No matter how great your food is, how welcoming your atmosphere is, and how amazing the service you provide, your restaurant is nothing without finances. If you want your restaurant to be successful, you have to manage your finances diligently.
With a solid grasp of financial management, you will be able to keep track of your restaurant’s cash flow. Apart from that, you will also be able to reduce unnecessary expenses. This way, you will be able to boost your restaurant’s profitability.
Read on to better understand what financial mistakes you must avoid if you want your business to succeed.
What Financial Mistakes Must Every New Restaurant Owner Avoid?
With effective financial management, you will be able to track your cash flow. Apart from that, you will also be able to reduce your unnecessary expenses and improve your profitability.
Basically, you will have to avoid some common pitfalls with the help of which you will be able to make your business successful. Hence, you might also take a look at a restaurant accounting case study to get a better idea of the financial mistakes every restaurant business makes.
The following are some of the major financial mistakes you must avoid as a new restaurant owner:
1. Pricing Mistakes
It might be complex if you want to get all your pricing right in the hospitality industry. In fact, if you guess those values, you will not be able to take your business to the next level. Basically, if you price incorrectly, you will not notice the hidden costs of your food items and services. As a result, your menu prices will either be low or high.
In this case, if your prices are too high, it shows that you have a risk of not breaking even. This way, you will end up making your business unsustainable in the long run. Meanwhile, if your prices are too high, your customers will order less. Hence, there shall be a loss of revenue in your restaurant business.
Therefore, if you want to price your food items and your services correctly, you must include the following:
- Cost of ingredients in the food
- Overhead expenses like utilities, rent, running costs, etc.
- Labor costs, wages, employee benefits, and social security.
- Taxes like VAT and sales tax.
- Calculate the profitability of the items. This way, you will be able to think about future investments.
2. Lack of Liquidity Management
When you are running a business in the hospitality industry, you will find that cash flow fluctuates a lot. Hence, liquidity management will become one of the major challenges. Apart from that, if you have poor liquidity management, it might lead to insolvency.
Meanwhile, if you have a good liquidity plan in place, you will be able to evaluate your financial problems by controlling your expenses. In addition to that, this also gives you a good foundation for making better decisions for your business.
Apart from that, you will also be able to find better opportunities, which will enable you to improve your business’s cash flow. This way, you will be able to get long-term success. Moreover, it is also important for you to prepare cash forecasts regularly.
Hence, you must regularly monitor your business income and expenses. Through this way, you will end up avoiding cash shortages.
3. Issues with Food Waste Management
Food waste in a restaurant is the result of poor purchasing decisions. Apart from that, it also occurs due to inefficient preparation and poor storage systems. Meanwhile, since food costs are a significant expense, you must include waste management as a top priority.
The following are the ways you will be able to manage food waste in your business:
As you focus on procurement, you must focus on purchasing exactly what you require for your restaurant.
You must also use digital solutions if you want more recipes. Also, you must calculate ingredients and track your production losses.
Focus more on inventory management. This way, you will be able to order as per your stock levels, which further enables you to track your food waste. Thereby, you will be able to optimize your inventory levels.
4. Lack of Workforce Planning
In general, if you plan your staff poorly, you will face unnecessary costs. Also, your guests will remain dissatisfied.
In fact, when it comes to the hospitality industry, labor costs are one of the biggest expenses. This is the reason why you must perform accurate scheduling. Thereby, you will be able to remove overtime and idle time, and will be able to utilize your staff optimally.
Since employees are key to your restaurant business, you must not overwhelm them. Also, you must know how to use their skills in the right manner. Hence, you must plan your workforce in a flexible manner.
In addition to that, you might also choose to bring in extra staff during peak seasons, special events, or busy days.
5. Poor Accounting and Planning
You might get into tax problems if you miss receipts, make late tax payments, and do not file returns. In fact, all these are examples of poor hospitality accounting practices.
Apart from that, do not mix your personal and business finances. Otherwise, you will end up with problems, and you will not be able to assess your business expenses in the right manner.
Apart from that, if you make late tax payments, you might also get into a lot of legal problems. Also, in some cases, you might have to make large additional payments or even pay penalties.
Rectify Your Mistakes Now
If you feel that you are already making those mistakes, start working on them to bring the best out of your restaurant business. This is because the hospitality industry is quite dynamic, and you might face a lot of financial consequences.
Meanwhile, if you deal with these problems, you will be able to avoid costlier mistakes. This way, you will be able to set your business on successful terms.
Do you have more suggestions on financial management best practices for restaurant businesses? Consider sharing your ideas and opinions in the comments section below.
