Just like perfectly seasoning a steak, when it comes to finances a lot of restaurant owners rely on their intuition. But intuition and doing things “the way they’ve always been done” can lead you astray. With rising food costs and supply chain issues, running a restaurant is no longer business as usual. Today, restaurant owners need to keep a sharper eye on their finances, and get a better understanding of where their money is coming in and going out in order to continue running a successful business.
Luckily, getting a clearer picture of your numbers doesn’t require a major change in operations. In fact, there are a few simple things restaurant owners can do daily, weekly, and monthly to get a better handle on their business. In this article, we’ll dive into a few key restaurant bookkeeping best practices—and share creative ideas for improving your restaurant’s profitability.
What I’ve learned from working in restaurants
From the age of about 16, I’ve been working in a restaurant. Having made my way from busser to assistant general manager over the years at different restaurants, I’ve seen every side of restaurant finances—the good and the bad.
I also have a B.S. in Accounting, meaning I’ve had a lot of experience looking at the numbers for a variety of different kinds of businesses. What sets restaurants apart from other industries is their margins.
The soup can example: Why restaurant accounting is more complex than other industries
Restaurants rely on razor-thin margins, making it all the more important for restaurant owners to have a clear understanding of where their money is going.
To illustrate the difference between restaurants and other businesses, I often like to share the example of canned soup. Say you’re a soup company and that it costs $0.50 to make a can of soup, and you sell each can for $1.14 at the store. That means you’ve got at least a 50% mark-up on everything that you produce, and you can measure that down to every single ingredient that goes into each can.
Restaurants don’t have that luxury. A lot of times your food costs can be very high, depending on what kind of products you’re putting out. It’s a very difficult industry because you have two highly variable sides of every transaction: you have the actual product costs, and then you have the cost of the people who are creating and serving the goods. Restaurant owners need to be more aware of the dollars and cents that are leaving and coming in on a day-to-day basis. Which leads me to my first point of what restaurants should be doing daily.
Here are the things restaurant owners can do daily, weekly, and monthly to keep their businesses profitable.
As a restaurant owner, your first priority on a daily basis should be to focus on your restaurant operations. While having an accurate count of the money coming in and going out on a daily basis is important (more on that later), providing a quality product and service that will keep customers coming back is the most important thing you can do.
Why consistency is your first priority as a restaurant owner
In my experience from working in restaurants, consistency is king. Consistently serving good food and hospitality is what keeps customers coming back. Then they’ll also recommend you to their friends—that’s the best kind of marketing for your business. Often, restaurants will fail when they don’t have that.
Finding a system to help you keep track of your expenses daily
After focusing on delivering a consistent experience for your customers, it’s important to keep tabs on the money coming in and out of your restaurant on a daily basis.
Daily expenses for a restaurant can vary widely. One day you may be making a big payment for rent, another is payroll, and another you might be paying for a big shipment of produce—or this can all happen on the same day. With such a wide range of expenses, it’s important to make sure all of them make it into your restaurant accounting.
In my experience, it’s really easy to get into bad practices when working at a restaurant. The fast pace and the sheer volume of daily transactions can make it tempting to do what’s easiest right now—not what will be easier later (and more effective for your business in the long run). Make sure to find a system for tracking expenses and sales that works for you and your business. Whether you’re scanning invoices daily through an AP automation solution, or saving receipts in a folder for bookkeeping at the end of the week, it’s important to have a reliable system for tracking every dollar, every day.
What restaurant owners should do weekly: review bookkeeping entries for accuracy
Next, you need to review your restaurant’s accounting on a weekly basis. This will help you get a sense of your business’s overall financial performance and how you can prepare for the upcoming week. For example: Are sales going up? Should you order more potatoes? Do you need to hire more staff so there’s less overtime?
Additionally, checking in on your restaurant’s numbers on a weekly basis is a great way to review the accuracy of all of your entries. Accuracy and completeness of your data is key—because the more accurate your data is, the better the decisions you’ll be able to make for your business. Which leads us to what restaurant owners should do monthly…
What restaurant owners should do monthly: review trends and make changes
At the very least, you should be reviewing your numbers monthly. A weekly snapshot is nice for a general measure of your restaurant’s performance, but it doesn’t necessarily provide the full picture. When it comes to your monthly restaurant reporting, that’s what will provide a clear view of your profitability. And it all comes down to one question: How much money did you make that month?
Whether you’re at 20% profit or in the negatives, there’s always something you can learn about your business from a monthly statement. Seeing exactly where money is coming in and going out can help you make budgeting decisions for the following month. Those insights can then trickle down to inform what you do on a weekly and a daily basis to manage your restaurant’s finances.
The question this all comes down to is simple: Is the money that you’re spending on your restaurant being put to good use? In other words, is what you’re spending actually benefiting your restaurant?
Let’s explore some examples of how you can measure that.
Reviewing your restaurant’s monthly expenses
In my experience, the best practice is to compare your numbers to the restaurant industry standards, which are:
- Food cost at 30% of food sales — In layman’s terms, this means that for every plate you’re putting out, 30% is the cost of ingredients, leaving 70% for labor, rent, other expenses…and ideally profit.
- Beverage cost at 30% of beverage sales — Meaning that with every beverage you serve, 30% is the ingredients leaving 70% to cover expenses and ideally generate a profit.
- Labor cost at 30% of net sales — For every dollar coming in after discounts, $0.30 is spent on labor. This covers both FOH and BOH.
- In total this means that your mix of Food/Bev + Labor should leave $0.40 from every $1 earned to cover rent, utilities, other expenses AND your profit.
When you compare your numbers to these best practices, you can see where your business deviates from the norm and start to explore why. Are you spending too much on labor? Are you losing a lot of money on a pricey special dish? Is there a unique drink that sells really well—one that you should consider developing limited time offer versions of to drive sales? It is ok to deviate from the norms but try to balance labor vs Food & Bev costs AKA Cost of Goods Sold or COGS.
Additionally, looking at your historial restaurant data can help you identify monthly trends. For example, you may see seasonal surges or see an increase in sales around other local events, like a local festival. A platform like Hone makes it easy to look back and compare your numbers year-on-year, helping you plan for the future.
Creative ways to reduce your food, drink, and labor costs
Looking to cut costs? Consider these ideas.
If your food costs are too high, consider:
- Being more strategic about buying in bulk
- Getting creative with specials and sides that are less costly to produce
- Researching alternate vendors for better prices
- Costing out your top five menu items to make sure they’re priced correctly
If your beverage costs are too high, consider:
- Being more strategic about buying in bulk
- Developing limited-edition mixed drinks that are less costly to produce
- Offering to-go mixed drink kits that have higher margins
- Selling alcohol with your delivery orders (where legal)
- Costing out your top five cocktails to make sure they’re priced correctly
- Taking a look at your wine by the glass list (if you have one) and making sure every glass is priced correctly
If your labor costs are too high, consider:
- Being more strategic about your scheduling
- Regulating clock-in and clock-out times
- Reducing your open or dine-in hours to focus on your most profitable times for sales
- Launching a delivery-only digital brand to drive take-out sales, without adding to staff costs for on-premise dining
Increase Your Restaurant’s Sales
Boosting sales is a fundamental strategy to increase profitability. Focus on:
- Menu Engineering: Analyze your menu to identify high-margin items, best sellers, and underperforming dishes. Optimize pricing, portion sizes, and ingredient costs to maximize profitability.
- Upselling and Cross-Selling: Train your staff to upsell and cross-sell menu items, beverages, or add-ons to increase the average check value.
- Enhance Customer Experience: Provide exceptional service, create a welcoming ambiance, and implement loyalty programs to encourage repeat business and attract new customers.
- Online Ordering and Delivery: Embrace technology and offer online ordering and delivery services to expand your customer reach and generate additional revenue streams.
Increase Your Traffic Through Marketing
Effective marketing strategies can drive more customers to your restaurant. Consider:
- Social Media Marketing: Leverage social media platforms to promote your restaurant, engage with customers, and showcase special offers or events.
- Email Marketing: Build a customer database and send targeted email campaigns to stay top-of-mind with your audience and promote exclusive deals.
- Collaborations and Partnerships: Collaborate with local businesses, influencers, or charitable organizations to expand your reach and attract new customers.
Increase insights into your restaurant’s profitability
By implementing these strategies, you can enhance your restaurant’s profitability and set a course for long-term success. Remember that each restaurant is unique, so it’s essential to evaluate your specific circumstances and customize these strategies accordingly.
Looking for more insights? Hone is a restaurant accounting platform designed by—and for—people who work in the restaurant industry. We make it easy for restaurant owners to access the relevant data and understand their financial trends through intuitive reports, helping them make the right decisions to increase their profitability.
Sign up a demo today to learn how Hone can help simplify your restaurant bookkeeping and increase your control over your profits.