How Do You Categorize Restaurant Expenses?

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2 male chefs in kitchen plating foodOpening a restaurant is a costly endeavor, and successfully running a restaurant requires strict attention to your restaurant expenses to control costs and increase efficiencies. Few restaurants can get by with paper, pencil, and a stack of excel sheets for manual data entry. Such restaurants miss out on the opportunity to reduce expenses and increase profits by gathering needed insights for operational changes. These insights stem directly from a modern accounting system that systematically labels restaurant expenses, highlights pricing and spending trends, offers comparative industry data, and empowers proactive operations management through continued education.

RASI has built a flexible and robust accounting system specifically built for restaurants to reduce manual labor, intelligently categorize expenses, and put operators in the driver’s seat of their business with clear financial metrics. By viewing easy-to-understand dashboards, operators can get the complete financial picture of their restaurant, track spending relative to their budget (budget to actual), check progress towards financial goals, and drill down into a detailed General Ledger expense report as required.

RASI enables operators to track restaurant expenses and revenue in real-time so that they know what’s happening in their business today, enabling them to make proactive, educated business decisions. With RASI’s system, the chart of accounts is straightforward and streamlined, and the operator is empowered to make improvements in the business based on sound financial data.

Major categories of restaurant expenses

A restaurant cost breakdown and restaurant budget breakdown are both best achieved by reviewing the Profit and Loss Statement. The Profit and Loss statement (P & L) captures monthly restaurant expenses and restaurant fixed costs alongside restaurant revenue.

Here’s a quick run-through of the P&L. Beginning at the top, we have Sales, Cost of Goods, Labor Expenses, Direct Operating Costs, Advertising & Promotion, General & Admin, Maintenance Cost, and Occupancy. Below, we’ll briefly cover a few key categories; see this comprehensive profit and loss article for a more in-depth treatment.

Sales

Sales breaks down into two categories: gross sales and net sales. Gross includes sales plus sales tax, comps, and discounts. You want to judge your sales minus sales tax, known as adjusted net sales because you’ll eventually pass the sales tax to the government. Read this article on sales tax impounding to learn how the best practice can benefit your business!

COGS

Cost of Goods is the cost of all the ingredients you used to produce your food and beverage sold during the period. Don’t forget to include bar consumables such as lemons and olives in this category as well. COGS is half of your prime cost, making it an incredibly important operating metric and a prime area to try and control costs.

Restaurant employee putting data into POS

Labor

Labor Expenses break into operational payroll costs (hourly wages) for front of house and back of house, and other payroll costs, including salaries, payroll taxes, employee benefits, and employee discounts. You have the most discretion over hourly wages, so focus on efficient scheduling for your sales levels. Note that labor is the other half of your prime costs and an additional area to focus on controlling.

Occupancy

Skipping ahead, the next largest expense is occupancy. This is your rent or mortgage payment on your building, plus property taxes (if you own the building) and utilities.

To learn how to read your profit and loss statement in detail, including assessing each category mentioned above, see this article.

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How software makes restaurant expense management better

Modern software can significantly ease the labor burden of restaurant expense tracking and management. RASI’s comprehensive restaurant accounting software offers:

  • Detailed expense tracking and charting: This allows you to view top-level trends and drill down to General Ledger categories. For example, you can compare your budget-to-actual sales and use declining budgets to more accurately manage your expenses.
  • Real-time insight on where your money is going: It’s helpful to understand how your revenue and expenses are stacking up right now, rather than last month. Your ability to make decisions always lies in the present; your accounting data should be there with you. Real-time information enables active management and timely interventions that prevent expenses from getting out of control.
  • Standardized financial performance metrics. To keep an accurate measure of your profit and loss, progress towards goals, and overall financial health, it’s critical that you calculate your KPIs the same way from period to period. RASI’s metrics ensure that your measurement methodology will always be consistent.
  • Integrated POS, payroll, and accounts payable. RASI enables your data to flow seamlessly from the point of sale to critical financial reporting without human intervention. Add integrated payroll and accounts payable, and your back office will be in great shape.

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How restaurant expense management can assist restaurant profitability

To make a consistent profit in the restaurant business, it’s critical that you manage your prime costs, made up (as described earlier) of your COGS and labor expenses. You’ll only be able to do so if you have a solid grasp of your ongoing costs. By tracking and categorizing your inventory and ingredient usage, you can calculate COGS, and make data-informed decisions about what to offer on your menu. Likewise, your labor expenses need to be tracked and categorized appropriately, so that you can allocate shifts to match projected sales, which will be informed by period over period or year over year sales trends.

To expand on trend analysis, when assessing trends within your data, it’s important to measure similar periods, such as January of this year compared to January of last year (month over month comparison). Many restaurants simply track data monthly, but this denies you an accurate basis for analysis, as the restaurant industry displays strong seasonality. Sales for most restaurants will vary from summer to winter, and your forecasting should consider this.

Utilizing a period-based accounting system also assists in identifying trends that deviate from the expected pattern. An example of this may be ingredient costs that are radically different from last year, where an operator can investigate further. Overall, having a solid understanding of your revenue and expenses trends is vital to accurate forecasting.

When your revenue and expenses are tracked and categorized in real-time, you’re empowered to make business-improving operational changes long before problems appear in retrospective data. A modern expense management solution increases your maneuverability and speed of decision-making via timely data and financial metrics. The result is that as an operator, you have enhanced effectiveness when cost-cutting and making managerial changes. Having hard data on financial performance on hand also allows you to instill a culture of financial responsibility in your management team.

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Selecting software to improve restaurant expense management

We’ve been in the business for a long time, and we’re not afraid to say it: we think RASI is the most powerful expense management solution for restaurants ever made. When you choose to work with RASI, you join thousands of restaurant operators that have decided to be proactive and take control of their financial destiny. We’d be glad to discuss how our software fits your needs and operational style. Schedule a free demo today!

 

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