All small and medium-sized businesses can benefit from using an accounting specialist, but some industries need this professional help more than others. If you are in the food services industry, you encounter multiple accounting challenges daily that need the expertise of a CPA. The last few years have been particularly difficult for many restaurants and their suppliers due to the pandemic that shut down businesses or seriously limited services for an indefinite period. In many cases, your finances have been complicated by government loans and grants, including PPP loans. All of these factors mean business owners in the food services industry can benefit greatly from the expert guidance of a specialized CPA. Continue reading as we discuss some of the unique challenges they can address.
Food Service Expenses
Many of the fixed expenses in food services are the same as in other businesses: rent, salaried employees, utilities, loan payments, etc., but the variable expenses can be more difficult to manage. For instance, inventory management is key to profitability and requires weekly or daily effort. Food cannot be stored on a shelf or in a freezer and only counted once a year or even once a month. Food that spoils or runs past its expiration date cannot be used, both for quality control and to stay compliant with state and federal regulations. Estimating food needs and limiting loss is a major part of your financial planning. Other considerations include:
- Cost of Goods Sold (COGS)—Simply using extra butter consistently in a recipe can significantly cut into your profit margin. Runaway carrot cake can cost you money instead of earning it for you. Determining an accurate COGS is essential to managing inventory and increasing profits.
- Determining Prime Cost—You need to understand the combined cost of labor and ingredients to better manage expenses. With accounting help, you can learn exactly how much the labor cost is for creating certain menu items.
Professional food industry accounting input on these expenses can mean the difference between a healthy bottom line and yearly losses for your company.
As you know, your food industry accounting needs include determining restaurant ratios. Understanding your food and beverage expenses to sales ratio lets you know how much you are making from your Garlic-Butter Baked Salmon and Chesapeake Bay Crab Cakes. To be profitable, your food cost should be 30 percent or less of the menu price. Once you determine which items are most profitable, you can feature them and train your staff to encourage customers to try them.
Tipping is a huge part of your non-salaried staff’s compensation. And while your employees are responsible for reporting their tips, you are also part of the accounting process. Your employees must report their tips to you, and both parties are required to pay taxes on them. Tips are not subject to withholding, and the IRS does not consider them part of restaurant revenue. Still, you have to maintain proper records and pay your share, something a specialized CPA can help you do. They can also help you explain proper reporting procedures to your staff.
Food service businesses may need to consider different accounting periods to better understand their financial situation. You may choose to use a four-week accounting period, Monday through Sunday, to make it easier to combine these periods with previous years. Otherwise, you will be comparing months that had more or fewer weekend days than others, which affects the results. A CPA with expertise in the restaurant industry can advise you on the best accounting period for your business.
Your food services business might well benefit from a higher accounting service level. If you don’t feel you can afford a full-time, on-site CFO, you can enlist the help of a part-time, outsourced CFO from a reputable accounting service with experience in the industry. The advantages of outsourced CFO services include:
- Affordability — the cost of outsourced CFO services is significantly less than hiring your own, in-house executive.
- In-depth services such as operating budget development, profitability analysis and enhancement, financing options for growth, establishing and monitoring KPIs, and quarterly tax projections with key planning strategies.
- Monthly packaged financial reports that make it easier to understand your finances.
- On-call analysis of major business decisions so you have the information you need before you make a move.
All of these tools address the specific needs of the food services industry, including inventory management and expansion. You get the sophisticated financial help that you need while staying within your budget.
The BradyRenner Difference
Staying competitive in the food services industry demands financial excellence. BradyRenner CPAs and Business Consultants have years of experience in food services accounting and can offer you the level of expertise that you need. Our CPAs understand your challenges, such as food costs, employee management, menu planning, marketing, and more. Consult with your BradyRenner CPA for more information on how we can serve you.