Prime costs as a percentage of sales is the most controllable and impactful key performance indicator (KPI) in any restaurant or bar. COGS and labor alone are not good profitability indicators because low COGS is often offset by high labor and vice versa. In, What Should Prime Cost be in a Restaurant?, we outlined the
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
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
If your bill payment process involves tracking invoices by hand and lots of manual data entry, you would benefit by implementing electronic data interchange (EDI) between your inventory/POS system, your accounting system, and your vendor’s billing. This setup, such as EDI with Fintech, helps you optimize your invoice line-item data input, improve the accuracy of
You may not like it, but taking consistent and correct inventory counts is essential to having actionable information. When restaurant operators skip inventory counts, they run the risk of running out of necessary ingredients, cramping cash flow with too much or the wrong inventory, and making poor menu pricing decisions. In collaboration with Toast, our
The AP process (“Accounts Payable”) is accounting jargon for processing and paying invoices as they come due. Restaurants engage many suppliers to obtain the resources and services their establishments need, from the food and beverage items served, to linens and serviceware used, to cleaning and kitchen supplies and appliances, to support services such as legal,
We’re going to share some restaurant accounting industry secret sauce: the MarginEdge EDI and Reconciliation tool. The MarginEdge EDI and Reconciliation tool helps restaurant managers and accountants process invoices and bill pay much faster than doing everything by hand by implementing AI and automation, so that all the legwork happens in the background – instead
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
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.
How much does restaurant accounting cost? How much should you be paying? The short answer is it depends. In this article, I will explain the dependencies that significantly influence the cost of restaurant accounting. Before we dive in, let’s understand the purpose of restaurant accounting and the options that are out there. The purpose 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.