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Financial Mistakes To Avoid In Your Food Business



The biggest problems many restaurants face is related to finances. Because restaurant profit margins are often slim, there is little room for error when it comes to costs and expenses. One or two mistakes can lead to a significant lost of money lost and ultimately bankruptcy.


Based on our experience working with growing restaurants and food businesses, below is a list of the common mistakes we see in food service businesses


Lack of an Organized Accounting System

An accounting system is the method used to track your business' activity. This includes tracking income (money coming in), costs/expenses (money going out), receivables (what people owe you), and payables (your bills...what you owe others).


Without an accurate accounting system, you do not know how money is flowing in and out of your business, which is a recipe for disaster. If you are just getting started and have limited transactions, your accounting system can be as simple as a paper ledger where you write down all of your expenses and record how much income you make each day. Or, if you are savvy with spreadsheets, you can also use Excel or Google Sheets to record financial activities. Growing companies with significant activity should invest in accounting software like QuickBooks Online to ensure that you are capturing all of your financial activity in one place.


Helpful Tip: Have an accounting system in place from the very beginning of your business, even before you serve your first customer. This ensures that you capture all of your startup and pre-opening expenses, which benefits you at tax time.


Inaccurate Menu Pricing

One of the most basic, yet overlooked aspects of a food business is knowing exactly how much your menu items costs. This includes every single ingredient that goes into creating each dish. You must know how much each item costs to make to ensure you price items correctly on the menu. Also costs should be updated frequently to account for increases in ingredient prices.


Inaccurate menu costing results in little to no profitability in your business. As a start, write down each dish you serve, from appetizers to desserts. Under each dish, write down ALL of the ingredients and supplies that are needed to make this dish. This includes any special paperware that you use to serve the dish. From there, you should be able to assess the cost to make and serve the dish and apply a reasonable markup for profitability. This must be done for each and every menu item to ensure you are accurately pricing your menu items. More complex dishes may require the assistance of software or an accounting professional.


Not Maintaining Daily or Weekly Financial Data

As stated above, food businesses historically operate with low profit margins. As such, any spike in food or labor costs can have a huge impact on your bottom line (i.e. profitability). An extra shift by two employees without a corresponding increase in sales could result in a losses. If you do not review your financial data until the end of the month, you would not know about the impact of the double shifts until weeks later.


It is important to keep a constant eye on your financial data so any necessary changes can be addressed sooner than later. While most industries can operate on monthly financial updates, food businesses can not...not if they want to be successful. Make sure you review your accounting system at least weekly. Growing businesses with a high level of activity (breakfast, lunch and dinner for example) should review their accounting system daily.


Relying on Inaccurate Financial Information

Having an accounting system is not enough. The information in your accounting system must be correct. Otherwise, you will be relying in incorrect information to make critical business decisions. The main issue we see with new clients is incomplete financial records where all financial activity is not showing in their accounting system. Those extra Amazon orders...the last minute run to the grocery store for ingredients, the auto-debit for your POS software that's on your credit card, and most common, gift cards, which are almost never shown in the financial reports that we review.


If these expenses are not showing in your accounting system, they are not included in the reports you use to review your business' performance. Inaccurate financial reports lead to bad business decisions. The easiest way to ensure that the information in your accounting system is complete is to reconcile your accounts each month. Reconcile means to match up the transactions in your accounting system to your bank and credit card statements. Any missing transactions showing on your statements should be entered into your accounting system.


Not Understanding Key Financial Reports

Whether you maintain your own accounting system or use an accountant, key financial statements should be reviewed on a regular basis. The key financial statements relevant to all businesses are:

  • Balance Sheet

  • Income Statement (Profit and Loss Statement)

  • Cash Flow Statement

We often find that business owners do not read and/or understand these statements. Each statement reveals valuable information about your business so it is critical that business owners learn to properly read them. This enables you to know how your business is performing and can make adjustments as needed. An accounting professional can assist you in understanding these statements and using them to drive growth and profitability in your business.


To avoid these mistakes in your business, you must have an accounting system in place that is accurate and provides information timely. A thorough understanding of the financial statements produced from your accounting system is also needed. If you need help to avoid any of these mistakes, schedule a consultation with us today.