The restaurant business is notoriously difficult, with many restaurants closing within their first year of operation. While there are many reasons that can cause failure, including a subpar location and poor food, the most critical factor can be poor financial practices. The following are four areas where restaurateurs commonly make mistakes and how you can address them.
- Cash flow
Cash is the lifeblood of your restaurant. Between lease and utility payments, wages for your staff and food expenditures, it’s easy to find yourself running low on funds. Understated expenses, a lack of understanding of timing and leaving yourself no margin for error can all also contribute to problems with cash flow.
How to address: Base your expectations of costs on recent financial performance, leaving yourself plenty of room for error and accounting for the times of year when your business needs more cash. Plan based on a realistic growth rate.
Good service is key to any restaurant, since most customers decide whether to return based on their first experience at your restaurant. However, some days are slower than others, and you may be creating unnecessary cost for yourself by keeping more wait staff and cooks on hand than you actually need to provide good service.
How to address: Examine your receipts for trends and look for days when you can reduce staff to save on costs without sacrificing service.
- Initial expenditures
When you’re first setting up your restaurant, it’s easy to give in to temptation and go overboard on buying new equipment and furniture. While you may have plenty of cash right now, it could hurt your ability to pay your bills and your staff down the line.
How to address: Consider acquiring gently used equipment, appliances and furniture via the Internet or local auctions.
- Putting off paying your taxes
Sometimes new restaurants put off paying their federal and state taxes, knowing that they won’t be put in jail, but simply charged a late fee. It’s not surprising, given that many new restaurants operate at a loss, and it can be tempting. However, the penalties and fines may be higher than you expect, and if you ignore your taxes entirely, your restaurant will be shut down.
How to address: Pay your taxes on time to avoid substantial late fees.
Looking for more advice on handling your business’ financials? Contact Scott Hutchinson, partner, at firstname.lastname@example.org.