How To Format A Methods Section Apa Style 6Th Edition Restaurant Financial Management Issues

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Restaurant Financial Management Issues

Restaurant owners, while knowledgeable about the financial management of their businesses, are more likely to be involved in the day-to-day issues that keep things running smoothly. Unfortunately, a financial accountant is a luxury that many small restaurant owners cannot afford. This article will address six major accounting problems that restaurant owners often encounter and how to prevent them from occurring or how to resolve the problems once they occur. Being a small business owner is always a challenge and the restaurant business is financially complex.

This article will concentrate on those problems that can be solved with good accounting skills and procedural methods. By teaching restaurant owners to look for financial problems before they arise, an accountant can help them correct or improve the financial techniques used to manage profits and reduce avoidable losses. The six issues discussed here will focus on:

Problem 1 – Absence of an accounting system

Problem Two: When major operating expenses are greater than total sales

Problem Three – Menu Offers

Problem Four – Food and Beverage Inventory

Problem Five: Problems that occur when inventory exceeds sales

Problem Six: Use a balance sheet and a profit and loss at the end of the month

By researching these issues, which are common problems for restaurant owners, it is possible to manage these issues and fix them before the restaurant is out of financial control and can help the owner use accounting methods.

Problem 1 – Absence of an accounting system

The first issues a restaurant owner must deal with when trying to avoid accounting problems is investing in a good computer program to help keep track of all transactions. Nessel, who is an owner and financial consultant to restaurant owners, recommends QuickBooks for keeping a ledger of all financial transactions that occur in the restaurant. All financial transactions must be recorded in the General Ledger so that accurate records are maintained. Without attending to this, the owner will not be able to run the restaurant without keeping the liability on the books. Nessel further states that, “My experience is that how well the business is proactively managed is directly correlated to how well the owner is managing their ‘books.’ of accounting. in order to ensure that the business is performing well financially. Lack of accounting and financial controls is the main reason why most businesses fail and if a restaurant is in trouble, this is the first problem to address. The Guide Complete QuickBooks for Restaurant Operators is recommended by many accountants as a guide to help set up a good accounting system.

Problem Two: When major operating expenses are greater than total sales

The statistics say “Restaurant food and beverage purchases plus labor expenses (wages plus taxes and benefits paid by the employer) account for 62 to 68 cents in restaurant sales.” These are referred to in accounting terms as a restaurant’s “Prime Cost” and are where most restaurants run into their biggest problems. These costs can be controlled unlike utilities and other fixed costs. An owner can control product purchasing and handling, as well as menu selection and pricing. Other controllable output costs for a restaurant include hiring staff and scheduling staff in an economically efficient manner. “If a restaurant’s Prime Cost percentage exceeds 70%, it raises a red flag. Unless the restaurant can offset these higher costs by, for example, having a very favorable rent expense (eg, less than 4% of sales) is very difficult, and perhaps impossible, to be profitable.”

A restaurant’s rental expenses (if one includes taxes, insurance, and other expenses that may fall into this category, such as association fees) are the highest expense a restaurant will incur after “Primary Expenses.” Rent accounts for an average of 6-7% of a restaurant’s sales. Since it is in the category of fixed expense it can only be converted into a reduced ratio through an increase in sales. If the cost is more than 8%, it is useful to divide the occupancy cost by 7% to know what level of sales will be necessary to keep the rental expenses under control so as not to put the restaurant out of business.

Problem Three – Menu Offers

Most deals on a menu are priced by the owner after visiting other local restaurant competitors, looking at their deals and menu prices. However, menu pricing should never be done simply by looking at your competitors’ menus. Menu pricing should be done (and redone periodically as vendor costs vary) and documented in the software books. Some math skills will come in handy as a menu is converting grocery item prices to recipe units. A restaurant owner must know the cost of making a recipe in order to know how to price it. This means knowing how much the ingredients cost and the amount of ingredients used per recipe. Software is available to help with this and Microsoft Excel can be used to customize the cost of menus while linking to available inventory items.

Some of the things an owner can do to help with accounting that can be controlled through the menu would be:

– Pricing of the menu for increases in the minimum wage.

– Use value-added meals to increase profits.

– Reintroduce price increases while maintaining your customer base.

A menu should be updated periodically as supplier costs change. This can be positive or negative depending on the provider. Either way, menu items can be adjusted according to vendor costs with math and some help from inventory tracking software.

Problem Four – Food and Beverage Inventory

It’s a common mistake for restaurant owners to look at the Income Statement and assume that what they spent on food can be divided by sales in that period to find cost of goods sold. This is an error. Inventory at the beginning and end of the period must be known in order to accurately calculate food costs. “For a restaurant with food sales of $50,000 per month, a $1,000 difference in inventory between the beginning and the end of the month can translate into a 2% variance. This disparity represents half of the total annual profit of a typical restaurant of full service.” Simply put, you can’t manage food costs if you don’t keep records of what they are. Changes in inventory are essential to take into account when calculating the result.

Microsoft Excel spreadsheets can be used to track inventory and document prices and know all inventory totals when it comes to food and beverage. Following this through Excel will prevent errors.

Problem Five: Problems that occur when inventory exceeds sales

When food inventory is too high, costs will be too high and waste is inevitable. Calculating inventory needs is absolutely a must to prevent food from spoiling, over-portioning recipes, or even being stolen. “A typical full-service restaurant should have, on average, no more than 7 days of inventory.”

There is an equation to use to figure out how much inventory is needed to keep a restaurant running smoothly. The equation is:

Step 1) Multiply your average monthly food sales by your food cost %.

Step 2) Divide that number (your average monthly food consumption) by 30 (days/month)

By using this formula and keeping records of all beginning and ending inventory, the problem of losing money due to wasted food spending is reduced or eliminated.

Problem Six: Use a balance sheet and a profit and loss statement

For a restaurant to be successful, it has to be operated as a big business by the owner as much as possible. A weekly report is required as a minimum. The format of the report should be categorized. Inventory, suppliers, labor, and sales must all have a start and end period. Fixed expenses such as rent and electricity should be broken down to fit the report whether it is weekly or daily. It is not advisable to wait until the end of the month to calculate a report as changes happen quickly in the restaurant business.

It is a very important point that a start and end date is included in the reports and that even the fixed expenses are broken down so that a weekly net profit can be calculated. As mentioned above, Microsoft Excel and other tracking software can be used for inventory and other costs, including scheduling that impacts profits. Without proper tracking of inventory, overstock, scheduling, menu pricing, portioning, and everything covered in this study, you can cause a restaurant to collapse. A restaurant owner simply needs to take the initiative to implement some simple accounting strategies. It may seem like a restaurant owner has to do it all; but with good software and a systematic method in place, keeping a restaurant on track will create financial rewards that are well worth the work.

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