The restaurant industry is booming in Maine. Sadly, for one reason or another, not all make it. In recent news, many restaurant owners have failed to properly manage finances resulting in closing of restaurants, criminal charges, and in some cases jail time. Failure to fulfill financial obligations and subsequent bankruptcy can be avoided with proper business planning and financial management.
Keep Track! Like any other business, it is important that restaurants constantly evaluate their financials to pinpoint problems so that they can be resolved quickly. Restaurant owners should have an accurate income statement, balance sheet, and statement of cash flows.
Accurate monthly financial statements identify weak areas where improvements can be made. They also reflect the operational results of a management team’s decisions, like hiring a new employee, switching suppliers, or making menu changes. By maintaining accurate and consistent financial data, owners can easily determine the capacity, needs and gaps in their business.
Compare to Competition! Accurate financial reporting is just a start. The data is meaningless until users compare financial data with industry standards or with previous periods. For example, in our experience with restaurants, cost of food as a proportion of sales should be 35% or less. If a restaurant sees that their costs are exceeding industry standards, it may be time to consider alternatives like new suppliers or better inventory management. Measuring against the industry can help determine where strengths and weaknesses lie and where opportunities for growth might be hiding.
Keep it Separate! Another important step for any small business owner, is to maintain a clear division between the business’ finances and personal finances. By keeping a separate business account, paying taxes is simplified and daily expenses are easily paid out of business earnings. This common mistake can be easily fixed with proper accounting and reporting.
Pay Taxes! One Portland restaurant owner failed to pay sales and income taxes and was recently sentenced to jail time. Though this may seem severe, paying taxes is an immutable obligation. If proper reporting and business management practices are in place, along with ethical priorities, taxes can be accounted for before they are required to be paid, giving owners a clearer picture of the current financial position.
Complying with state regulations to pay sales tax has never been easier, as there are abundant resources with updates on how to pay, what is taxable, and when to pay. For assistance with sales tax payments, your local state agency can help.
Be Diligent! Restaurant owners are very passionate about their work and devote significant time an effort into the business. While this can make for great meals, it can also take a toll when good intentions combined with a misunderstanding of finances leads to poor decision making. Proper reporting and business management practices must be supplemented with conscientious, dedicated management who understand how to use financial data to plan for the future.
How do you think your restaurant is doing on these important practices for success?