It’s a shocking truth, especially for new restaurateurs: Food and labour costs usually range between 62%-68% for every pound in revenue, with profits only reaching between 2%-6%.
With razor-thin profit margins, restaurants can’t afford for accounting problems to throw off their finances. One missed entry could spell a recipe for disaster.
Avoiding some of the most common restaurant accounting problems can help you keep your finances in line so you can stay in business:
1 – Monthly financial statements don’t provide a big picture look at your restaurant
Hopefully, you’re looking at monthly financial statements to gauge your restaurant’s performance. But if you’re looking at monthly income alone to make business decisions, you could be missing out on increasing your profitability.
In many cases, your monthly financial statement isn’t available until halfway through the next month. at that point, it’s harder to adjust employee schedules or food purchasing in order to control costs. These decisions must be made immediately if you want to give you a restaurant the best chance of survival.
You should consider setting up automatic management reports that allow you real-time information so that you can manage a restaurant proactively. Ideally, you can view weekly summaries of your costs and sales, including the following:
● Sales by category
● Labour costs by role
● Cost summaries
● Customer totals and average check size
● Break even points
2 – Payroll reports don’t help you to manage labour costs
Payroll reports and labour costs are two different things, but they’re commonly treated as interchangeable. The problem with looking at payroll reports alone is that it doesn’t provide the level of detail restaurant managers need to properly manage their labour costs.
This is too important a detail to overlook, as labour can make up more than a third of total revenue. Knowing this, your hiring and scheduling methods can be critical factors in determining your restaurant’s success.
Your payroll reports should include enough information to support effective decision-making. You can break your payroll reports down into job-related categories, such as front of house and back of house staff and their respective subcategories. This can help you improve your scheduling methods and even affect the way you higher and compensate your employees.
In addition, detailed reports can help you better identify Trends within each category. as a result, you may be able to anticipate or identify problem areas where profits are leaking and take action immediately.
3 – Inefficient accounts payable
If you’re spending all day preparing checks, logging invoices, and chasing signatures, you’re killing your profits.
Automation and technology have come a long way, especially for restaurants. Many food and beverage vendors now allowed you to download your invoices electronically instead of keeping paper copies. You can import them directly into your bookkeeping software, code them with a few simple clicks, and send payment without hassle.
This cuts out unnecessary time chasing down approvals, managing hard copies, and potentially losing important information. Plus, you can include fail-safes and customizable functions to mitigate issues.
4- Menu items not priced accordingly
If you’re setting your menu prices based on what your competitors charge their customers for similar items, you could be sabotaging your profits.
Each item on your menu should be costed to gauge its profitability and support your menu prices. Your accountant can help you calculate the true cost of each menu item by using the food prices set by your vendor and converting that cost to how you use each item in your recipes. Keep in mind that this process will need to be performed each time your vendor changes the price that you pay for items.
In addition, your accountant can set up a menu profitability system that takes into account each item’s gross profit and its popularity. This can give you an idea of where your best sellers are and how much you should be charging.
5 – Inventory isn’t prioritized every accounting period
If you’re wondering why your food and beverage costs are so volatile, you may need to take a long, hard look at your inventory procedures.
It’s important to perform physical counts and adjustments of your inventory every accounting period. Without routine inventory, your food and beverage costs will be largely an accurate.
Other than labour, food and beverage costs are restaurants’ largest expense, ranging from 30 to 36% of every pound of revenue. The good news is that food and beverage costs are also your biggest expense that you can control. You may not be able to operate without a minimum staff, but you can exercise control over food and beverage cost regardless of how many patrons you serve in a day.
However, it’s impossible to make business decisions the impact these costs if you’re not performing regular physical inventory. If you’re not adjusting for changes in your inventory, your financial statement will only show how much food you’re buying, not how much are using.
6 – Food and beverage costs are not properly categorized
Are you struggling to identify accounting errors? It could be due to the fact that your costs don’t provide enough detail. Otherwise, how can you know whether the problem is related to food, wine, or a combination of the two?
Consider creating separate food and beverage accounts for each category so that you can better identify problems as they arise. For example, you may have separate categories for food, wine, beer, and non-alcoholic beverages, and break each of these categories by sales, inventory, and purchases. You can also break down food into more specific categories, such as meat, bread, and produce.
7 – Excessive errors in your restaurant bookkeeping aren’t resolved
It’s not uncommon to find an error in your restaurant bookkeeping, but what do you do when these errors keep appearing? Or worse, additional errors continue to crop up at an alarming rate?
Take a look at a few of the most common errors that restaurant experience in their bookkeeping:
● Daily cash on hand is reported as income
● Meal discounts aren’t properly documented
● Sales tax isn’t accurately recorded
● Gift certificates are recorded as income, not liability
● Payroll taxes paid by the employer is logged as wages
This isn’t a comprehensive list by any means, but it should give you an idea as to the scope of errors that could occur in your restaurant bookkeeping.
Work with your accountant to perform accurate bank reconciliations and review all entries, including daily sales activity, inventory changes, sales tax, gift cards or certificates, and capital usage.
8 – Monthly accounting periods don’t fit the restaurant’s ideal schedule
The days in every month very, and it could explain why your profitability fluctuate so much.
Going by monthly financial periods result in income statements that never seemed accurate. Rather, many restaurants use a 13 Period Accounting Calendar, which breaks down into 4-week intervals. This allows you to better compare your performance to previous periods since each period has the same number of days.
In addition, each period contains the same number of each day. For example, there are four Mondays, four Tuesdays, etc., so restaurants can get better visibility into their performance.
Fortuous shares technical details and resources via articles like this. We intend to keep our visitors informed and educated as much as possible. Khyam Chudhry FCCA