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
The restaurant and food industry are behind other industries in offering retirement plan benefits to employees. Plan participation is the lowest of all industries, and average account balances place second to last, according to a 2022 Defined Contribution Plan benchmarking survey conducted by PlanSponsor. Restaurant groups can offer a retirement benefit plan to their employees
Do you own the real estate for your restaurant, bar, or nightclub? If so, you probably keep it in a separate LLC and file a separate tax return. If not, please check out The Ideal Tax Structure for Your Restaurant’s Real Estate to understand the ideal tax structure for your real estate. Renting your real
If you own the real estate for your bar, restaurant, or nightclub, you have likely been advised by your lawyer or accountant to place it into a separate LLC. There are many legal and tax advantages to separating your real estate from your operational entity. In The Best Tax Classification for Your Restaurant, we explain
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
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
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
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
When paying a DJ, musician, comedian, or other performer in your restaurant, bar, or nightclub, there are a variety of forms you need to request, prepare, and file with the IRS. Sometimes, you may also need to withhold taxes and remit to the IRS. The forms you request from and file on behalf of your
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.