Industry tip – Understanding the basics of restaurant accounting
| Oct. 27, 2011Comments 0
Operating a restaurant is challenging in the best of times and success depends on keeping your eye on your profitability. As a restaurant owner, it is important that you understand the basics of accounting principles and especially key performance indicators (KPIs) that provides you with a snapshot on how your business is doing at any given moment. This knowledge will not only prepare you for managing your business, but also your ability to forecast any potential problems before it happens. You don’t have to become an expert on accounting, but you should be aware of three important financial statements:
The balance sheet: A balance sheet allows you to see your restaurant’s daily financial health. By analyzing each of your main business categories such as cash, inventory, loans and other expenses, it will provide you with a snapshot on how your business did within a certain period of time.
The balance sheet will help you keep a close eye on your inventory – especially supplies such as food ingredients, products, and any other items that help your restaurant run properly. You can create accurate forecasts and see any trends appearing during the week. You will be able to make informed decisions on when to order certain supplies, or if your waiters are not pushing your high value meals enough.
Income Statement: Your income statement (or in other words the Profit and Loss statement (P&L)) is a very important report that you need to understand. Normally created on a monthly basis, it’s a summary of your income, inventory and other expenses. With the average profit margin for a restaurant at a razor thin 4-7%, it is important that you check your P&L statement on a regular basis as it will help you know if your restaurant is profitable or is running at a loss.
Cash Flow Statement: The cash flow statement is different from your P&L report – it allows you track where your actual cash is at this moment. By managing your cash flow, you will be able to verify that you have actual cash on hand to pay employees and suppliers. You will be tracking cash flow on a daily basis, verifying cash in coming from sales against the amount of cash going out through your accounts payables, monthly expenses, food inventory, and labour costs.
The main difference between an income statement and cash flow is that the cash flow report tracks the flow of cash you have on hand (or in your bank) or your solvency.
Running a restaurant can be challenging, however, pitfalls can be avoided if you keep a strict eye on your bottom line. These reports will provide you with the guidance you need to be on top of your business.