17 December 2009
6 Friendly Financial Reminders
Posted by Crystal under: Recession Tips & Tricks .
Running a restaurant is a hard work; it takes a lot of commitment and time investment. There are so many things to do, from hiring the right staff to shopping for the right ingredients, from coming up with new menu items to dealing with emergencies. A restaurant is one of the most difficult businesses to run due to abundant competition and operational complexities. Many restaurant owners do not have a financial manager to run the financial side of business: the owner has to be all roles in one and manage all sides of business from the kitchen to the accounting. There are simply too many things to do, and sometimes the financial side of the business does not receive proper attention. Here are a few friendly reminders to keep in mind:
Well organized accounting system. A restaurant needs to have accounting and financial controls to be successful. All financial transactions need to be posted in a ledger, such as offered by Quick Books software. The transactions need to be sorted and categorized correctly, using the proper structure of the Chart of Accounts (according to industry standards). Posting to wrong accounts will result in inaccurate and misleading reports.
Control over Expenses. Most restaurants generate an average profit of about 3 – 7 % of total sales. Restaurant’s major monthly fixed expenses are payment for leases, utilities, insurance and equipment, which, on average, combined are less than 50% of total restaurant expense. More than half of restaurant expense is variable, such as food and beverages purchases and labor. While you can’t affect your monthly fixed expenses, you have a greater control over and can impact your variable expense, such as food and beverages purchases and labor. With efficient purchasing practices and correct pricing, you can decrease your food cost and increase profit. By implementing proper hiring practices and compensation structure and reducing turnover, labor expense can be kept in check.
Correct Pricing. Always know what prices your competitors are charging for similar entrees, but it should not be your only consideration. Know what each and every food item costs you, do recipe costing regularly by taking into account the cost of all recipe units. This is where a well organized accounting system comes to help because you need accurately documented and updated costs to price correctly.
Cash. Whenever you’re dealing with cash, there is always a chance of dishonesty on part of employees who accept cash. Conduct unexpected cash counts on cashiers and bartenders on a regular basis to make sure the cash in the drawer equals the register reading. If there is a discrepancy, you might have a dishonest or poorly trained employee.
Inventory. To calculate accurate monthly food cost, you need to know the beginning and ending inventories of your food purchases for each month. What you buy in a particular month is not your monthly food cost because you’re not taking into consideration the beginning inventory. It’s important to keep track of the inventory in order to know your true costs and if your inventory is too high or too low. Another important ratio to keep your eye on is the inventory relative to corresponding sales. If the ratio is too high, you carry too much inventory, which means you might have increased food costs, excess waste, theft or poor product utilization.
Using and Reviewing Data. Each restaurant needs daily and weekly reports that summarize major financial data, such as revenue, labor expenses, food and beverage expenses, beginning and ending inventories, and other key figures. Having this data regularly updated and reviewed will help identify problems. Additionally, restaurant owners need to understand and review monthly financial statements, such as Profit & Loss, Balance Sheet and Cash Flow Statement. This will allow you to have an accurate understanding of how much cash you have available vs. written checks and funds in transit, if your current liabilities are smaller than your current assets, if you need to increase sales or working capital to survive, and so on.
Accounting and financial side of the business is so important. Invest your time to fully understand how it works; and consider getting support of a professional accountant or financial consultant to set up the correct accounting system in place. This will ensure the financial health of your restaurant.
Image provided by Free Foto.
Comments are closed.