Managing Your Restaurant Using A Uniform System Of Accounts

How Does Your Restaurant Measure Up?

One of the more frequent inquiries we see on our discussion forum is from restaurant owners wanting to know how their restaurant’s financial performance compares to similar type restaurants.

Industry comparisons can help restaurant operator evaluate how well they stack up against industry averages. More importantly, comparisons can help restaurant owners discover red flags when specific expenses exceed industry norms.

The financial performance structure that leads to profitability for one restaurant doesn’t necessarily mean it will work for another. For example, a restaurant that has a 20% food cost and a 40% labor cost could have just as much operating profit as one that has a 40% food cost and 20% labor cost. Or, how about a restaurant where 10% of sales goes towards paying rent vs. another that pays only 5%?

Considering the average restaurant makes only about 5% profit after all expenses have been accounted for, it’s important for restaurant owners to know where the other 95% went – especially if they strive to improve on their profits.

In order to make meaningful comparisons, it’s important you compare apples to apples. It is for this reason we worked with the National Restaurant Association in updating the Uniform Systems of Accounts for Restaurants. The USAR helps restaurant owners to restructure their financial statements in a manner that helps make industry comparisons more meaningful. It is also the structure in which industry standards are measured.

For instance, did you know that prime cost is the combined cost of food, beverage and all payroll related expenses? Moreover, did you know that for most full-service restaurants, in order to make a profit they need to keep their prime cost below 65% of net sales after discounts? The USAR not only helps you to track this key performance indicator, it helps you understand many of the other KPIs used in the restaurant industry.

If you are not currently using the USAR we highly recommend you start off 2016 by asking your accountant to switch your restaurant to it. In doing so you will be better prepared to analyze your financial statement for possible red flags that may be keeping you from either making a profit or increasing it.