What are the Restaurant Accounting Numbers You Need to Know?

7 Timely Terms That Can Make or Break Your Business

What are the Restaurant Accounting Numbers You Need to Know?

Not every restaurateur is an experienced accountant. This is especially true if you’re a chef or bartender trying to get your first establishment off the ground on your own terms. You’ve spent years cultivating the menu and concept of your dreams. Now, you now must learn key restaurant accounting numbers so you can better run a successful business.

With any luck, you’ve found an excellent accountant to help you manage the books, but you also realize the importance of understanding those figures and terms yourself. We suggest learning a few key concepts driving the financial side of the restaurant world. You should be able to decode the reports you receive from your bookkeeper and make good decisions for your business.

#1 Total Sales

This one is a no-brainer. It represents everything you’ve sold to your customers. We recommend reviewing sales from a range of perspectives, including various time frames and types of items sold. Investigating your sales will help you better understand what your customers want and gives insight into the overall trends in your accounting numbers.

#2 Cost of Goods Sold

Known by the acronym COGS, this number represents how much it cost you to create the items you sold. As in, a customer purchased a dish for $10, but you spent $3 on it in terms of food, labor, and related costs. To calculate COGS, add up your Beginning Costs and Purchased Inventory and then subtract your Final Inventory.

#3 Food Cost-to-Sales Ratio

Also known as “Food Cost Percentage,” this gives you a clear metric you can point to regarding your expenses. Recent research states that a healthy restaurant keeps this number around 28 to 35%. You can derive it by dividing your Food Costs by your Total Sales.

#4 Gross Profit

Thanks to a commonly used worksheet called a “Profit and Loss Statement,” it’s easy to see this number in action. It’s simply the result of subtracting Costs from Revenue. It’s also one of the best top-line restaurant accounting numbers to keep in mind at all times.

#5 Prime Costs

Now, we’re getting into the weeds a bit, but this number is a crucial indicator of your financial condition. Prime Costs represent the big items that you regularly spend money on, the stuff you need in any sort of restaurant.

How you manage these expenses compared to your revenue goes a long way toward building a successful establishment. To get this number, simply add together Labor and COGS. And if you want a healthy restaurant, keep prime costs under 60% of your revenue.

#6 Operating Expenses

This broad number considers everything not directly related to what you actually sell in your establishment. It can be grouped into three categories.

  • Labor – Typically the largest expense. It combines payroll, payroll taxes, tips, employee benefits, and anything else involved in paying your entire staff.
  • Overhead – This includes fixed costs like Rent, Insurance, and Property Taxes, but it also includes variable costs like Utilities.
  • Other – An obvious catchall term. It includes nearly everything else that can’t grouped into labor or overhead: forks, spoons, napkins, advertising, and beyond.

As important as your menu is (Why else are people coming to your restaurant, bar, or food truck?), you must keep these costs in mind when creating and maintaining your budget.

#7 Break-Even Point

Finally, we’re at the big one – the number that tells you how much you need to make to cover all your various expenses before you actually make money. That calculation looks like this:

Total Fixed Costs / [(Total Sales – Total Variable Costs) / Total Sales)] = Break-Even

You can use this number in a variety of ways – a benchmark of overall health, a metric toward paying off an investor, a goal you want to reach before making a new investment or purchase, and so much more.

At Tabulate, we understand that not everyone understands these leading restaurant accounting numbers, much less has the experience at navigating them successfully. With our all-in-one back-office solution, you’ll gain access to software where you can view all your reports and financial data on your terms. We also deliver bookkeeping and payroll services from experts with decades of experience working exclusively in the food service industry.

We have plans to meet every budget and business size, from franchises and regional chains to dive bars, food trucks, coffee shops, and everything in between.

What are the Best Practices for Restaurant Accounting?

9 Tips for Putting Your Establishment on a Firm Financial Foundation

What are the Best Practices for Restaurant Accounting?

Running a successful restaurant is no simple endeavor. Obviously, you need to have a strong concept, a superb executive chef, and the right staff to execute your culinary vision so people return to your establishment. It also helps to have someone around with restaurant accounting acumen, because, if your finances get out of whack, that’s the first sign you might not succeed.

The bookkeeping experts at Tabulate have spent decades helping restaurants, bars, and other food-related businesses grow, thrive, and prosper, and it’s all because they’ve encouraged their clients to follow these 9 best practices for accounting and bookkeeping in the food service industry.

#1 – Hire an Outside Accountant

Unless you are an actual licensed CPA who just happens to run a thriving food truck train on the side, you need to hire someone to take care of your annual financials. Not only will this person help with annual and quarterly taxes, but a good accountant will walk you through the day-to-day and big-picture bookkeeping reports so you know exactly what’s happening with your business.

#2 – Hire an Outside Payroll Company

It comes down to time, effort, and know-how. Sure, you could track the hours and cut the checks manually for your employees, but you also need to keep track of the various laws, regulations, and taxes pertaining to your workers – and do so at the local, state, and federal levels. So, just like you’re the expert of the food you create or the drink you mix, that payroll company is the expert you need to take care of your people and your business.

#3 – Pay Your Taxes

This might seem obvious to you, but we’ve seen our fair share of small businesses fail to complete this basic step. It happens for a variety of reasons – cash flow concerns, poor internal bookkeeping practices, you forgot, etc. – but it’s crucial to the health of your bottom line that you pay your taxes and pay them on time.

Not only does this apply to everything you sell (since food service sales are retail sales requiring that you pay sales tax), but you have to account for payroll taxes and any other applicable taxes assessed in your area. Simply put, you should follow Tips #1 & 2.

#4 – Choose the Right Point-of-Sale (POS) System

Not all point-of-sale systems are created equal, and not all of them are designed for use in the food service industry. Even more, there are some basic POS systems that don’t provide integration with any of your back-office functions, from inventory and timesheets to restaurant accounting and reporting. You need something that connects the numbers for your whole business into a unified whole.

#5 – Do Inventory Weekly

We cannot recommend this highly enough. Depending upon the size of your establishment, you probably could get away with a monthly inventory, but if you have more than a couple days of the week with high-volume sales, you need to check your stores every week. This gives you an idea of what you have, what you need, what you’ve sold, and how those data points speak to the demands of your customers and the health of your business.

And that’s just for your nonperishable goods. You definitely need to review your inventory on a regular basis to ensure the food you’re serving is fresh and then match that against what your POS system says you’ve sold.

#6 – Track Your Sales

This is not a call to simply look at what you sold on a given shift or at the end of the day. We’re suggesting that you dig into the details of what comprised those sales. Think of it as the inverse of Tip #5, as correctly tracked sales should be reflected in your inventory. And if it’s not, you have a theft problem on your hands, which also means you’re losing money – both of which are bad.

#7 – Watch Your Expenses

Specifically, you should keep tabs on your “prime costs” – total labor (payroll, benefits, insurance, etc.) + total costs of goods sold (food, booze, etc.). Industry experts hold us 60% as a good benchmark of financial health, as in you want to keep your prime costs around 60% of your total costs. And if those prime costs start to exceed 65%, you’re in trouble.

#8 – Review Your Reports Regularly

Remember that POS system from Tip #4 and that outsourced accountant from Tip #1? In a perfect world, they will be working in concert to deliver the reports, insights, and analysis you need to gain a truly holistic picture of your establishment.

Even more importantly, you need to check those numbers yourself, because if you don’t understand what’s happened, you certainly can’t set a fresh course forward. By connecting with your bookkeeper over your numbers on a regular basis, you can set monthly, quarterly, and annual goals to track against and for your staff to achieve.

#9 – Check the Industry

We’re not suggesting that you blindly follow current trends or that you copycat what your friends and competitors are doing across town. We are recommending that you occasionally chat with other restaurateurs, bar owners, food truck operators, and whoever sits in a similar niche as yours and compare notes.

Not only is networking an important skill to learn, but you can use the information you receive to set benchmarks for your own place. Besides – that friend of yours might have industry access you don’t have, and you can’t put a price on good intelligence from a trusted source.

Interested in putting these nine restaurant accounting best practices into action with one fell swoop? Talk to Tabulate today! With our all-in-one back-office solution and software, we’ll take care of all your bookkeeping and payroll needs, and you’ll have access to top-notch reporting and insights from industry experts who want to see you succeed.

Key Restaurant Accounting Terms You Should Know: Part 2

Understand Important Concepts in the Food Service Industry

What are the Key Restaurant Accounting Terms I Should Know? Part 2

Starting a new restaurant or bar from scratch can be fraught with complications. The issues you face range from securing the necessary capital and employees to completing the build-out of your space in anything close to your original time frame and budget. This is especially true if you’re a newly minted restauranteur without any prior experience in the food service industry. It’s crucial that you learn the appropriate accounting terms so you can set yourself and your establishment up for success – and so you better understand the reports you receive from your bookkeeper and accountant.

 

Deepen Your Glossary of Restaurant Accounting Terms

 

Amortize – Similar to paying off a substantial loan over an extended period of time, this term comes into play specifically in reference to large pieces of equipment that can decrease in value over time.

 

Breakeven – This is the point where your total costs and total revenue are equal. As in, while you might not yet have profits, your restaurant is also not operating at a loss anymore. This is a good goal to aim for during the first or second year of your new business.

 

Capital Expenditures (Capex) – Fairly self-explanatory, “capex” refers to the money you spend on physical assets for your restaurant: equipment, buildings, etc.

 

Customer Acquisition Cost (CAC) – This number tells you how much you’ll spend to gain one new customer from scratch. It includes several variables – location, current market, competition, and more. You determine it by calculating how much you spent in research, development, sales, and marketing.

 

First-In, First-Out – A key concept for inventory management, the principle dictates that you serve first what you bought first. Not only does this help keep your stock and servings fresh, but it gives you a cleaner understanding of your expenditures on that stock.

 

Fixed Costs – Also known as “Fixed Expenses,” these set-in-stone costs encompass rent, insurance, base salaries, and similar expenditures. Because they rarely change, you can anchor the rest of the budget you have for your establishment around them.

 

Lifetime Customer Value (LCV) – Typically calculated as (Average spend per month × % of Gross Margin) / Churn Rate. This number determines how much an average customer is worth to your establishment by factoring out the differences between unique customers.

 

LCV to CAC Ratio – The difference between how much a customer is worth and how much you spent to acquire that customer. In even simpler terms, if your CAC is higher than your LCV, your restaurant might be in trouble.

 

Margin – Often referred to as “Gross Margin,” this is number is simply Sales – COGS. As in, if you brought in $100 in sales and it cost you $90 in products to make those sales, your gross margin was $10 (or 10%). Recent studies have shown that average restaurant margins are currently range from 3 to 6%.

 

Markup – Related to, but definitely note equivalent to margin. This concept measures how much you increase the price of what you sold over what you spent to make the product. Think of is as Cost – COGS. As in, you sold a dish for $10 on your menu, but since you spent only $5.00 assembling the component parts of that dish, your markup was $5 (or 50%).

 

Overhead – This is a catch-all expense that includes utilities, paper goods, office supplies, and the other seemingly minor costs unrelated to your actual menu items that all go into operating a successful bar or restaurant.

 

Revenue per Available Seat-Hour (RevPASH) – It’s usually calculated with the formula Total Net Food & Beverage Revenue / Number of available seats in a certain time period. This number reflects the health of your establishment by how much sales you bring in (minus taxes, discounts, etc) against the number of seats you have. It can fluctuate depending upon how many seats in your establishment you choose to fill at any given time period. You could determine not to use specific sections of your restaurant or bar because lower traffic time periods means you need a smaller staff to provide coverage.

 

Variable Costs – The inverse of “Fixed Costs” from earlier, these are the expenses that can change will every billing cycle. They include overtime, tip share, utilities, food costs, and more. It is imperative you manage these costs effectively because wide swings can directly impact your bottom line on a month-over-month basis.

 

Even the most experienced restaurateur can get overwhelmed by the nuances of the accounting and bookkeeping terminology necessary to become successful in the food service industry. With over 50 years of working exclusively with bars, restaurants, and other food-related businesses across Texas, Tabulate has the experience and expertise to take care of your books and set them on the path to profitability.

Key Restaurant Accounting Terms You Should Know: Part 1

Understand the Crucial Concepts to Bolster Your Business

What are the Key Restaurant Accounting Terms I Should Know? Part 1

You got into the restaurant business because you love food, not because you wanted to spend all of your time pouring over spreadsheets and learning about restaurant accounting practices. But you also know how vital it is to have your books and numbers in tip-top shape at all times. Your strong concept and winning recipes won’t matter if you can’t afford to keep the doors open.

So, whether you enter your own numbers into a third-party software program or you want to understand the reports you receive from an outsourced service like Tabulate, there are simply some concepts you really should understand if you want to set your establishment on a path to success.

A Short Glossary of Accounting Terms for Restaurants and Bars

Accounts Payable – Money you owe to others. As in, you bought some produce from a regional provider, and you need to pay them for those fruits and vegetables.

Accounts Receivable – Money owed to you by others. As in, that produce company has an accounts receivable file on you for the stuff they sell your restaurant.

Assets – A physical resource with a tangible economic value. Think of it like the kitchen equipment or tables and chairs you own – it’s stuff you could resell at a later date, if needed.

Cash Flow – Directly related to liquidity as a measure of business health, this is the amount of money moving into and out of the company.

Chart of Accounts – Simply put, this is the complete list of every single item of interest in your financial records, including assets, liabilities, equity, revenues, expenses, and more.

Cost of Goods Sold (COGS) – The amount of money it took to make the products your customers purchase. In other words, COGS tells you how much it cost to create that plate of food you sold to the customer, not how much you sold it for to that customer.

Gross Profit – We like this equation: Gross Profit = Sales – COGS. In other words, it’s the profit your restaurant or bar is making after you subtract what it cost you to make that money.

Gross Profit Margin – It’s a measure of your overall business health directly related to your food costs. You calculate it thusly: (Gross Profit / Revenue) x 100. The higher your gross profit margin, the better off you are, and you really want it to exceed 60%.

Liabilities – The inverse of assets. As in, until you own your stove, chairs, tables, and freezers outright, they are considered liabilities against your bottom line.

Net Profit – The final step in analyzing the profits for your restaurant. Otherwise known as the bottom line, you derive this number using the following equation: Net Profit = Operating Profit – Taxes and Fees.

Operating Expenses – A general catch-all terms for expenses unrelated to your COGS, including rents, utilities, payroll, and more.

Operating Profit – A step beyond gross profit, this measure takes into account items like overhead and labor. You can calculate it as follows: Operating Profit = Gross Profit – Operating Expenses.

Prime Cost – The next step past COGS. Prime costs includes the price of the materials and the labor required to create any given dish or beverage.

Profit and Loss Statement – Often referred to as an “Income Statement.” This document compares your expenses against your revenues to provide a baseline assessment of your restaurant’s success.

Revenue – This is one step beyond sales, as it includes income from sponsorships, investment, vendor comps, and other non-sales factors.

Total Sales – Literally, it’s the amount of money brought in via sales before you subtract COGS, labor, or anything else.

Interested in learning more about these restaurant accounting terms without needing an advanced accounting degree? Talk to Tabulate! The experts at Tabulate have over 50 years experience doing bookkeeping exclusively for the food service industry. We pride ourselves on working closely with all our clients so they understand exactly what’s happening with their numbers.