During a pandemic, every restaurant went online offering curb-side pick-ups and contact-less deliveries. The SOPs for the restaurant industry were challenging and restaurant owners found it hard to keep it up with their businesses. While things are coming back to normal, there are some accounting challenges for restaurant owners that need to be addressed.
According to the National Restaurant Association, the annual sales for restaurants have increased by 20% from 2020 to 2021. The total foodservice industry sales rose from $659 billion to $789 billion a year. They further reported that the sale is far below the pre-pandemic sales, which was $864 billion.
Restaurants can return the sale to normal by adopting various solutions. Before solving the problems, you should understand the challenges of reducing sales in the restaurant industry.
Top Accounting Challenges for Restaurant Owners
Here are some top accounting challenges for restaurant owners:
1. Generating Accurate Reports
In the restaurant industry, managers and owners use reports and insights to decide future tasks and goals. However, when they can’t generate accurate reports, they can’t make informed decisions. As a result, they fail to increase their sales at a certain time.
Many management teams in different US restaurants still use traditional methods for reporting. They don’t realize how inaccurate reporting is affecting their business growth. If you want to enhance your business growth and reduce reporting challenges, you should switch to an automated reporting system. In this system, managers use advanced reporting tools to reduce mistakes involved with human intervention. As a result, you can reduce multiple problems with your reporting procedure. The change in the reporting system will help you with accountability and business growth.
2. Knowing Prime Cost
With the help of prime cost, you can determine the amount you need to pay utilities and rent. The ideal prime cost should be under 60%. However, if you have a new restaurant, the prime cost percentage should be between 74% and 76%. This means that you can use about a quarter to cover important expenses for every dollar you earn.
Many restaurants don’t have a clue about the importance of prime cost. It is the total between the cost of your food and labor costs. Once you calculate the prime cost, you can divide it with the total sales and determine the percentage of the result.
It is highly important to calculate your prime cost percentage every month and plan your strategies to manage expenses accordingly.
3. Managing the Inventory
Preparing delicious food with good ingredients results in the success of restaurants. Therefore, you have to maintain the food quality and purchase fresh ingredients. Also, keep in mind that you have to buy ingredients at the best prices. Unsuccessful restaurants can’t manage their inventory because they either purchase low-quality or expensive ingredients.
Every week, you should evaluate your policy according to the increasing and decreasing price of the food items. Seasonal factors influence the price of various ingredients. You have to calculate the cost of goods sold according to the updated inventory. COGS impact the price of the menu, especially for small businesses. If you calculate the COGS every week, you can make informed decisions to scale your restaurant.
4. Deciding Price of Food Items
The price of various ingredients fluctuates due to various reasons. As a result, adjusting the menu according to changing prices can be hectic. The optimal solution to manage the price of the menu is called menu engineering. In this method, you determine the impact on sales as a result of the increasing price of the ingredients.
5. Reducing Operating Costs and Expenses
In the restaurant industry, managing a business account can be a massive challenge. You have to handle various additional accounts such as operating expenses, health regulations and requirements, staffing and turnover. Furthermore, you have to include common factors in your financial statements such as inventory expense, payroll, and equipment costs. With so many factors to consider, reducing operating costs and expenses becomes a challenge for restaurant owners.
6. Managing Employees Payroll
While having a good staff in your restaurant results in business growth, paying them the right salary will influence your expenses. Managing payroll in a restaurant for the front and back of the house can be a problem, because of different salaries. Furthermore, the salary might also depend on the position. If you want to reduce salary confusion, you should create an effective payroll system. Restaurant managers and owners should operate the payroll system through an automated tool.
7. Choosing the Right Talent
Without choosing the right talent or staff for your restaurant, you cannot accomplish your goals. According to 2018 research, the average turnover rate of the restaurant industry is 73%. This indicates that a restaurant with 10 employees replaces seven employees every year. The increase in retention rate is a major problem for many restaurants. If you don’t hire the right talent for your business, you will lose consistency in your food quality and service.
8. Reviewing and Balancing Accounts
Many restaurants make a common mistake while reviewing and balancing their accounts. They tend to use traditional and obsolete methods to create financial statements. Another mistake they make is with balancing the accounts at the end of the month. A restaurant business experiences ups and downs in its everyday sales.
Therefore, owners need to reconcile their accounts more often. A 4-4-5 accounting calendar will yield effective results. In this strategy, restaurants divide 13 weeks into four quarters. They split the weeks into four-week months and one five-week month. This is the standard method of accounting in the restaurant industry.
By resolving these accounting challenges for restaurant owners, you can drastically grow your business and increase sales. Also, you can reduce tax liability, prevent hefty tax penalties, and avoid fines for healthcare violations. If you want to learn more about ways to reduce accounting challenges for restaurant owners, you can consult with a professional account management service provider. Since they have extended experience in the industry, they can resolve major challenges for you.