Accounting for a Restaurant
Running a restaurant is a tough business, requiring the owner to be very analytical of financial data to ensure the success of the business. Many times an owner will use software to manage the accounting workload; the problem is many times these accounting software packages don’t allow for a deep understanding of financials. Although the owner can pay their taxes, prepare the payroll, and order new food and drink inventory, many of the times the small details (and opportunities for cost savings) are lost because of the use of the software without a full understanding of the practice behind the algorithms.
With more and more small and medium sized restaurants investing in POS systems, there is a lot of data available for analysis on demand. For those smaller restaurants that are still without a POS system, sales totals should be kept after each dining service. For example, if a Restaurant opens for lunch, dinner and late night drinks, the management should be looking at the sales totals after lunch, after dinner, and at the end of the night. Doing so will allow for a better understanding of what is selling, what isn’t, what needs to soon be re-ordered, as well as being able to forecast busy days allowing the business to schedule staff accordingly.
Cost of Sales is another financial indicator that should be monitored by management. Cost of sales is simply the cost of inventory (food, drink & other items for sale) at the beginning of a period, plus any new inventory purchases, minus the ending inventory; this will equal the inventory used. Once this amount is calculated, management is able to calculate the Gross Margin by subtracting cost of sales from revenue. Gross margin must be constantly monitored as it is a strong indicator for the restaurants overall success.
Payroll is also an incredibly important area of a restaurants financials to monitor. Cooks and servers depend on your payroll system to correctly pay wages and withhold taxes and government deductions. Ensuring a professional system is in place goes much further than just making sure every dollar is properly accounted for, but will also give your staff a better sense of financial security. For tips on how to setup a payroll system, check out our recent post on setting up payroll.
Expenses are an important figure to add up as it will allow you to determine exactly how much the restaurant has actually earned before taxes. Expenses can be broken down into several smaller categories for easier analysis of data. The following are just some examples of expenses in smaller categories:
- Occupancy Expenses
Rent, property taxes, property insurance
- Operating Expenses
Costs of linen & laundry, utilities, repairs, equipment rentals, cleaning contracts, bar supplies, decorations, menus, costs of replacing utensils and china
- Administrative Expenses
Office supplies, fees and licenses, security costs, telephone and website costs, bank charges
- Marketing Expenses
Paid advertisements, online marketing costs, sponsorships, promotions
- Entertainment Expenses
Mechanical music, musicians, pay-per-view events, costs of meals & drinks for musicians
Once all the expenses are tallied up and organized, the operating income figure can then be calculated. This calculation is done by taking the Gross Margin and subtracting the total expenses. What is left over is the operating income, or loss. One thing to note is that taxes, interest payments on debt, and depreciation aren’t yet calculated. Subtracting these ‘non-operational’ expenses occurs last, as including those into your expenses will skew your operational income data.
Now, as a restaurant owner, you will have a healthy amount of financial data available to make some decisions on your next several months of operations. What the accounting experts at Hamilton Accounting Solutions suggest is to contact one of our experts to discuss your data; we can even help to track and account for every ounce in your bar to ensure maximum profitability for your restaurant.