We work with many restaurant owners, from newbies to experienced vets. Regardless of your experience in the restaurant business, there’s always room for improvement. The past couple of years have emphasized the need to be nimble, adaptable, and prepared for a series of changes—from supply chain challenges and government shifts to technological advancements and the recent impact of inflation. 

Successful accounting as a restaurant hasn’t changed in essence hasn’t changed, but the ever-evolving landscape demands your attention on various fronts: inventory, food costs, escalating labor expenses, a shrinking labor pool, intricate tax structures, rising rent, utilities, and more. After all, the primary goal is to MAKE MONEY, isn’t it? 

Some things don’t change, and one of them is the crucial need to keep a sharp eye on your food and labor costs, which are your two most significant drivers of profitability. So, how can you navigate the challenges and reduce these costs? Here are some tips to help you do that, as well as other best practices when it comes to setting up your restaurant for the most success.  

Food Cost  

Track Your Inventory 

It sounds so simple, but you need to have a system for easily tracking your inventory. We highly recommend Margin Edge and Restaurant 365. Margin Edge ties into QuickBooks and Restaurant 365. For many of our clients, incorporating tools like Margin Edge (which seamlessly integrates with QuickBooks and Restaurant 365) proves to be a straightforward method for integrating accurate inventory data into your daily operations. Paired with your preferred Point of Sale system (our favorite is Toast), this combination facilitates a clear understanding of your current food inventory, usage patterns, and waste levels. Keeping a vigilant eye on your inventory is key to preventing issues such as overstocking, understocking, spoilage, theft, and portion errors. This proactive approach ensures a well-managed inventory that aligns with the needs of your restaurant, minimizing waste and optimizing operational efficiency.   

Control Your Food Cost Percentage  

Maintain control over your food cast percentage by calculating the ratio of your food cost to your food sales. This calculation serves as a valuable metric to gauge your operational efficiency and establish appropriate menu prices. While the average food cost percentage for restaurants typically falls between 28% to 32%, it’s important to note that variations may occur based on your specific type of cuisine and service model.  

Optimize Your Menu 

You need to analyze your menu and identify your most profitable and popular items. You also need to eliminate or modify your least profitable and unpopular items. This will help you increase your sales and margins.  

Strategic Supplier Relations 

Consistently engage in negotiations with your suppliers to build strong relationships and secure the best deals for your food purchases. Building and maintaining a good rapport is key. Additionally, make it a practice to compare prices and assess the quality offered by different suppliers. Choose those who provide the best overall value for your restaurant, ensuring a beneficial partnership that contributes to your bottom line.  

Labor Cost  

Managing labor costs presents complex challenges, especially amid escalating expenses in recruiting, inconsistent sales, pressure for daily pay, and a shrinking labor market. Labor costs include all the money you spend on paying your employees, including wages, salaries, tips, benefits, taxes, and insurance. To minimize labor costs, adopting a labor-management mindset is crucial.  

Schedule Your Staff Efficiently 

This means forecasting labor demand by considering factors such as sales volume, customer traffic, and seasonality. Employing an objective hiring and recruiting process to attract the best talent is equally vital. The goal is to avoid hiring out of desperation, as this can have detrimental effects on your overall team dynamic. You also should cultivate a labor-and-team-focused mindset. This approach not only optimizes productivity but also enhances the quality of service your restaurant delivers. By aligning your staffing strategy with the demands of your business, you create a more responsive and efficient workforce. 

Train Your Staff Effectively 

Once you’ve welcomed a new team member on board, the journey doesn’t end with the hiring process; it’s time to focus on their development. Providing your staff with the essential skills and knowledge is crucial for making sure they perform at their best. Ongoing development is key, and part of this process involves consistently motivating and rewarding your staff for their performance and loyalty. This approach is a powerful tool for reducing turnover, minimizing absenteeism, preventing errors, and mitigating customer complaints. By investing in your staff’s growth and well-being, you contribute to the overall success and harmony of your restaurant.  

The average restaurant labor cost percentage is 31.6% across all venue types. However, this figure can vary depending on the type of restaurant concept, location, staff size, efficiency, and other factors. Here are some typical labor costs percentages according to BDO:  

• Quick Service: 31.6%  
• Fast Casual: 28.8%  
• Casual: 34%  
• Upscale Casual: 31%  
• Pizza: 30.1%  

It is advisable to keep your labor costs within the range of 20% to 30% of your total revenue. Although not an absolute rule, fine-dining establishments often allocate more to labor costs. Forewarning, exceeding a reasonable threshold can pose challenges to your restaurant’s profitability. 

Conversely, maintaining a labor cost percentage that is too low indicates insufficient investment in your workforce, who are undeniably your most valuable asset in delivering an exceptional customer experience.  

Embrace Technology  

Integrating technology and automation into your daily processes is a game changer. To implement the right technology, you should review what technology is already in place in your restaurant and adopt a tech-forward mindset. Leveraging technology for various functions, including scheduling, promotions, customer loyalty programs, and a robust point-of-sale system, is critical in any restaurant.  

Additionally, automating key processes such as customer feedback collection, inventory management, and scheduling with the right tools can substantially improve efficiencies. This not only contributes to a happier and more engaged team but also plays a key role in cultivating a more profitable and adaptive restaurant.  

Automating key processes such as customer feedback collection, inventory management, and scheduling with the right tools can substantially improve efficiency. This not only contributes to a happier and more engaged team but also plays a crucial role in cultivating a more profitable and adaptive restaurant. If you want to read more about what it looks like to integrate your inventory management tool with your accounting software, read this.  

Cash Management  

Cash is king! Having tight controls over paid-outs, tip management, daily closeouts, and credit card usage sounds simple but it’s easy to have leakage happening in many, if not all, of these areas. To strengthen your financial position, consider employing the following strategies:  

1. Bank Account Separation 

• Separate your payroll banking account from operational funds. 
• Create a distinct bank account for aid-outs or specialty in-store spending. 
• Establish a separate account dedicated to taxes and profits.  

2. Daily Allocation for Profits and Taxes 

• Allocate a portion of daily sales to profits and taxes (you’ll sleep better at night, trust me).  
• Develop a habit of setting money aside, creating a rhythm that contributes to long-term financial security.  

3. Tip Management 

• Prioritize a solid tip management system. 

Employees having access to their tips quickly and systematized through payroll is critical. We recommend Tiphaus to assist with tip management. It allows daily payout of tips and tip pool controls, and it is a seamless integration with most points of sales.  

Don’t Go It Alone 

Be sure to partner with an accounting or bookkeeping firm that is well-versed in the intricacies of the restaurant industry. Look for experts who comprehend the unique challenges, such as daily deliveries and navigating payroll intricacies, especially with tipped employees. They should be strategically inclined to help you not only increase your revenue but also retain more of it. Operating a restaurant is undoubtedly challenging, but the key is, you don’t have to face it alone.  

If you’re in search of a firm that specializes in restaurant intricacies and understands your unique challenges, don’t hesitate. Schedule a 15-minute call with us at Patrick Accounting to explore if we are the perfect fit for your business.  

Lastly, immerse yourself in your local restaurant association! There is no better empathy than a fellow restaurant owner. After all, misery loves company.