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Recipes for Restaurant Profits Through Accounting

By Jason Acker, on November 27th, 2024

Running a successful restaurant is an art, but behind the scenes, it’s also a science driven by innovative accounting practices. Like a well-organized kitchen, a well-structured accounting system is crucial for restaurant owners to maximize profits and streamline operations. Let’s explore some key accounting concepts, starting with the foundation: your chart of accounts.

Chart of Accounts: Your Restaurant’s Financial Foundation

A chart of accounts is essentially the backbone of your restaurant’s accounting system. It’s a comprehensive list of all the accounts used to record financial transactions, categorized into five main groups:

  1. Assets include anything the restaurant owns or controls, such as cash, accounts receivable, inventory, and property.
  2. Liabilities are the restaurant’s obligations, such as accounts payable, loans, and accrued expenses.
  3. Equity represents the owner ’s or shareholders’ claims on the assets.
  4. Revenue is income from sales and other sources, such as interest.
  5. Expenses are costs, such as wages, rent, utilities, and food.

By organizing and tracking these accounts, restaurant owners can monitor financial health, ensure accurate reporting, and make informed business decisions.

Managing Fixed Assets for Long-Term Success

Fixed assets, such as kitchen equipment, furniture, and vehicles, represent a significant restaurant investment. Accurately tracking these assets on your balance sheet is essential for maintaining a clear picture of your restaurant’s value, especially for investors and lenders.

When acquiring fixed assets, their cost—including delivery and installation—should be recorded as assets.

Regular maintenance, upgrades, and efficient asset management are critical for maximizing longevity and reducing downtime. As these assets wear out, depreciation methods like straight-line or declining balance allow for the gradual allocation of costs over their useful life, ensuring accurate financial reporting.

Additionally, periodically reviewing your assets’ market value is essential. For example, if your restaurant is in an area experiencing economic development, the value of your property could increase. Reflecting these changes in your financial statements ensures accuracy and prepares you for future growth or to sell your business.

Lease Accounting: Navigating the New Standards

For restaurants leasing space, mastering lease accounting is as crucial as perfecting a signature dish. Under the new ASC 842 standard, operating and finance leases must be reflected on the balance sheet, providing a more transparent view of your financial responsibilities.

Once kept off the balance sheet, operating leases must be recorded, potentially impacting vital financial metrics like EBITDA and leverage ratios. Adapting to this standard might require updating accounting systems and reevaluating lease management practices, but it ensures you’re providing a complete, honest picture of your restaurant’s financial commitments.

Budgeting: The Key to Financial Control

Budgeting is essential for restaurants to allocate resources effectively, control costs, and maximize profitability. Key aspects to consider include:

  • Cost of Goods Sold (COGS) – Accurately tracking COGS helps with expense management, menu pricing, and inventory control.
  • Labor Costs – Efficiently scheduling staff, forecasting staffing needs, and managing labor productivity are vital for staying within budget.
  • SG&A Expenses – Rent, utilities, and marketing are just some expenses that need careful monitoring.
  • Cash Flow Management – Forecasting cash inflows and outflows help ensure liquidity and prepares you for unexpected events.
  • Capital Expenditures – Planning for long-term investments, like equipment upgrades, helps maintain operational efficiency and supports growth.

By maintaining a well-thought-out budget, you can better anticipate financial needs, control expenses, and make strategic decisions that drive success.

Customized Reporting: A Recipe for Informed Decisions

In today’s data-driven world, customized financial and operational reports are a game-changer for restaurant owners. These reports offer a granular view of your establishment, allowing you to identify sales trends, improve cost efficiencies, and enhance the overall customer experience.

Custom reports enable you to track which menu items are top performers, analyze table turnover rates, and adjust staffing based on peak times. This level of insight helps you fine-tune your operations, ultimately boosting customer satisfaction and profitability.

Custom reports allow you to spend less time staring at numbers and trying to understand them and more time making strategic decisions, which is the highest and best use of a business owner’s time.

Multi-Location Management: Centralizing Success

Managing multiple restaurant locations brings challenges, particularly regarding data management. Centralized reporting systems are essential for combining data from different locations and analyzing performance across the board.

Spreadsheets, while common, fall short when managing multiple locations. They are prone to errors, lack real-time data, and struggle to scale. By investing in dedicated reporting tools, you can reduce errors, save time, and gain valuable insights that drive operational efficiency and growth.

By mastering these fundamental accounting principles, restaurant owners can turn financial management into a recipe for success. Whether maintaining a comprehensive chart of accounts or staying compliant with lease accounting standards, strong accounting practices will help your restaurant thrive in a competitive industry.

Scalable Solutions: Outsource Accounting

Now that you know what’s trending, how can you best use that information? Your business needs to prepare for whatever lies ahead in our ever-changing landscape. But you don’t have to figure it out by yourself. To make strategic decisions determining long-term success, you need experts who can help you understand your business’s overall financial health to increase growth. Outsourcing accounting and advisory services can give you financial peace of mind, delivering the expertise and the modern technology stack you need to improve efficiency, gain real-time visibility, demonstrate authenticity, and take control of your business’s future.

If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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Jason Acker

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