In a restaurant, turning your passion into profit isn’t just about culinary skills, smart accounting plays a big role too. With average profit margins hovering around 3-5%, there’s little room for error, yet plenty of opportunity for improvement.
While restaurant accounting may not be the flashiest aspect of restaurant management, it’s as vital as the culinary creations served on your plates. Effective accounting practices are your secret ingredient to improving those margins. It’s the backbone of financial health. It also ensures that cash flow keeps pace with your culinary ambition.
So, if you’re looking to bump up your profit numbers, Embee NextGen’s got some actionable accounting tips that can help you boost your restaurant’s profit.
Improve your business’s profit margins with the help of expert knowledge. Get in touch with Embee NextGen today for bookkeeping services and witness your business grow.
Understanding Your Financial Standing
Before we spring into action and discuss the tips, the first step would be to gauge your restaurant’s performance. The best way to do so? Set some benchmarks. Here are a few-
Key Performance Indicators
When you own a restaurant, keeping a close eye on the KPIs on a regular basis is important for tracking performance. KPIs enable you to measure, assess, and fine-tune your restaurant’s activities and profit margins. Without tracking (or establishing) KPIs, gauging your operational effectiveness becomes a challenge. Its absence makes it harder to identify and resolve issues that will inevitably surface.
Here are some Key Performance Indicators that you need to keep under check-
- Break-even point: The break-even point calculates the sales volume needed to recover an investment. This metric is essential when opening a new restaurant. It even helps when you are thinking of investing in new equipment or purchasing property for a new venue.
- Cost of goods sold (COGS): Cost of Goods Sold, or COGS, is all about mastering your inventory. It breaks down what it really costs to prepare everything on your menu, from your first appetizer to your last drink. Unlike the ideal food cost, COGS goes deeper by considering things like waste, shrinkage, and spoilage. It gives you a true picture of what you’re spending on the goods you sell. You should aim for a COGS between 30-35% but remember, some items might have a higher COGS and still pull in more cash.
- Labor costs: Labor cost percentage shows how much of your sales are going towards paying your staff. Why keep a track of it? Because it helps you make smarter business decisions and gives you a quick read on your profitability. Most restaurant owners try to keep labor costs between 20 and 30 percent of their gross income. Knowing this number can really help you keep your finances in good shape!
- Overhead Costs: ‘Overheads’ are those ongoing costs you can’t escape—think rent, utilities, and salaries. Just remember, these don’t include the costs of food or raw materials used to create your dishes. Typically, a restaurant’s overhead costs are about 35% of the budget. Want to boost your profits? Cutting down this percentage may be a smart move.
- Prime costs- Restaurant prime costs are a mix of your cost of goods sold (COGS) and labor costs. Typically, they range around 60% to 70% of sales. It may be a good idea to aiming for the lower end of this range. Remember, this can vary a lot between quick-service joints and full-service spots and may be your ticket to boosting profitability across your menu. Well, provided you handle it wisely.
Implement a Reliable Restaurant Accounting System
Implementing a reliable restaurant accounting system can help maximize profitability. A restaurant accounting software is essential for efficient operation. It ensures accuracy in financial records and eliminates the possibility of manual errors.
When selecting a restaurant accounting software, consider features critical to the needs of restaurant finances. Key functionalities should include inventory management, real-time financial reporting, and seamless integration with your point-of-sale (POS) system. These elements are indispensable for maintaining precise financial data and enhancing operational efficiency.
Choose a system that is intuitive and user-friendly. The goal is to streamline your accounting processes, allowing you to focus more on culinary excellence and less on navigating complex software interfaces.
Strategic Cost Management
Below is a list of few tips that can help you implement better restaurant accounting practices and improve cost control-
Optimize Menu Prices
Optimizing menu pricing is all about getting the numbers right and keeping your customers happy. Start by figuring out the true cost of each dish—factor in ingredients and the time it takes to make them. This ensures every item on your menu contributes to your bottom line while staying competitively priced.
Remember, your prices need to appeal to your customers and make them feel they’re getting their money’s worth. This approach not only boosts your profit margins but also keeps diners coming back, striking that perfect balance between cost and satisfaction.
Innovative Inventory Management
Innovative inventory management is key to running a smooth restaurant operation. Start by implementing strategies that track your inventory effectively. Using real-time analytics can be a game-changer here. It not only keeps tabs on what you have but also helps pinpoint where you might be losing money through waste.
The real benefit? Cutting down on waste significantly. You can adjust orders and reduce excess with up-to-the-minute data. So you save money and have a more sustainable business model.
Negotiate with Vendors
Establishing strong relationships with suppliers can secure better contract terms and more competitive prices. Make it a habit to negotiate regularly with your supplier. This can lead to improved payment terms and volume discounts that benefit your bottom line. Also you can think about sourcing ingredients from local suppliers. This strategy not only cuts down on transportation costs but also supports the local economy.
Conduct Regular Financial Checks
Regular financial reviews are like your restaurant’s regular health checkups. They show you the ‘real’ condition of your restaurant.
These check-ins can help you stay on top of your finances. You can also spot any areas that need improvement. These reviews help you understand where you’re making money and where you might be losing it. This allows you to make informed decisions quickly. Regularly assessing your finances help catch issues before they become bigger problems. These checks also highlight opportunities for enhancing efficiency and profitability.
Other Tips To Improve Your Restaurant’s Profit Margins
- Energy efficiency: Cutting down on energy use can lead to significant cost savings. Invest in energy-efficient appliances and practice energy-saving habits, like switching off lights and equipment when not needed. Consider installing LED lighting and maintaining regular checks on equipment to maximize efficiency.
- Reservations and group management: An effective reservation system can optimize occupancy and boost profit margins. Provide online booking options and manage table arrangements to suit both small and large groups. This improves customer experience and maintains a consistent revenue stream.
- Improving table turnover: Increase revenue by minimizing the time tables are occupied, without making guests feel hurried. Streamlining service can serve more customers per shift, enhancing your profit margins.
- Hiring an accountant: If restaurant bookkeeping seems daunting, consider hiring an experienced accountant. They can simplify financial management and tackle complex tasks like interpreting financial data.
- Competitive restaurant visits: Keep tabs on the competition to spot areas for improvement and understand market trends. Visit rival establishments to observe their operations, marketing efforts, and customer service. Use these insights to refine your own strategies and stay ahead in the market.
Conclusion
These accounting tips are essential for boosting your restaurant’s profitability. From optimizing menu pricing to efficient inventory management, every strategy is geared toward enhancing your financial health. These tips can help improve restaurant accounting by streamlining your operations and maximizing earnings.
Want to outsource the task to experts? Consider partnering with Embee NextGen for outsourced accounting services, and rest assured that your restaurant’s financial health is in capable hands. With tailored solutions in restaurant accounting, cost control, and bookkeeping, Embee NextGen can help you achieve stronger profit margins and efficient, stress-free financial management.