Business First Family Business, Accounting, Finance, Investing, Marketing And Management
A successful restaurant needs good accounting to survive. With high costs in labor and material, even successful restaurants operate on thin profit margins. Good bookkeeping can maximize that margin to the owner’s benefit. Bad bookkeeping can make the restaurant unprofitable, regardless of sales. As the owner of a small restaurant, you may find yourself confused by accounting. You entered business to cook good food, not study numbers. However, good accounting is as important as good food to your restaurant. Whether you’re running a family-oriented restaurant like Chuck E Cheese or a high-end Italian restaurant, you need good accounting. This can be even harder if you don’t have an accountant. There are several straightforward tips that can help you understand your restaurant’s accounts though. Here are tips to improve your accounting for restaurant.
Your Accuracy Matters
When listing your expenses and income, do not round off to simplify the charts. Your accounts should be accurate to the cent. Being off even five cents a day will put your finances off by about twenty dollars in a year. Even a discrepancy of that amount could mean the difference between loss or profit in the restaurant business. Additionally, if you are using tax software, rounding will interfere with the program’s analytics. This could throw off your tax payment. Paying too little in taxes could result in penalty fees. Being as accurate as possible at every stage of accounting will help ensure you know precisely how your restaurant is doing.
Focus On Your Inventory
A great way to keep your company profitable is to keep a careful eye on your inventory costs. Good resource management is essential in the restaurant business. Your perishable and non-perishable inventory combined should make up about 75% of your expenses. Keeping up to date records on everything in inventory and what it costs can keep your expenses under control. Looking through these numbers can also make your company more efficient. For example, keeping track of how much food goes bad before you use it can save you thousands. Studying these numbers in your accounts can let you tailor your business plan of maximum efficiency.
Create P&L Statements
You should create regular profit and loss statements, or P&L statements, to determine your restaurant’s profitability. This document compiles all your expenses and income in one place. It can let you track several vital metrics about your restaurant’s finances. Most importantly, this document will outline how much profit, or losses, your company produced in a set period. It can also show you which factors produced this outcome and how you can change your business to produce profits. Producing an updated P&L statement every week will help you identify financial issues and warn you of upcoming trouble.
Cost-to-Sales Ratio
The cost-to-sales ratio is the best number to determine your restaurant’s financial health. You put together the ratio by taking your total costs for a certain period and dividing it by your total sales for the same period. If you multiply this ratio by 100, it shows you what percent of your income is going to cover expenses. A restaurant should have a ratio between around 26% and 36%. If the ratio is higher then that your profit margin is too small. This number is a good tool to asses your financial health. You can also use it to easily compare your business with others. Proper advertising for a small business can help your restaurant overcome your competition. The cost-to-sales ratio can help you cut through the statistics and observe what’s important in a single number.
Use Payroll Services
Even if you do your own finances, you should consider outsourcing your payroll services. Payroll is one of the most important part of your restaurant’s accounts. If you make mistakes in the payroll, it can result in high fees and other penalties. The payroll process is also very complicated. You will have to accommodate an everchanging list of federal, state, and local taxes and guidelines. A professional payroll company can ensure that your employees are always paid on time and their pay is properly calculated.
With a few tips, you can manage and improve your restaurant’s accounting. As you do your bookkeeping, keep your records accurate to the cent. Focusing on inventory costs will help you manage and decrease your expenses. Create updated P&L statements regularly to track your profit and losses. Calculate you cost-to-sales ratio to determine your restaurants health. When it comes to payroll, outsource to a payroll services company rather then doing it yourself. With these tips in mind, you can keep your restaurant profitable for years to come.
