Restaurant Accounting – 5 Tips To Avoid Restaurant Failure


Restaurant Finances Account for Most Restaurant Failures

Why Do So Many Restaurants Fail?

Restaurants have a notorious reputation for being a business that can either dramatically succeed or dramatically fail. Statistics indicate that at least 25 percent of restaurants close or sell after only one year. What could possibly account for this alarming number?

Bad Restaurant Accounting Practices

The answer lies in bad restaurant accounting practices. While the number one reason for a failed restaurant is a less than ideal location, that alone is not enough to close down a restaurant. Experts say it takes several reasons to fail a restaurant business, and half of them have to do with the restaurant’s financial practices. Having an experienced restaurant accountant could very well be the critical factor that allows one restaurant to succeed and another one to fail.

Start with a Good Restaurant Business Plan

Successful restaurant planning begins with the restaurant business plan, which it presents to the bank to receive funding. Hiring an experienced restaurant accountant to help you prepare your restaurant business plan and sticking to it is key to your restaurant’s success. Those graphs and charts the bank looks at in determining your viability as a restaurant owner or restaurant franchise, serve a purpose beyond looking good on paper. They establish the guidelines for your cash flow, accounts receivables and accounts payable.

Your restaurant business plan consists of projections of what you hope will occur. Your restaurant accountant works with the reality of your actual cash flow to ensure that you don’t spend more than you take in so that your business can benefit from the highs and tighten its belt during the lows and still operate at a profit when it all balances out.

Don’t Put Off Paying Your Taxes

One of the main faux pas that new restaurants make is putting off paying their state and federal taxes. They know they won’t be thrown in jail, simply charged a late fee. Since many restaurants operate at a loss during their early phase, this is quite a temptation. Reputable restaurant accounting services know this is a tremendous pitfall, especially for new establishments. Your restaurant accounting services would be sure you paid your taxes because you would be charged large penalties and fines for late payment.

If you completely ignore your state and federal taxes, your restaurant will be shut down. You’d be surprised how often restaurant are closed simply for failing to comply with their tax deadlines. Restaurateurs are all about their food, their customers and the service. It’s what they love. Many restaurant owners are shocked to receive notice that they must shut down their establishment simply for failing to pay their taxes. It is one of the top reasons restaurants close during their first year.

Cash Flow is King

Another big area where restaurants tend to make mistakes in restaurant planning is in their cash flow. The restaurant business is hectic and that big bank loan seems like it will take care of expenses, but between operational demands and keeping the floor well staffed, cash can run short. Suddenly you’re pulled in several directions at once trying to keep a first-class establishment running smoothly.

A smart restaurant accountant can help you balance your cash flow before it becomes a problem. They can warn you when your food expenditures get too high or if your payroll expenses are more than your projections. A savvy accountant can also help you cut back on expenses by establishing tighter budget restraints.

Impeccable Service on the Days You Need It

The goal of a good restaurant owner is to provide the best possible food and impeccable service, restaurateurs often go overboard on the service. They know clientele demand it from a restaurant, so they make sure they provide it not matter what. However, restaurant owners are seldom in house every day of the week, and they do not go over the books constantly to see which days have the heaviest customer turnover rates. A sharp restaurant accountant knows to look for trends in receipts and to suggest a cutback in staff on light days. Wait staff and cooks can usually be reduced on Mondays and Tuesdays.

How to Generate a Profit Margin

Hiring a restaurant accounting services that truly knows the business can help you generate a profit not only by watching expenditures like a hawk, but by advising you where you can best realize profits. Your accountant can tell you where you are spending the most and the least amount of money.

Watch Those Initial Expenditures

Many new restaurants tend to go overboard on the equipment and furniture. Think about acquiring used kitchen equipment on the internet or through local auctions. Again, you should rely on your restaurant business plan to place a limit on expenditures.

Find an Experienced Restaurant Accountant

Selecting the right restaurant accountant can be the most important decision you make in securing the success of your new restaurant. Make sure you retain an accountant with whom you can establish rapport and whom you can trust with handling your most precious asset. Most importantly ensure that your accountant has experience managing the accounts of clients in the restaurant business, especially start-up businesses like yourself. With the right accountant in hand, your restaurant has a greater likelihood to succeed than many others that are likely to fall for the financial pitfalls that await unwary restaurateurs.

Restaurant accounting for restaurants is all we do at Jeff Garcia, CPA. We have defined a niche in the Restaurant Accounting / Food Services sector providing accounting functions and restaurant business planning to owner operators ranging from 1-37 stores. We give clients access to the latest online reporting & forecasting technology, and remove the administrative burden so they can focus on running a business.

If you have a restaurant business accounting question or would like to discuss our services in more detail please call us Toll Free at (888) 933-food(3663) or (713) 621-1142.

Leave a Reply to Robertger Cancel reply