Food Services Financial Reporting: Three Must-Review Items on your Financial Statement

Whether you run a boutique restaurant, franchise, food truck or catering service, key areas of focus tend to be the same across business types—sales and cash flow; labour and food and beverage costs. And that’s as it should be: sales and cash flow ensure you have enough money to pay your bills and your staff, while labour, food and beverage costs can make or break a business.

While bookkeeping comes with the business-owner territory, it’s not likely that you launched your enterprise because you have a passion for financial reporting or generally accepted accounting principles (GAAP). Running a profitable restaurant (or any other food-based operation) takes up a great deal of time. It demands your focus on everything from managing inventory and ordering, to staffing and providing a rich diner experience. So, at the end of a busy day, the last thing on your mind is reviewing financial statements and conducting data analysis.

While it may not be your passion, however, maintaining a current and complete view of your financial position is critical to long-term success. This means regular review of monthly financial statements, including the balance sheet, profit and loss (P&L) report and cash flow statements. Packed with business intelligence and key financial insights, these reports help you better assess operational sustainability and risk by identifying potential issues ahead of time—for example, cash shortfalls, spikes in food and beverage costs or lags in sales.

Use this guide to help you navigate key data points on your financial statements. Becoming comfortable with the numbers will help you better understand your business and assist in fueling ongoing success.

Key financial data points made simple

Accounting and bookkeeping expert to the food services industry Erin Walsh Dyer, owner of The Bookkeeper’s Friend, deeply understands the importance of reviewing financial statements and the requisite data points to focus on. Start with the following top three data points to help you get comfortable with analysing your finances.

Item 1: Sales

Sales is used as an umbrella term here to represent the whole of sales activities within a food services business. Clearly, all sales are important. But as Walsh Dyer points out, there are specific data points clients should be analysing regularly—especially in the time of COVID and the “new normal” of food services operations.

“Restaurants and other food-based businesses can break the data down into very detailed micro-reports,” said Walsh Dyer. “I help my clients look at such things as online versus phone orders and dine-in versus takeaway sales. This provides good insight into how clients are coming to them and what they can do to improve service.”

For example, if a restaurant is receiving 90 percent of orders online versus 10 percent by phone, it’s important to make sure the online experience is as frictionless as possible for customers. It’s also an indicator that the business may want to look into other online channels (beyond just its website) to expand market reach such as Uber Eats, Deliveroo or Menulog.

“I also like to conduct year-over-year comparisons on data points like holiday sales. If the data shows that Boxing Day sales in the previous year were 50 per cent higher than the current year, it’s important to look at what the business is doing differently today and make adjustments as needed,” explained Walsh Dyer.

For example, holiday sales data may show that in the previous year the business spent more money on advertising and promotions leading up to Boxing Day or offered a few highly popular menu items/specials. Digging into data in such detail can help business owners uncover trends that aid in making informed decisions to increase sales year over year.

Businesses should also consistently be looking at higher-level metrics such as food and beverage sales per guest. This enables business owners to get a handle on which menu items appeal most to guests and then make adjustments to remove underperforming items and even increase prices on hot-selling dishes.

Item 2: Cash Flow

Before diving into this key data point, it’s important to understand the importance of integrating your POS (point of sale) and accounting systems.

According to Walsh Dyer, “These applications need to be integrated. This ensures that daily sales are getting into QuickBooks so data is accurate and in real time. It also helps eliminate manual data entry of sales receipts [and the errors that come with it]. And finally, when these systems are integrated, it allows you to perform cash flow forecasting by integrating cash flow modelling tools like Fathom.”

Cash flow is the lifeblood of any business. If you run out of cash, you don’t have a business—so being vigilant about monitoring cash flow is crucial. The issue expressed by many business owners is often with the reporting itself. A standard cash flow report is composed of (seemingly endless) rows and columns of numbers, which can be overwhelming.

According to Walsh Dyer, this issue is solved by using the Performance Centre within QuickBooks Online Advanced. Within the Performance Centre, clients can view the numbers within a graph-friendly dashboard—including such key data as year-to-date revenue (and revenue compared to last year), expenses by time, revenue by time, cost of goods sold (COGS) and more.

“The dashboard is very helpful for clients. Everything is presented in easy-to-read graphs and charts,” explained Walsh Dyer. “This is essential for clients to effectively and efficiently monitor cash flow.”

The key to monitoring and tracking cash flow effectively is simple: regular review of the data. QuickBooks helps food-service-based businesses do this by providing real-time data in a highly visual format.

Item 3: Labour, Food and Beverage Costs

Walsh Dyer cannot overstate the fact that labour, food and beverage costs are what can make or break a business. Staying focused on these data points offers visibility into data trends and anomalies—allowing business owners to resolve potential issues before they negatively impact the bottom line.

“If we are vigilant about tracking food and beverage costs, we might detect a rise in food costs that is really eating into profits. This would lead us to look into certain suppliers and pricing changes and prompt the client to research other suppliers in order to control costs,” explained Walsh Dyer.

For example, within the Performance Centre, clients can easily track such data points as food and beverage costs compared to the last fiscal year. For example, if the cost of goods sold shows large spikes in food costs in certain time frames, this would trigger deeper investigation.

“Working with the client, we might ask such questions as: Did the cost go up on a specific product? Then we would dig into why. This could lead back to supplier price increases, which would mean the client may need to go shopping for a new supplier,” said Walsh Dyer.

At the same time, clients also need to be tracking labour costs. This can be done by setting up a labour chart within the Performance Centre just like with food and beverage. Regular weekly review of the P&L is also sound practice.

“Labour costs can change so quickly so it’s a good idea to run a P&L frequently. You can break down such costs as direct labour (payroll) and outside consultant costs. Comparing costs week to week to better gauge how much cash is going out for labour is important to make adjustments as needed.”

Overall, labour, food and beverage costs make up the bulk of expenses in any restaurant or other food-based business. Staying apprised of the detailed data, trends and anomalies better positions business owners to keep these costs in line and grow a profitable enterprise.

Final thoughts …

While not an exhaustive list, the tips offered in this guide provide those within the food services industry with sound advice and insight on what to look for in their financial statement. By reviewing the key data points consistently, business owners and managers can stay in the know in relation to financial health, business sustainability and potential future risks.

Source: Quickbooks