What Are Retained Earnings on a Balance Sheet

Retained earnings on a balance sheet are the net income that a company has decided to keep or ‘retain’ after distributing dividends to its shareholders. This balance, found under shareholder’s equity, can be utilized for reinvestment in business expansion, debt reduction, or reserves against future losses. It’s the profit that fuels a company’s growth and symbolizes its financial health.

What Do Retained Earnings on a Balance Sheet Tell You

Retained earnings on a balance sheet provide a window into a company’s financial health. A positive retained earnings balance suggests a profitable company, demonstrating that it has generated surplus income over its dividends and overheads. Conversely, negative retained earnings might indicate a company’s consistent losses or large dividend payouts. Observing the evolution of these earnings can reveal business profitability trends and the management’s dividend policies.

How Retained Earnings on a Balance Sheet is Used

Retained earnings serve multiple purposes, integral to a company’s financial well-being. This money can be used to fund business expansions or to finance new projects and product development, propelling the company’s growth. Retained earnings can also help reduce liabilities by repaying debts, thereby improving the company’s debt-to-equity ratio. Furthermore, they can act as a financial cushion for future downturns or unforeseen expenditures, strengthening the company’s financial resilience.

How to Calculate Retained Earnings on a Balance Sheet

Understanding how to calculate retained earnings on a balance sheet is crucial to assessing a company’s financial strength. The calculation starts with the retained earnings at the beginning of the period, adds the net income or subtracts net loss of the current period, and then deducts any dividends paid out. The formula is as follows:

Retained Earnings = Beginning Retained Earnings + Net Income – Dividends Paid

Example of Retained Earnings on Balance Sheet

To illustrate how to calculate retained earnings on a balance sheet, imagine a firm starting the year with $50 million in retained earnings.

It earns a net income of $30 million during the year but decides to distribute $10 million as dividends to its shareholders.

In this case, the retained earnings at year-end would be calculated as $50 million (beginning retained earnings) + $30 million (net income) – $10 million (dividends paid) = $70 million.

Difference Between Retained Earnings and Dividends

Retained earnings and dividends represent different paths for a company’s net income. Retained earnings on a balance sheet are those profits that a company chooses to reinvest in its operations or hold as a safety net. In contrast, dividends are a portion of the profits distributed to shareholders. The decision to reinvest profits as retained earnings or distribute them as dividends depends on the company’s growth strategies and financial health.

Limitations of Retained Earnings

Although retained earnings provide crucial insights into a company’s ability to generate profits and reinvest in its operations, they are not without limitations. High retained earnings could mean the company is consistently profitable, but it could also suggest the company isn’t reinvesting its profits effectively or isn’t returning enough profits to its shareholders. Therefore, when examining retained earnings on a balance sheet, it’s important to consider other financial indicators for a well-rounded view.

Understanding retained earnings on a balance sheet and how to calculate them helps you to steer your company toward greater growth and success. For more assistance with your restaurant accounting, please schedule a demo or call us today at (720) 826-9900.

The post A Comprehensive Guide to Retained Earnings on a Balance Sheet appeared first on Restaurant Accounting Services, Inc..

What is Net Income on a Balance Sheet

Net income on a balance sheet is the ultimate result of all business activities during a given period. It is calculated as the difference between a company’s total revenue and its total expenses. The net income is critical as it not only shows the profitability of the company but also influences other areas of the balance sheet, including retained earnings and shareholder’s equity.

How to Calculate Net Income on a Balance Sheet

To calculate Net Income on a balance sheet, take your total revenue and subtract all expenses, including cost of goods sold, operational costs, interest and taxes. The resulting number represents the net income, a key indicator of a company’s financial health and profitability.

Calculating net income on a balance sheet is a critical skill for any financial analyst or business owner.  

Components of Net Income Calculation

Net income on a balance sheet is the end result of a multi-step calculation involving several essential components:

• Revenue Recognition: This is the process of recording revenue when it is earned rather than when it is received. It gives a true picture of a company’s financial performance during a particular period.
• Deducting Expenses: Expenses related to business operations, such as the cost of goods sold, rent, salaries, and utilities, are deducted from the total revenue. This step ensures that the net income calculation considers the cost of conducting business.
• Depreciation and Amortization: Depreciation accounts for the loss in value of tangible assets like machinery or buildings, while amortization applies to intangible assets like patents or trademarks. Both deductions help accurately assess a company’s net income by accounting for the gradual use or expiry of assets.

Importance of Net Income on a Balance Sheet

Net income on a balance sheet serves as a crucial indicator of a company’s profitability. By demonstrating how much revenue exceeds expenses, it provides a direct view of a company’s financial success. For investors and stakeholders, net income becomes a key metric that influences investment decisions, as it gives insight into how effectively the company is being managed and its potential for future growth.

Presentation of Net Income on a Balance Sheet

Net income on a balance sheet is presented under the equity section, specifically as a component of retained earnings. A balance sheet consists of three primary sections: assets, liabilities, and shareholders’ equity. The net income flows from the income statement to the balance sheet, increasing the retained earnings under shareholders’ equity. In effect, net income represents the increase in a company’s wealth over a specific period.

Analysis and Interpretation of Net Income

Analyzing net income on a balance sheet offers a wealth of insights into a company’s financial health. This figure plays a pivotal role in computing profitability ratios, such as the net profit margin, which reflects how efficiently a company converts revenue into profit. The quality of earnings, discerning the regularity of income, is another essential factor. Furthermore, net income integrates with several other financial metrics, influencing computations like return on equity and earnings per share.

Understanding net income on a balance sheet is essential to growing your business and tracking your progress. For more assistance with your restaurant accounting, please schedule a demo or call us today at (720) 826-9900.

The post A Comprehensive Guide to Net Income on a Balance Sheet appeared first on Restaurant Accounting Services, Inc..

Learn about the business

A preliminary step in how to buy a restaurant is to gain a clear picture of why a given restaurant is for sale.

Are the owners retiring and uninteresting in maintaining a popular spot? Or is the business struggling to attract customers?

Note that business owners may be reluctant to share detailed information until you demonstrate serious interest in purchasing the business. Once you’ve convinced the owners that you’re a real buyer, ask to see their financial information.

When evaluating a restaurant’s finances, seek to inspect the balance sheet to see the overall assets and liabilities of the business.

Also, consider the cash flow statement, which details the flow of cash through the business.

A healthy property will have positive cash flow, while a struggling business may have more money going out than coming in. Of course, if you’re ready to overhaul a restaurant and make major changes, and have the operational expertise to turn around a troubled business, then negative cash flow need not be a disqualifying condition for you. But know what you’re getting into upfront.

WATCH THE FULL VIDEO BELOW!

Going in depth on the financials — what documents to inspect

Profit & Loss Statement, Balance Sheet, and Cash Flow Statements should all be reviewed when assessing the business’s financial health.

Inspect Profit & Loss for consistency in costs, performance against budget, and overall contribution to the bottom line. Here are some questions to ask when buying a restaurant:

• Does the current structure of the business generate a profit, or are costs too high to support profit?
• Are there large swings in cost of goods indicating opportunities with current operational controls? Can better management reduce food costs and make them more consistent?
• What is the current labor structure, and is it sustainable? Could the restaurant staff be reorganized for more efficiency in operation?
• Is the R&M budget used to maintain the property and equipment? Are long-term assets well cared for or will they require a big initial investment in reparative maintenance?

When examining the balance sheet, review any unnatural or negative balances. The balance sheet should not house negative accounts outside of depreciation and amortization.

Negative accounts indicate that there was an issue with the account where it was either over or under-collected. Also give consideration to the remaining life of asset purchases such as property & equipment.

Are the tax accounts trued up? Does the business have outstanding loans, and are they being properly allocated between principal and interest?

These questions all matter most if you’re assuming the complete assets and liabilities of the existing restaurant (also known as a FEIN purchase, because you buy and use the existing Federal Employer Identification Number).

If you’re purchasing only some of the assets of the business, you may be able to pick and choose the most valuable parts of the balance sheet, while avoiding major liabilities.

All types of buyers will be interested in the Cash Flow Statement. This document shows the health of the business in terms of cash in and out. Review it to see where the cash position is gaining momentum and to what degree future cash growth can be expected.

Do they have income coming from ownership distributions? Are they utilizing credit cards to pay bills when cash is tight? Is the way they are utilizing cash sustainable?

Learn how to distinguish between a safe bet and a red flag in restaurant financials

The following financial attributes make for a relatively safe purchase: consistency in costs (specifically look for large inventory swings period to period), Profit and Loss cost categories are in line with industry averages, consistent trends between revenue and profit when reviewing 3-years worth of tax returns, current and balanced bank reconciliations and accurate balance sheet accounts (no unnatural balances).

Conversely, these attributes raise red flags: unnatural balances on the balance sheet, heavy credit card usage to augment cash flow, inability to provide recent financial statements, inability to produce bank reconciliations, missing expenses or incomplete financials, and negative trends in sales as it relates to profit

How to think about trouble spots in the financials

No restaurant is perfect—if it was, it wouldn’t be for sale. So, as a buyer, you can expect to find imperfections. Yet not all flaws are created equal: some problems are deal breakers, while others can be easily remedied. The biggest question to answer up front is how much of the business you want to buy.

If you opt for a total package purchase (a FEIN purchase), then rocky past performance will impact the new ownership, and all previous liabilities would be the new owner’s responsibility. If purchasing the FEIN, increased audits and legal guidance should be sought prior to exploring the purchase to ensure that the new ownership doesn’t incur massive debt or, worse, legal responsibility.

If it is an asset purchase, due diligence should be completed to ensure the financials are holistic.

Are small purchases lumped in with asset accounts? Are inconsistencies in expenses tied to timeliness, and if so, are expenses missing in the current financials?

If a complete overhaul of the restaurant is going to take place, past performance is less relevant but should still be considered. If sales volume was low, was it due to concept and/or operational performance or is it due to location?

Understanding why past performance led to a sale of the business can help you structure the future of the business in a strategic way, so that you do better with the business than the previous owners were able to.

How to value a Restaurant for sale?

Use financial documents to arrive at a valuation of the property.

As a refresher for buyers, the balance sheet reflects the business’ total financial worth. It takes into account the net income (retained earnings) from all years and reflects all current assets and liabilities for the business. A close scrutiny of the balance sheet will reveal the true health of the business you want to purchase.

Once you’ve examined the balance sheet, you should be able to answer the following questions about your prospective deal:

• Are you purchasing the inventory and equipment as part of the business? If so, those totals should be taken into consideration.
• If you purchase the business, are you also purchasing the clientele? If so, historical revenue should be considered as part of the valuation to estimate future growth potential.
• Lastly, is there debt that needs to be taken into consideration? How much is owed and who is responsible for paying it?

If it all looks good, proceed to hire an attorney and business appraiser

At this stage you’ve determined you have an interesting prospect on your hands. The next question is, how much does it cost to buy a restaurant? The answer will depend on how the business is appraised (valued) by a professional business appraiser. This is a trusted third party paid for a neutral assessment of the value of business, including all its assets and liabilities. The appraiser will establish a fair market value for the business.

As a rough rule of thumb, restaurants commonly sell for about three times their annual profit, but the value can go higher for businesses with a great location or committed local clientele. When purchasing a restaurant, the price will be a combination of many factors, such as the condition of the underlying real estate (owned vs rented), the desirability of the restaurant, the local reputation of the restaurant (often demonstrated by online reviews), and the state of the equipment and furnishings.

You’ll want to work with an experienced local attorney to examine the lease agreement and purchase agreement. Your attorney will then draft a letter of intent, which is a formal statement of your intention to purchase the property, pending due diligence.

Secure your funding

You’ve found a property of interest and had it appraised. Now you have a target for how much money you have to raise to complete the purchase. With this figure in hand, calculate the relative balance of investors and loans you’ll need. Sources of investment will vary by buyer, but if you have experience in the industry, past business partners are a great bet, as you already know whether they make for good partners. Secondarily, you might turn to friends and family, or a crowdfunding platform.

Most buyers will finance at least a portion of the purchase with debt. See our recent article on how to get a loan for a restaurant. In summary, your demonstrable credit worthiness will determine the quality and quantity of debt financing you are offered by lenders. Having a strong credit history, valuable collateral, and an impressive business plan will best position you to secure credit on favorable terms. Don’t simply accept the first offer you get—speak to multiple lenders and compare their offers.

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Make the restaurant purchase

Finally, it’s time to buy your new restaurant. Establish a transition plan and responsibilities of buyer and seller over the closing period.

A typical transition would be one to two months for the seller to prepare the property, deliver financial and regulatory records, and provide access to relevant technical systems, such as payroll and accounting software, along with admin access to the website, web hosting, and social media profiles. Ensure that all property is transferred during this period, including any trademarks held by the company.

Your purchase agreement will specify the terms of closing, transition plan, and how assets are to be transferred. Have your lawyer draft this document and carefully review it yourself to check that all bases are covered. Send the document and it is signed. Congratulations, you’re now the new owner of the restaurant! Now the real work begins…

The post How to Buy a Restaurant: Everything You Need to Know, Financially appeared first on Restaurant Accounting Services, Inc..

How to Get a Business Loan for a Restaurant?

If you think you might want a loan for your restaurant, there are a few prerequisites to understand. First, assess your business prospects. Lenders want to place their money with businesses that are in good health and are likely to pay them back. You’ll need to assemble financial information to prove you meet that standard. Do you have a record of recent profit? Can you demonstrate through your books that you take in more than you spend on a regular basis? Your cash flow statement is a good place to look for this information. Once you can demonstrate that you have a profitable operation, turn your attention to the future. What projections can you make for your grow over the next one to five years? Let’s assume you have both solid profitability and encouraging growth prospects. The next step in preparing to take out a loan is to understand your creditworthiness. In the US, this is handily encapsulated in your credit rating, a single numerical score provided by the three major credit rating bureaus. According to Equifax, a credit rating above 670 is typically considered good, while scores above 740 are very good, and above 800 is excellent. A second factor to consider is your collateral. What valuable assets could you offer to a lender to secure your loan? The better the collateral you post, the more likely you are to find a lender.

4 Major Types of Restaurant Business Loans

There are four major types of restaurant loans to consider: small business loans, a business line of credit, a traditional commercial loan, and business credit cards.

SBA Loans for Restaurants

The US government supports credit provision to small businesses through the Small Business Administration (SBA). The SBA will guarantee eligible loans, thereby reducing risk for lenders and incentivizing them to work with small businesses. The process to secure an SBA loan begins with making an application to a private lender that partners with the SBA—which in the US is most banks and credit unions. If you can show strong personal and business finances and are willing to personally guarantee the loan, SBA-affiliated lenders are likely to work with you. There are many types of SBA loans, ranging from SBA microloans (below $50,000) to the more common SBA 7(A) loans of up to $5 million.

Business Line of Credit/Working Capital Loan

Working capital or business lines of credit are intended to help cover regular operational expenses such as payroll, rent or inventory costs. You wouldn’t use them to finance large one-off expenses like a land purchase or expansion to a second location. The lending standards for lines of credit vary by lender, but in general you should be able to demonstrate a strong financial position that gives them confidence you’ll have the cash available to meet your loan obligations. One nice feature of a line of credit is that it functions like a creditcard, allowing you to spend more as you repay previous balances.

Traditional Commercial Loan

The most common loan offering from banks and credit unions is the commercial loan. The amount and repayment period depends on your negotiations, but the basic structure is consistent: the lender will go through a careful inspection of your finances to assure themselves that you are credit-worthy, will demand collateral, and will offer a modest interest rate that averages 6 to 8%, while accommodating large loan totals. The commercial lending process demands high credit scores and the patience to wait for up to six months for a loan to close, but if you can meet this bar, the terms are attractive.

Business Credit Cards

We’d be remiss not to mention one of the most common sources of financing for small businesses: the credit card. Business credit cards are widely available and offer quick and easy access to moderate sums of money. Their major downside is that the interest rate is typically high, making credit cards an expensive method of financing. If you have to cover a short-term expense and will quickly be able to repay the balance, a credit card can be a convenient option. Be careful not to fall into the trap of carrying large ongoing balances at high interest.

Specific Capital Needs for Restaurants

Restaurants have characteristic financing needs that can be met with specific restaurant loan products. Here we’ll cover them in brief.

Restaurant Equipment Loans

If you’re replacing your ovens or refrigerator, you may want to secure an equipment loan. These are specifically designed to cover one-off expenses at favorable terms.

Inventory Financing

Financing is available to help with inventory purchases like large food orders. While it’s better to be able to cover these costs from your operating revenue, new restaurants might not yet have reached that point. In that case, inventory financing is your friend.

Working Capital

Regular expenses like payroll and rent can be supported by a working capital loan. See the section on lines of credit for more information. WATCH THE FULL VIDEO BELOW!

Get to Know Your Capital Lenders

Local Banks

One of the most common lenders available to the restauranteur is the local bank. These come in many flavors and varieties, yet tend to structure their lending in similar ways. For small businesses, they will often offer SBA-backed loan products that carry a partial government guarantee. Note that you will have to post collateral and personally guarantee the loan as well. The local bank is always worth checking out as a lending option. If they like your business plan and cash flow, your terms may be favorable.

Credit Unions

The credit union is highly similar to a local bank, with the structural difference that a credit union is owned by its members. In practice, they have similar products and lending standards to small and regional banks. They are worth a visit on your tour of lenders, and can sometimes offer better terms than comparable banks.

Large Banks

Banks with hundreds of branches spanning multiple states qualify as large banks. These institutions may have greater appetite for large loan amounts than your local banks, if you can satisfy their lending criteria. Be prepared for a bureaucratic process and long closing times.

Specialized and Alternative Lenders

The advent of the internet has opened up lending to many new entrants. You can find a wide diversity of online lenders who specialize in certain types of businesses or financial products. RASI can vouch for the expertise of Adesso Capital. They understand the needs of restaurants and offer a variety of loan products such as SBA loans, equipment financing, and lines of credit.

Find the Right Lender at the Right Terms

As we’ve seen there are several types of restaurant loans and lenders. It pays to determine your capital needs in advance, and go to the lender that offers a matching loan product. With any lender, the attractiveness of the product and terms you are offered will be a function of your creditworthiness. This is largely determined by the health of your balance sheet, specifically free cash flow. Lenders want assurance that you can afford to service the debt you wish to take on from available operational cash. When assessing a given credit product, pay attention to the loan size, repayment terms, closing process, collateral, and guarantees (if any). Note that it may be better to take on a smaller loan amount if that reduces the burden of interest to a point where you have greater confidence in your ability to support the loan from free cashflow. LISTEN TO THE FULL PODCAST EPISODE BELOW!

Restaurant Business Loand Frequently Asked Questions

What types of restaurant loans are available?

There are loan products for working capital (payroll, rent), equipment expenses, inventory, and major moves like opening a second location or purchasing your land. Consult your lender for specifics.

How do I qualify for a restaurant loan?

Much as in any business, your eligibility for a loan will be based on the creditworthiness of the business as demonstrated by the balance sheet. Lenders want to see you have the free cash to easily afford repayment.

What documentation do I need to apply for a restaurant loan?

Bring your balance sheet, cash flow statement, and a summation of your plans for the business. You may also need to demonstrate you have valuable assets to serve as collateral.

How long is the repayment period for a restaurant loan?

Repayment terms will be negotiated with your lender. Standard periods range from 1 to 5 years—shorter for small loans, and longer for large ones. If you’re buying real estate, terms can be much longer.

How do I compare different restaurant loan options?

The best way to get to know the options is to talk with lenders. Consult your local banker and credit union, and do research online. There are online products that will give you quotes from multiple lenders at once.

The post Restaurant Business & Startup Loans: Complete Guide appeared first on Restaurant Accounting Services, Inc..

Getting a restaurant up and running is a challenge. Keeping a single establishment or franchise profitable over months and years is even more so. What separates the restaurants that quickly fail from those that have been established for an extended period?

Sales & Expenses
Point-of-sale (POS) Transactions
Financial Reporting
Accounts Payable & Cash Management
Taxes & Compliance
Inventory Management
Restaurant Accounting Formulas
Accounting Cycle
Payroll Processing for Accounting
Getting Started

You could argue – and we’d certainly agree – that taking advantage of a restaurant accounting software and service is the most significant single factor determining long-term success. As the leader in automated, expert accounting for the restaurant industry, RASI has put together an ultimate guide on restaurant accounting as an educational resource for you:

• Understanding the different types of accounting for restaurants
• Key factors to consider in restaurant accounting
• Determining efficient methods for cost analysis, accounting cycles, and more
• Grasping the importance of payroll for accounting in the restaurant industry
• And much more

With comprehensive and best-in-class restaurant accounting services, RASI can help any sized restaurant – from small, single eateries to nationwide franchises – make their accounting system work for them

Accounting in the restaurant industry generally falls into one of three categories:

• Software-based accounting system.
• Internal accounting practices – Controlled by a restaurant’s management team or financial personnel.
• Tech-enabled, cloud-based platforms – RASI’s restaurant accounting platform combines the best qualities of the first two methods. We offer our restaurants complete control using streamlined software paired with the expertise of compliant, continually updated accounting tools, resources, and a team providing continued education to ensure financial goals are met.

Before deciding which route to take with the accounting for your restaurants, you should determine your restaurant’s specific goals, factor in budgetary considerations (how much you’re willing to spend), and see if a 3rd-party solution is a good fit.

Let’s dive into the first important step – factors to consider when setting up your restaurant’s accounting system!

Accounting for Restaurants: Key Factors to Consider

Let’s lay the foundation for accounting in the restaurant industry; the following factors are essential for any operator to understand restaurant accounting. If you can grasp these ideas, it’ll make your decision that much easier for outsourcing!

Sales & Expenses: 

The two fundamental elements of any budget, sales, and expenses, ultimately help determine if your restaurant is profitable. Sales include food & merchandise sales, reward program revenue, and other similar transactions. Expenses, meanwhile, encompass any costs associated with running your restaurant: food, labor, taxes, accounts payable, rent, etc.

Point-of-sale (POS) Transactions:

POS transactions are recorded at the exact time and place they occur. These types of restaurant accounting transactions add up quickly, and it helps to have a POS integration system for any establishment with multiple locations, a merchandise portal, and other revenue streams that stream directly into your accounting system.

Financial Reporting:

Hitting your operational targets and creating a precise budget is paramount for success in the restaurant industry. This is only possible through streamlined financial reporting that spits out real-time data for operators to make timely business decisions based on facts and numbers.

WATCH THE FULL VIDEO BELOW!

Accounts Payable & Cash Management:

What’s the current situation of your restaurant’s cash on hand? How about money coming in from accounts receivable or money going out for accounts payable? Increasing timeliness and accuracy surrounding your Accounts Payable helps you proactively manage your accounts payable and cash position. Figuring out how to track cash management is one of the more overlooked aspects of restaurant accounting; you should always have complete visibility into your cash flow to make more educated business decisions.

Taxes & Compliance:

You can’t forget about Uncle Sam here. When performing accounting for restaurants, it’s critical to factor in taxes and compliance. This category includes everything from wage garnishment to payroll tax returns to 401(k) reporting to industry legislation and regulations. Forgetting these factors can mean crippling penalties and fees in an already low-margin business.

Inventory Management:

Every chef strives to optimize their menu, but many don’t know where to begin. The basis for all effective menus begins with proper inventory management. Understanding the correlation between menu items and contributed sales, proper purchasing habits, and how inventory all affect the successful management of COGS can be overwhelming without a restaurant accounting platform that addresses each of these areas.

Restaurant Accounting Formulas:

For the diehard financial analysts and accounting geeks out there, the importance of knowing basic and advanced accounting formulas is hard to overstate. Check out our comprehensive formulas page for accounting in the restaurant industry – tons of helpful information in there!

The Accounting Cycle: Focus on Frequency

Regardless of what type of accounting for your restaurants you ultimately decide, here’s a recommendation on the most successful accounting cycle: weekly works best!

Some restaurants prefer to work on monthly accounting cycles, but we recommend the methodology of comparing apples to apples rather than apples to oranges. What does this mean? A monthly accounting system is an apple-to-oranges approach. The number of days within each month varies; each month begins and ends on a different day.

Within a thirteen 4-week period, or a 4-4-5 accounting cycle (for each quarter, the first financial period is the first four weeks, the second period is the following four weeks, and the third period is the final five weeks), you’re ensuring all your data is streamlined to compare apples to apples because you’ve consolidated your months/days into very specific periods.

Additionally, we recommend an across-the-board method of weekly restaurant accounting reviews for all your data so that all your revenue, costs, expenses, payroll, and other reporting is consistent every week, every year, for all your restaurants… apples to apples!

The Importance of Payroll Processing for Accounting in the Restaurant Industry

Transforming payroll processing from a necessary function into a tactical, operational tool is one of the most underrated aspects of strategic restaurant accounting. Accurate, efficient reporting is a necessity to master this strategy. For larger restaurants and franchises, in particular, having a restaurant accounting system with a built-in payroll platform keeps all your data streamlined.

Additionally, the game has completely changed for operators paying their people properly when it comes to payroll compliance. RASI provides best-in-class payroll features with a dedicated team who understands and maintains restaurant industry compliance with Local, State, and Federal Mandates, including Tip Credit, PTO, Regular Rate of Pay, and Surcharge in all states!

Controlling labor costs in this new environment will require a more strategic, compliant-based approach – Can you identify, down to the shift, where you are losing money in comparison with sales and recognize specific job codes that need adjustments to make the most profitable impact when creating schedules? Utilizing an outsourced restaurant bookkeeping, accounting and payroll platform can provide all these actionable insights and more!

Getting Started with Accounting for Your Restaurants

OK, it’s time to implement a restaurant accounting system. Now that you have a basic understanding of the building blocks and foundational concepts that drive accounting in the restaurant industry, you might be wondering how to get things up and running.

RASI works with various point solutions to ensure your back office has the tools and resources to handle the unique challenges associated with restaurant accounting. With a well-rounded solution, you can manage labor compliance, benefits administrators, lenders, marketing solutions, and more!

LISTEN TO THE FULL PODCAST EPISODE BELOW!

We’re here to help get your restaurant accounting off the ground whenever you’re ready! Whether starting from scratch or needing a wholesale change to your outdated platform, RASI offers the best solutions that align with any budget. To get started, request a demo or send us your questions today!

The post Restaurant Accounting: A Complete Guide appeared first on Restaurant Accounting Services, Inc..

Below, you’ll find RASI’s all-in-one resource on restaurant assets. In this article, we’ll cover:

• How assets of a restaurant are defined
• Difference between restaurant long-term vs. short-term assets
• How assets-in-place impact assets of a restaurant
• Key components of your balance sheet (liability, equity, and assets)

Remember, RASI’s comprehensive restaurant accounting services provide everything you need to keep on top of your restaurant assets, optimize profits, control costs, and much more!

Restaurant Assets – Overview

What exactly are the assets of a restaurant? Everything your restaurant owns and uses to run its operations – from food to real estate to equipment and more – are restaurant assets.

All assets are listed on the balance sheet in order to keep track of their values. It helps further to define your restaurant assets into short-term and long-term categories.

Each type has unique characteristics, and knowing how to track them provides a clear, concise financial picture for your business.

RASI’s accounting software platform offers superior visibility and tracking for the assets of your restaurant, and we’ll ensure all other aspects are accounted for. We’re here for you if you need help with financial reporting, payroll, inventory, or other restaurant asset management solutions!

Restaurant Assets: Long Term vs. Short Term

Not every restaurant classifies short-term assets the same, but here’s a good benchmark to follow:

Short-term assets in restaurants

These are any asset that will convert to cash within the next 12 months. This includes cash but also inventory and accounts receivable. Examples include:

•  Merchandise
• Cash on hand
• Accounts receivable
• Food inventory
• Stocked alcohol

Long-term assets in restaurants

These are all assets expected to be owned and still in use within 12 months. Real estate, furniture, equipment (everything from ovens to POS equipment), and even a restaurant’s longer-term financial investments (such as bonds) are considered long-term assets of a restaurant.

WATCH THE FULL VIDEO BELOW!

Differences Between Long-Term and Short-Term Assets

The distinctions between long-term and short-term restaurant assets are critical to understanding financial reporting. Depreciation is a vital aspect that impacts long-term assets, but not short-term ones.

Remember, short-term restaurant assets will convert to cash within a year. This simple fact makes evaluating and reporting on their actual and projected value easier.

If your restaurant currently has $3,000 in accounts receivable, that equates to $3,000 in short-term restaurant assets.

The same principle applies to food costs; whatever amount of food for recipes and menu preparation you have on hand is what you’d report as a short-term asset, even though you’d typically sell more than that amount on your menu.

Long-term assets are accounted for differently due to depreciation. Think of 12 months as the cutoff for depreciation. Long-term assets gradually reduce over each accounting period – say, every two months or quarter (whichever period is used for asset depreciation).

Let’s say you buy a freezer for $6,000 in January. By March, that value decreases. By June, it depreciates further.

Equipment, furniture, and other “hard” long-term assets are reported with regular depreciation factored in.

Other long-term restaurant assets (bonds, to take our previous example) are usually reported at their current market value. Hey, it’s hard enough for the talking heads on TV to predict the Dow Jones, let alone a busy restaurant manager!

The Balance Sheet: Putting it All Together

Your restaurant’s Balance Sheet is a clear picture of your business’s financial standing. The Balance Sheet starts with the assets of your restaurant. Then, liabilities are factored in. Liabilities include accounts payable, long-term debt, and other expenses.

Subtract your liabilities from your assets, and you have equity – essentially, the profit or loss from your business. Another way to think about equity is net assets. When liabilities exceed assets, it’s obviously time to change your course of action.

Check out our helpful article on the Balance Sheet for a deeper dive into understanding what all of this means!

RASI: Your Dependable Asset for Restaurant Financial Reporting

Now that you have a good grasp on the assets of your restaurant, it’s time to put this knowledge to use and efficiently run your business. With RASI’s automated software, we’ll help you keep track of short-term and long-term assets, whether you need assistance with depreciation, accounting, balance sheets, and more.

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Request a demo or contact us today – see why RASI is already an asset for restaurants everywhere. We look forward to hearing from you soon!

The post Restaurant Assets: Everything You Need To Know appeared first on Restaurant Accounting Services, Inc..

Suppose your restaurant is part of a franchise, or you own a group of individual restaurants that comprise a franchise. There are specific challenges that accompany keeping track of the financial records of this inherently unique business arrangement.

RASI’s complete suite of restaurant accounting services includes tools and resources for franchisees to simplify and streamline their franchise accounting tasks. For instance, RASI’s cutting-edge data consolidation processes — improved by standardized financial metrics and fully realized with our weekly payroll services — offer considerable advantages when keeping track of significant business expenses. That’s just one slice of the entire financial pie!

Let’s review some core principles and applications of franchise accounting basics, franchise accounting system benefits, and other insights surrounding franchise accounting. This process can be daunting for many franchisees, but with RASI’s expertise in your corner, you’ll be amazed at just how seamless franchise accounting can be!

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Franchise Accounting Basics

Before digging into franchise accounting basics, it helps to define the two primary roles in a franchise business:

What is a Franchisor?

A franchisor is the “umbrella corporation” in the equation; the franchisor has the final say on company policies, working methods, and establishing the company culture.

What is a Franchisee?

A franchisee is the individual establishment given authority from the franchisor to conduct commerce – on the franchisor’s terms, of course.

In its simplest terms, franchise accounting represents the conventional, day-to-day accounting processes that a stand-alone restaurant (the franchisee) typically accomplishes. It is simply scaled up and customized to fit into a franchisor’s standard accounting practices.

Depending on the particular standards of a franchisor, franchise accounting varies between different organizations; for example, a Chick-Fil-A and a McDonald’s. Each of these franchisors has its own franchise accounting system. But all McDonald’s franchises adhere to the same corporate structure, just like all Chick-Fil-A franchises follow the company’s franchisor guidelines.

Franchise Accounting System Benefits

Fortunately for franchisees, there are automated & efficient accounting systems in place to meet and exceed franchise accounting standards. Here are just a few franchise accounting examples where an integrated accounting system and service can provide value to a franchisee:

1) Prime cost controls: For franchise accounting, it’s critical to stay on top of prime costs – particularly in the current environment of hyperinflation and wildly fluctuating expenses. RASI’s franchise accounting tools seamlessly integrate with existing franchise POS systems, allowing managers to concentrate on the data provided within financial reporting rather than mundane administrative work – especially when implemented weekly.

2) Weekly financial statements: Weekly financial statements enable operators to adhere to budgets and grow their profitability with a weekly cash flow snapshot. Intuitive reporting has allowed our clients to become proactive rather than reacting to the previous financial period’s results.

3) Time-saving benefits of franchise accounting: One of our clients, a franchisor, saved over 25 hours per week with our franchise accounting resources, which permitted them to stay focused on other critical tasks like guest satisfaction.

Getting Your Franchise Accounting Basics On Track

It’s not only essential to have a franchise accounting service that handles your current needs; with franchises especially, it’s helpful to have a system in place that anticipates growth and expansion. That’s exactly what our franchise accounting platform does – saving you time and money along the way!

Connect with RASI today and discover a different, more efficient way of implementing your franchise accounting practices. Whether you’re a franchisor looking to streamline franchisee efficiency, or a franchisee seeking to eliminate waste and optimize profits, we’re here to help!

CHECK OUT OUR QUICK SNIPPET OF FRANCHISE ACCOUNTING BASICS BELOW!

Contact us today for practical, proven franchise accounting solutions or request a demo to get up and running in no time.

The post The Importance of Franchise Accounting appeared first on Restaurant Accounting Services, Inc..

The clearest way to understand restaurant business intelligence is to run through example metrics used by experienced operators. Note that in order to use business intelligence in your restaurant, you need to be running modern restaurant management software that collects, tracks, and reports on relevant metrics.

How Restaurants Use Business Intelligence Systems

There’s no one way to use business intelligence. Restaurants are free to choose what to track, how to track it, and what actions to take based on the data. 

That said, there is some consistency in terms of the metrics most operators choose to focus on. We’ll introduce a selection of basic and advanced business intelligence reports for restaurants that offer known value. Each of the following metrics is both a lens to view your business in a different light, and to mix metaphors, a lever to push to optimize outcomes.

Examples of basic business intelligence for restaurants

• Sales trends: What dishes are selling better or worse? Is customer taste evolving in a way you can capitalize on?
• Average ticket size: POS data should make it easy to track your average ticket size—the amount a typical customer spends over the course of a meal.
• Table turnover: How often do your tables turn during an average night. You can likely find this in your POS data.
• Staffing levels: On busy nights, how many staff are working the front-of-house? How about on average and quiet nights? Do your staffing levels match sales levels or are they expensively out of alignment? 
• Workforce Intelligence: Manage labor, training dollars, and employee turnover across multiple units.

Examples of advanced business intelligence metrics

• Contributing margins for menu items: You want to know how profitable each menu item is. Calculated as the sale price less the food cost.
• Payroll compliance data: Track tips, overtime, and state and federal payroll requirements
• Spending Forecasting: Evaluate and optimize daily restaurant spending with a weekly spend forecast.
• Actual vs Theoretical Cost Variance: Once you know your theoretical food costs, compare them to your actual costs and track the difference between the two.
• Supplier Intelligence: Easily track product price trending, manufacture deviations and contract compliance.

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How does Software Improve Business Intelligence?

Modern restaurant management software, such as RASI’s suite, offers detailed analytics tracking and reporting features. A good solution will integrate with your POS system to pull data directly from the source, ensuring timeliness, accuracy, and a minimum of manual processing. 

To get the most out of business intelligence metrics, it’s critical that you have automated processes in place to regularly and consistently collect the needed data and then track and chart the data in an easy-to-understand manner. Customizable dashboards, in which you can define the tracked variables and how they are graphed, are key tools. RASI’s system allows you to keep on top of your metrics in real-time, enabling swift operational decisions. 

How can Business Intelligence help restaurant profitability?

From the front of the house to the back of the house, business intelligence has practical benefits that influence the bottom line.

For instance, data-based sales forecasts can help you determine the ideal number of shifts to schedule to meet demand, and thereby deliver good customer experiences at a minimum labor cost. 

When it comes to your menu, dish-by-dish sales data will provide you with the information you need to adjust the menu, rework dishes that don’t sell, and double down on popular choices. This is known as menu engineering, and it’s a key practice of profitable restaurants. 

Cost management features like supplier intelligence, let you compare your costs with those of the industry as a whole. You can also measure product price trends, manufacturer deviations, and contract compliance,  to ensure that you’re getting a good deal at all times. 

Another benefit of business intelligence is the opportunity to control costs with greater precision. Closely monitored data on COGS, when combined with measurement of portions and tracking of kitchen waste, will position you to know exactly how much product you use to produce your dishes. Using that information, you can optimize your inventory so that you have adequate reserves for your sales volume but minimize time-on-shelf and hence spoilage. 

On the whole, business intelligence is a force multiplier for management, setting you up to make timely, data-based operational decisions that generate a financial return. RASI enables you to track your key performance indicators (KPIs) in real-time so you understand where your business is today, not last month. 

Selecting software to get the most out of your restaurant analytics

We’ve explored the benefits of business intelligence for restaurants. Now the question is, how do you get started with restaurant business intelligence? The best way is with software built from the ground up for the restaurant industry.

RASI provides comprehensive analytics and reporting solution for restaurants that integrates POS data, accounting, payroll, cash management, and operational metrics, minimizing manual data entry and giving you consolidated, unified access for all your restaurant data. RASI’s purpose-built restaurant software is the choice of thousands of restaurant operators across the country. 

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Schedule a free demo to see how RASI can enhance profits at your restaurant! 

The post Turn Your Restaurant Analytics into Profitable Business Intelligence appeared first on Restaurant Accounting Services, Inc..

Think of the multitude of processes your restaurant performs on a daily or weekly basis – Payroll. Payment processing. Vendor Payments. General accounting – and those are merely the tip of the proverbial iceberg.

Now, think about how seamless all these tasks would be with a streamlined, automated accounting system that integrates directly with your point of sale (POS) system. This connection would provide a centralized source of data to eliminate manual processes and significantly reduce or outright eliminate human errors (nothing personal against Nancy in accounting, we assure you). Moreover, it would increase your restaurant’s profitability through timely and accurate reporting and provide insights into greater areas of opportunity.

Integrated Accounting Systems and Payroll Processing

What is an integrated restaurant accounting software system, and how can it benefit your restaurant? An integrated accounting system is an accounting system that syncs with other types of software. In restaurants, these various integrations can range from point solutions like labor compliance, hiring and onboarding, marketing, and, most importantly, your POS System; This, in essence, creates your restaurant tech stack. 

All operators understand that the point of sale system holds your restaurant’s most critical information, like sales and labor data. An integrated POS system directly connects to your accounting software, and all that data is pulled directly into your accounting platform. The source data from your POS then disseminates where appropriate and ultimately posts to your financial statements. This streamlined connection provides the insights to complete financial clarity into your business. 

Let’s look at payroll processing as an example. Having an integrated system in accounting with auto-synced payroll data ensures:

• No exporting payroll files back and forth to reduce the chance of lost data
• Quick, accurate payroll reviews to ensure all employees are promptly paid
• All regulatory and compliance items are automatically accounted for (PTO, sick time, tip income, etc.)
• Elimination of errors due to manual data entry with payroll processing; everything is synchronized automatically

An integrated POS system syncing with your accounting software will save operators and their teams countless hours of data entry within payroll processing alone.  

Integrated POS Systems and Operational Reporting

Operators who utilize real-time data to better manage their cash flow and improve the precision of their budgets and operational targets will always perform at a high level than those who do not. However, this high-level performance is only possible through an integrated POS system that directly syncs to your accounting software. 

Integrated POS and accounting software offers the opportunity for operators to review operational KPIs and reporting covering labor, sales, and product, as well as Franchisor/Franchisee performance comparisons with exception-based reporting dependent upon tolerances. 

This quick, accurate, and streamlined data consumption process enables operators to become proactive instead of reactive. This is most transparent through operational reporting, where owners can make data-driven decisions in real-time that will positively affect their bottom line.

Sales Reporting

Consuming data directly from your POS into your accounting system enables operators to view sales information more readily. Operators can view performance metrics like sales in comparison to labor, revenue by dayparts, gift card sales, comps, discounts, promos, and more. With access to such granular information, operators can better forecast sales and stick to their budgets more closely.

Labor Reporting

Operators can control labor costs and optimize labor dollars through KPI tracking with POS data; this enables operators to schedule more efficiently based on actual business trends. Labor dollars can be controlled through received data like a daily flash report with overtime warnings, time and attendance details, server productivity, employee tip information, and more!

Menu Metrics

Pertinent menu information is available using integrated POS and accounting software. Operators can view top and bottom sellers, product mix data, sales in relation to contribution margin, and quickly identify and communicate unit recipe, vendor, and item discrepancies. With this rich data, operators can learn how to engineer their menus for profitability.

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Integrated POS Systems and Financial Reporting

An integrated POS system helps operators keep their fingers on the financial pulse of their restaurant utilizing real-time data to create actionable financial insights. Automated, weekly financial reports are readily available to ensure operators can make business decisions quickly and accurately. 

Single Unit Operators

Once your integrated POS and accounting software is up and running, all data subsets parse out into different types of reporting to provide custom snapshots of how your business is performing. This is especially important when you’re looking at the overall health of your business with the P&L, Balance Sheet, and Statement of Cash Flow.

Multi-Concept Operators

At an even more significant benefit, if an operator runs more than one unit, an integrated POS system will enable them to compare data performance with side-by-side financial reporting across multiple divisions. The operator can even drill down into meaningful KPIs within guest checks, inventory items, purchasing details, and general ledger distribution within this comprehensive reporting.

The Time to Integrate Was Yesterday – Get Moving on Your Integrated POS and Accounting Software Today!

RASI’s accounting software and POS integration offers unmatched protection, profitability, and simplicity for your complete restaurant financial needs.

• Protection – Our automated technology automatically accounts for regulatory and legislative updates.
• Profitability – Real-time reporting provides an accurate picture of your restaurant’s financial health, which assists in making profitable business decisions.
• Simplicity – Enjoy the benefits of no more manual data entry! Our accurate, error-free reporting offers custom balance sheets, chart of accounts, and more that are all automated and standardized for your business!

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Check out RASI’s case studies to see the positive, proactive results we’ve achieved for some of our clients, including a Multi-Unit Franchisee client who experienced a 14% decrease in labor costs across all units. A significant reason for these significant savings? Timely and accurate financial reporting received with labor details synced from the POS to our integrated accounting software system in accounting! Our client made proactive, educated decisions based on actual data and comparative labor reporting with actionable intelligence on the labor front.

Click here to request a demo and discover all the benefits of our comprehensive accounting services for your restaurant! 

The post Why You Need to Integrate your POS System and Accounting Software appeared first on Restaurant Accounting Services, Inc..

What is vendor management, and which issues pose significant challenges if vendors aren’t properly managed? We’ve created this page to answer all your questions and provide guidance for optimal vendor management best practices. 

What is Vendor Management?

Many restaurant owners, particularly those new to the field, struggle to understand vendor management and its importance to long-term success. Think of vendor management as the ultimate behind-the-scenes “hack” to streamline your entire operations. Some management tasks – such as managing your payroll or employee work schedules – are easy to recognize. But the vendor management process is an often-overlooked, under-appreciated aspect of running a restaurant.

Strategic vendor management maximizes the processes and relationships between your restaurant and your suppliers, vendors, and other procurement partners. Some vital elements of vendor management best practices include: 

• Risk mitigation
• Food cost control
• Optimal customer service/product procurement
• Ultimately delivering great value – and an unforgettable dining experience – to your customers 

How Subpar Strategic Vendor Management Can Harm Your Restaurant Operations

Are you using your vendor relationship management strategy, or is it using you? Poor vendor management processes negatively impact everything from customer service to your bottom line. Here are some challenges restaurant operators face without vendor management best practices in place: 

• Supply chain issues. If operators aren’t adaptable, especially when major crises are occurring with the supply chain disruptions, procurement problems are sure to surface.
• Bad contracts. Contract negotiation is the bedrock of any well-run strategic vendor management system. Without solid data to illustrate your side of the story, it’s hard to leverage contracts in your favor.
• Haphazard scheduling. Unrealistic deadlines and delivery times are just two areas that negatively impact your vendor management process. And many issues are a domino effect situation; for example, without accurate accounting systems in place, it’s easy to misfire with deadlines and procurement.
• Unreliable relationships. For your strategic vendor management to really take off, you have to take the time to cultivate meaningful relationships. True vendor management should focus on both ends of the spectrum. From a restaurant owner’s perspective, that means their own business and their suppliers. When you don’t look at vendors as strategic partners in a mutually beneficial dynamic, your restaurant will never realize the true potential of strategic vendor management. 

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The Benefits of a Streamlined Vendor Management System (VMS)

Some advantages of sound vendor management processes include: 

• Complete financial picture. The restaurant financial cycle (spend, usage, ordering, inventory, analysis, etc.) requires full transparency to make the best possible business decisions. With the complete picture in place, it’s easier to evaluate and tweak your vendor relationships, which is necessary in today’s environment, thanks to the fluidity of commodity prices.
• Sound spending practices. Which vendors are helping, and which are hurting? It’s easier with a VMS that encourages weekly performance monitoring of cash management and other key analytics. RASI’s vendor spending tools put spending fluctuations in context, allowing superior management of single and multi-unit enterprises.
• Expansion of preferred vendor/supplier lists. With inflation, tightening credit, and other challenges for procurement specialists, it’s wise to have vendor management processes that thrive in a fluid, constantly changing environment. RASI assists with auditing and negotiating prime vendor agreements and performs market basket analyses on current suppliers. This program targets optimal deals and contracts from existing suppliers within a larger network – a win-win for you and your suppliers! 

What are Vendor Management Best Practices?

The key to a well-run VMS begins with all the active participants using the system as intended. It’s difficult to gauge a strategic vendor management system as a singular entity; the important thing is for everyone to be comfortable using all the tools and applications as they should.

That said, here are some tips to ensure your vendor management structure works best: 

• Document results regularly. As we mentioned above, data analytics establishes a firm foundation for your employees to understand which particular dynamics of vendor management need to be adjusted. We suggest weekly reporting to provide regular, consistent vendor management analytics.
• Customize contracts. The extra legwork and research pay off here. In order to optimize your contracts, come to the table with institutional knowledge of your spend performance. This way, you already have the data ready to create more profitable agreements moving forward.
• Foster relationships with vendors built on trust. Vendor management is, in many ways, a “meet me halfway” compromise. RASI’s world-class accounting solutions and other restaurant operational resources enable you to cement long-lasting, trusting relationships with all your key procurement associates – because you can always trust RASI to lead the way with on-point analytic tools accounting resources! 

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Request a demo today and see how RASI can assist with all of your restaurant operational challenges, from strategic vendor management to cost control, accounting, and much more! 

The post The Best Tips for Strategic Vendor Management appeared first on Restaurant Accounting Services, Inc..