mentions, expansion should only be considered once you have ideal unit economics and a profitable business model. If you’re producing 15-30% store-level pre-tax profit margins, you can probably bootstrap
In the Ideal Retirement Benefit Plan for Restaurant Groups, we summarized how a 401(k) is the most suitable retirement benefit plan for restaurants. In this article, we’ll summarize the tax credits available for offering a 401(k). The tax credits we describe are calculated by the business for pass-through entities (partnerships and S-corporations) and claimed on
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.