This article was originally published on the Georgia Restaurant Association (GRA)’s blog.
After a few tough years, when close to 30% of Georgia’s restaurants permanently closed their doors, the industry continues its struggle to rebound as it faces serious challenges. Competition in the labor market is intense, the cost of goods continues to rise, and new consumer behavior has changed the industry’s landscape. Delivery services and new technologies have become part of the “new normal,” and experts predict the restaurant industry will never return to its pre-pandemic state.
Now, more than ever, restauranteurs need to be keenly in tune with the top five most critical accounting practices for restaurants. You should be reviewing prime costs, actively monitoring inventories, developing personalized account charts, creating and comparing meaningful projections, and learning how to read the income statement and, more importantly, the balance sheet, which ultimately reflects the health of your business.
1. Have a simple, customized chart of accounts that properly reflects the revenue and expenses of your restaurant.
The chart of accounts is the basis for your financial statements and the foundation for determining your prime costs (cost of goods sold (COGS) plus total labor costs), the two most impactful expenses for any restauranteur.
2. Regularly take restaurant inventory.
One of the biggest mistakes we witness in the industry is failing to take regular inventory counts. Taking inventory is the top way to track your COGs accurately, serves to deter theft, and most importantly, directly ties to your profits or losses. Simply put, it helps you keep your prices where they need to be if your objective is to be profitable.
3. Project and monitor your restaurant’s labor costs.
Labor is one of the most significant restaurant expenses and requires diligent attention.
- Does your management team audit the time employees clock in and out daily?
- Are staffing levels commensurate with the volume of clientele?
- Are your labor dollars accurately reflected by the department, so you can track and evaluate the cost of the different jobs and make educated decisions based on your results? A common mistake is not properly accounting for company payroll taxes and benefits in labor costs.
- Does your bookkeeper understand what a balance sheet liability versus an expense on your books is?
4. Be aware of your restaurant’s occupancy costs, and ensure they are represented on your financials.
These are the fixed costs: rent, utilities, certain taxes and insurance. As fixed costs, operators have no control over these expenses, so you should track them separately from operating expenses. Operating costs are all the expenses required to run your restaurant except labor and COGS. Again, we suggest a meaningful customized chart of accounts, so you can accurately track these expenses.
5. Understand the difference between your restaurant’s balance sheet and income statement?
Most people think the purpose of the balance sheet is to list assets, liabilities and equity. In actuality, the Balance Sheet is the statement that best represents the overall health of your business. Every period close should include a thorough review of all accounts on the balance sheet, as it ultimately verifies the accuracy of the income statement. Some of the most impactful accounts verified when reviewing the balance sheet are the cash balances (through reconciliations), inventory levels, fixed assets, accounts receivable, prepaid expenses, accounts payable, sales tax and payroll liabilities, and balances on loans. Without proper training, your bookkeeper may misapply payments on the balance sheet. These misapplications, in turn, mean there are errors on the Income Statement.
If you need assistance with any of these essential accounting practices, the Moore Colson Restaurant and Hospitality Practice can help. Our team can assist with implementing or refining the accounting practices for your restaurant. Don’t hesitate to contact us for more information.