There are lots of people who love food and are great cooks. Many dream of opening a restaurant, but not many actually take the plunge and start one up. Of those, it’s a relatively small percentage that succeed. Often it’s not the quality of the food or service that causes them to fail, but rather mismanagement of financial matters. That’s actually not too surprising, considering that most restauranteurs don’t have an extensive background in business and accounting. However, with proper planning and management, you can turn your restaurant into a profitable business. Here are some common mistakes restaurant owners should avoid making with their accounting.
1. Failing to do cost analysis of your menu items
All too often, we hear from restaurant owners that they price items on their menu based on a comparison with what their competitors are charging. While that’s probably a good method to stay competitive and get more business, it’s not necessarily the way to improve your bottom line. When you’re working with thin profit margins to begin with, as most restaurants are, and your vendors’ prices change frequently, you’ll need more precision in this area. Your accountant should help you set up a system to collect your vendors’ prices and perform calculations as to what your menu items are actually costing you. With some guidance from your accountant, you should then be able to determine the profitability of your entire menu.
2. Inefficiency in accounts payable
You’ve got more than enough to do in running your business without having to sit for hours reviewing your vendors’ invoices and writing checks. But if you don’t pay your vendors on time, your supplies of food and beverage ingredients are likely to get cut off. It’s crucial to set up a system for review and prompt payment of these invoices to keep things running smoothly. A virtual accountant with experience servicing the restaurant business can help you implement this, and manage the entire accounts payable process.
3. Lack of precision in your record keeping
When you’re running a restaurant, it’s all too easy to get a little sloppy in record keeping, especially if a significant portion of your business is done in cash. It may not seem like a big deal to round off a few pennies here and there, but they add up over time. Accuracy is critical. If your estimates of costs or expenses are too high or too low, you won’t be able to make proper decisions.
4. Lack of a well organized accounting system
When we meet with new restaurant clients, it’s all too common to see that their accounting system, if they have one, is not set up or implemented for maximum efficiency. Your system should accurately track and categorize your revenue as well as your expenses, and integrate with your payroll, inventory, and POS systems.
These are a few points to keep in mind to avoid the pitfalls that trap too many restaurants. The best solution is to work with an accountant who knows the ins and outs of the restaurant industry, and can help you implement a solution that will streamline the accounting process and improve your bottom line.