Accounting is the language of any business. Not everyone speaks accounting fluently, especially busy restaurant managers. All you need is some basic accounting and bookkeeping to master your restaurant’s financials. It won’t take you long. Finding better ways to run your restaurant involves understanding where your money flows. Here are some accounting tips for saving you time and money while you are running your F&B outlet.
Chart of accounts is an accounting term used to categorise the money that flows in and out of your F&B business. The chart can be used by the accounting software to aggregate information into your restaurant’s financial statements. Use this to break down your overview into subcategories like sales and marketing. It also helps with audit and tax.
A good way to list food on your chart of accounts is by monitoring waste. List it as an operating expense directly under food expenditures. It’s particularly useful as you scale your operations. This type of monitoring is handy if you are running a fast-food franchise.
Cost of goods sold (COGS) is the total cost of all the ingredients and items on your menu. A smaller number means a larger profit margin for your restaurant. This is what you should be aiming for, but be careful. You don’t want to compromise the quality of your food and lose your reputation. You can lower your COGS number by:
Your COGS directly ties to the profit you make per plate sold. Use it to help guide your pricing too, but remember to benchmark against your local competitors. Know your market.
F&B expenses are slightly different from other kinds of SMEs’ expenses. Standard expenses are labour costs, occupancy and operating expenses. Restaurants are the only type of SME that have occupancy expenses as a category on their income statements. It is key to know the difference between occupancy expenses and operating expenses. Labour costs are one of the largest expenses for a restaurant, so don’t let these eat up all your profits.
Your F&B outlets’ prime cost is your COGS plus your labour costs. A good benchmark for prime cost is 60% or less of your revenue. It is important to keep track of prime costs regularly as labour and COGS are the two costs that are easiest to control.
Large restaurants will have a high prime cost. Smaller restaurants may have a low prime cost. The prime cost constitutes the majority of a restaurant’s expenses because it includes all of the food and beverage ingredients, as well as all payroll costs, taxes, and benefits. It’s where you have the best chance to avoid accounting mistakes, cut costs, and increase your profits. Other fixed costs are not as easy to reduce.
To put a finger on the financial health of your business, you or your accountant should look at your restaurant’s Cost-to-Sales Ratio. It’s calculated by comparing expenses generated by sales operations with your restaurant’s revenue. A good cost-to-sales ratio to aim for is 25-35%.
Calculating a Cost-to-Sales Ratio allows you to benchmark your business to others, assess how your restaurant is doing right now, and how to gain a competitive advantage.
The F&B industry is not the only place you will find creative accounting. Look for warning signs of cooking the books is a necessary role for good accountants in any industry. Keeping your kitchen clean is the duty of any chef and any F&B owner of accountant too.