Accounting and Tax Mistakes that Restaurants Make (Ep 186)

publication date: Mar 2, 2023
 | 
author/source: Jaime Oikle with Anne Gannon
|
 

accounting-and-tax-mistakes-that-restaurants-make

 

Jaime Oikle from RunningRestaurants.com revisits with Anne Gannon, the Founder of The Largo Group, to share a variety of quick tax and accounting tips for restaurants. They cover:

  • Typical accounting mistakes and oversights that restaurants make
  • The importance of a weekly forecast look
  • The key numbers that go into an effective weekly forecast
  • The four big areas that restaurants need to pay attention to
  • Getting depreciation right
  • Getting your tax return to tell the whole accurate story of your restaurant
  • Long-term strategy tax planning for a successful business exit
  • Why breaking out the various parts of your restaurant's revenue is beneficial
  • Why weekly accountability is the best recipe for success
  • And more...

Be sure to check out the episode!

Find out more at The Largo Group and Running Restaurants.

Thanks to episode sponsor, Popmenu.

---

Watch the episode here

 

Listen to the podcast here

 

Accounting and Tax Mistakes that Restaurants Make with Anne Gannon

I've got a great episode for you with Anne Gannon, who's the Founder of The Largo Group, which provides accounting, tax, and coaching help for restaurants. Anne's been with us before. Welcome back, Anne. Good to see you again. What's new in your world?

Great to see you. Thank you very much. I'm excited to be here.

Typical Accounting Mistakes

I don't know when this will hit, but of course, it's late February from an accounting perspective, it's tax season. I know you guys are probably stressed, and we're going to talk about that. We had a great conversation last time. Folks, go back and find that episode. It was generally overarching. We might've talked about tax credits. I want to ask you the open-ended question of what are some everyday tax and accounting mistakes that restaurants make, and we'll just bebop around. What do you think?

That sounds perfect. I feel like now is a good time to look at where you are. I think for most people in the restaurant space, it's been a crazy few years. The first thing I would say to the reader is go easy on yourself. It's been crazy for everyone. If you feel like, “My God, I'm far behind if I didn't do this,” you are not alone. Everybody is behind. As we're into the beginning of the year, I think it's a good time to look at last year, the good, bad, and ugly of it, and just set some targets for this year.

I think when you look at things that sometimes get restaurant owners stressed out in their finances, I think the biggest thing is looking at where the information comes from. It sounds silly, but a lot of times, you might have a point of sale system, or your operations team and you're dialed in on that revenue number and exactly what that is, and then you go to your end-of-the-year tax return, and it's done based on your cash deposit.

The numbers are different, even just with revenue. I think we find that we all want to make sure that we're on the same page. We haven't been on the same page in the past. That's okay, it doesn't make it wrong. I think setting a new path forward, especially with your financial information, your point of sale, all of that. It's a great first step in getting back on track in 2023.

Let's stay there then. There's a variety of technologies that people use to get the data. In some respects, a lot of folks are overwhelmed by the process of this system and that system, and maybe not everything comes together on a timely basis. What are some tips? How often should they be looking at data? You also mentioned the word targets. What are the key numbers to look at? What should they be seeing more often? What do you think?

The first thing that I stress to everybody reading, whether it's even our team, or whether you're a business owner for the first time, the first thing that you have to know is that accounting is a skill. Just like shooting a basketball or throwing a baseball, accounting is a skill. It's not something you're born with. It's not something that you automatically love to do from the first moment you open the door.

Accounting is a skill, just like shooting a basketball or throwing a baseball. It's not something you're born with but something we get better at to be the best business owners we can be. Embrace it, learn it, and take control of your finances every day.

It's just something that we have to get better at to be the best business owners that we can be. Approaching it as a skill can help get rid of some of the fear because I find that sometimes you're overwhelmed before you ever open the prominent last statement. Like we're already there. That's bad because we have to approach it with this as something that I can learn, this is something that I can be good at, and this is something that I have to be good at to be able to run my business the best way that I can.

Approaching it with that mindset is the important first step. The second thing that I think that's important is finding a system and a process that works for you. For us, in being that we're 90% of restaurants have gone through the last three years. I would say that we find that process to be weekly accountability. What we mean by that is rather than waiting for the end of the month or end of the quarter, or something that I avoid until we get to the end of the year, if we do it every week, we can catch some of the problems.

There's always going to be problems. There's always going to be the sales don't match or my cost of goods looks off or my labor doesn't look right. All of that is going to always happen because it's a restaurant, and you have a lot of information coming at you every day. If we can look at it every week and get to the point where we're living at seven days of the data, and it's the same seven days every week, then we can make sure that we do not just have a process and make sure that we agree with what last week was, but then we can ultimately have a target for next week.

Little manageable things like I want my sales to go up by $1,000 or $2,000 and what that can do to my bottom line. What happens by doing that every week is you start to take back control of your finances and your accounting. I think that's the most important thing for business owners, whether you have an accounting service or not.

That's what we do. Of course, I love to do your bookkeeping work, but ultimately, whether our team is doing your bookkeeping work or not, or anyone is, you're in control of these numbers every day. I think that the other big lesson of COVID is you have to know exactly what those numbers are every day to make the best decisions. If it takes your accountant unless you get to PNL, it is what it is, but you still have to find a way to know your numbers every day.

Weekly Accountability For Success

I want to ask you in a second what some of those numbers are that you want them to look at, but do you see a lot of eyes open big when somebody goes from, say, 30 days of data to looking at every seven days and the ability to catch stuff and to react in the moment and to forget, “My gosh, 28 days ago, what did Jim and Sally do that caused that?” You can probably remember five days ago or two days ago. Do you see a big change?

A huge. The biggest thing is if somebody is willing to try it. First, you're asking why in the world would I want to do weekly. I hate accounting, why would I want to do it more? Which is a good, I understand. Once you buy in for over 30 days and you try looking at it for four weeks in a row, what you immediately see is just a sense of relief.

It is like the weight is off your shoulders because you also don't have that pressure of looking at it now and then not going to look at it for 30 days. My God, what's going to happen from January to February? They have a different number of days. You just get into craziness right away. Whereas, if it's, “Nope, I'm going to look every Tuesday.” That goes away.

We can still have a monthly budget. We can still have a monthly target or a yearly target. We don't have all those things, but if we know that we're going to look at it every Tuesday, what I see is that the weight is lifted. I know that I don't have to cram it all in right now. I know that I can take it and be more methodical with it and ultimately have less stress.

One hundred percent, a little bit of computer lag there. Hopefully, we're good here. Let's talk about those numbers. You talk about Tuesday. On Tuesday morning, I'm a restaurant. I work with you. I'm getting weekly numbers. What are five of those key numbers? Maybe there's 10 or maybe there's two. What is some of that?

What I think you have to do is break down your budget because it's very good to have a budget. I think that it's very important, even beyond whatever we call it, to have a target. I think the first thing we have to do is make sure we have set targets that are moving us forward. We don't want to just say that we want our sales to be the same as last year.

We want them to be 5% better or whatever, that 10% better, and even beyond that, breaking out the parts of your restaurants that are more profitable or areas of growth. All of that comes down to having a target is very important. The other thing that we have to be aware of is you don't have a lot of time, right? You're already maxed out on time, and you're putting a lot of effort into your business.

What we have to do is find a way to make this simplified. Without the eight hours it takes you to build a twelve-month budget, we need to find a way to where you have real information every week about where you are. To us, what we call that is our forecast. It is a condensed version of the budget. For those who came to the restaurant ownership from the chef world, this is hard because chefs by nature are very specific.

They want to go find out how much I spent at Staples last week and all of that has a place. I'm not saying that that doesn't, but we have to find a way to get this into your weekly routine. The only way it's going to stay in your weekly routine is if it's simplified and quick. This is the condensed weekly check-in that is a compliment to that much more thorough deep dive that we still need to do.

Find a simplified process for weekly check-ins. Condensed forecasts help track sales, costs, and labor efficiently. Make it quick and routine.

Every week we want to condense it into what we call our forecast, which is our sales. Again, I think a meaningful sales target that is pushing and moving your needle a little bit. As part of that conversation, perhaps comps and discounts are separate, perhaps there are net sales. I think that depends on how you track it.

Either way, sales for sure. Cost of goods, I think the big thing to look at with your cost of goods, especially when you're looking at it with your team, with the purchases. What are we doing on our purchase side? What's our purchase target? Is it in line with our sales target? Doing that weekly can help you see how my purchases move because I might have one good week and then I have one bad week.

Ideally, we're taking a four-week average and checking what's my target of purchases every week. The next one is labor. I think labor is much easier to look at weekly versus monthly because chances are your schedule is built weekly. The first basic question to ask on the schedule is, what are my labor dollars that are scheduled for this week?

I can get mad all day long that my payroll is too high but what does my schedule add up to? There's a lot of software that will do that for us now. That helps to just look every week at what's my target for my labor, especially controllable staff labor, and then what's the actual and what that looks like as a percentage.

What I like to do just for my team also has the bottom line. Take all the other expenses, especially if we've done the exercise of a twelve-month budget, and just take that into one number. It's almost like your allocated overhead. For my team, I don't need them to worry about all those other expenses right now. We're going to do that, but we don't need to do that right now. I want them to understand if we are making money at that sales number or not.

Understanding your expenses and making sure your sales cover them is key. Allocate overhead to get a clear picture of profitability.

To do that, I would take all of my other operating expenses from last month and just divide them by four. If I had $20,000 of operating expenses, I would divide it by four. Is it perfect for the chef? No, they're freaking out right now. It's not perfect, but at least then I can tell my team if we have 30,000 sales and we have 32% labor, we've got 32% cost of goods, and we have this other 5,000.

We're not going to worry about the 5,000, but at least that gets us to the bottom line that we all can buy into. Then we can see in real numbers, “Here's what happens if sales go to 35,000.” Then all of a sudden the team has one set of information. If we do that every week for four weeks, I promise it will change the way that your team works at your door.

It's good to remind folks that there are all those hidden costs that they may not be thinking about that go into running the restaurant. I know from the outside looking in, the public thinks that restaurants make a bazillion dollars because how can they charge me $6 for a beer? They must be making a lot of money. We know that's not the case because there's much more that goes into it. I want to go to inventory for a second because that factors into your cost of goods sold. Are folks taking a full inventory weekly in this scenario? What do you have?

I think in an ideal world, yes, but I would say in this model, it doesn't matter. It's great if you did. Now we have extra data, but if you didn't, I'm going to just use your purchases over four weeks. Over a four-week timeframe, I should be able to come up with an average cost of goods, whether you took an inventory or not. I think if anything doing it this way, gives them ownership of an inventory because either that or I'm using a higher number.

Importance Of Tracking Revenue

I have a question for you. You used a phrase and you may have meant it differently, but something popped into my head. You talked about breaking out parts of the restaurant in sales and where that popped into immediately was COVID has changed a lot of folks to a bigger percentage of dine-in versus takeout versus catering and so forth. I think the answer is yes. It's a rhetorical question, but you want them to see where the pieces are coming from. What's driving up where the trends are in each part of the business? I think there's a lot to learn there. What do you think?

Break out parts of your restaurant and sales to see trends. COVID changed the game; understand what's driving your revenue.

I do too. I think what's fascinating about where we are right now is that revenue is such a question mark. If you had been doing this in 2019, you probably had a very dialed-in revenue. You knew your percentage, you knew your diner, and it was every Friday night, like it was just on autopilot. Now, many things have changed in revenue, and I think there is a lot to learn, not just what your revenue is right now, but also what your revenue could be.

I encourage people to look there because many times it's the story of my sales are down from last year or my sales are down still from 2019 but in reality, it just may be a different customer. I think we need to better understand the customer and then see if there are things that I should add or could add in that could get me back to that same dollar amount that I was in 2019.

Looking at your revenue, even when you're setting a target, we just don't have that same assumption. There could be exponential growth in, say, catering over last year because catering wasn't there last year, but people seem to be back and looking for catering again, or there's less catering competition than there was. Within that one revenue dollar amount, you could have exponential growth in a certain area while keeping your same growth in other areas.

Looking into the revenue is important. The other piece of that is, that even marketing to your customers has changed. Many times I'll have a conversation with someone, they're not even marketing right now or they're doing Facebook ads. It's just something that's not on their mind because we don't know how to communicate with our clients or customers right now.

I think by digging in there, you could also see what's the ROI if I increase my marketing by a thousand dollars, like what do I see that bringing in sales or does it bring in sales? Again, that weekly number that we're all tracking, we could know within two or three weeks. Yes, that marketing works because look, my sales are higher. It just gives us more levers to pull and ways to be proactive.

A dramatic change in the way to market it. If people have a Glossy City Magazine, put an ad in the Glossy City Magazine, that drives people in, things have changed. Now it's small. A little ad here, a little ad there, a little opportunity there. That has dramatically changed. Let's go back to other mistakes. The mistakes you see restaurants make could be a tax thing, an accounting thing, or an operational one. What are some weird mistakes you see that folks make?

On the accounting side, it's just rushing. If you're someone who does the tax return once a year, how many people are doing the tax return on March 1st to get it done on March 15th and not having those big conversations? Especially in restaurants, I think the biggest conversation on the tax side is depreciation. If you had a new asset that you bought last year, did you depreciate it in full? Does it make sense to depreciate it in full or to carry it out over a longer period?

Depreciation is key! Decide if it's best to depreciate assets in full or over time. This can impact your business's financial health.

I think the other important thing is just to make sure that your tax return tells the story of your business. Nobody wants to pay more in taxes than they should, but at the same time, we want to make sure that we show a bottom line that includes everything, looks healthy, and shows the success of the business. Not rushing because many times the P&L or what's ultimately on the tax return doesn't even add up to what is happening in the business.

A lot of times it's just incomplete information or as simple as I promise you, there are more tax returns than you realize that have the wrong revenue number. All of a sudden you get a sales and use tax on it because your federal return doesn't match your state tax filings. It might not if your CPA doesn't even know what your point of sale system shows. Again, all of that is rushing.

It's not like your CPA is doing a good job, but trying to get a return done in five days just to hit a deadline is probably not serving you in making sure that that return is complete. The other thing I would think of is being thoughtful in your long-term strategy. If you plan to exit the business in three years or to put it up for sale, those are conversations that your CPA needs to know so that they can advise you on that and make sure that it's set up for that correctly.

Many times it's like, “My business is for sale and I'm selling it.” Then, there are all these questions or there are gains. I just think making sure that you look at your tax return is probably the most important piece of information that's put out about your business. If it's not accurate, then it's very hard to get funding. It's very hard to get someone to buy your business.

It just sets you up in a bad place where it doesn't have to be if that tax return is unthoughtful. Make sure it has the right information, sales, and labor. Does your labor include your tips? I promise you if you don't ask me to do a CPA, it might. If you're showing off, there are little things that if done thoughtfully can make sure that that tax return tells the accurate story of your business.

Normally sometimes there's a queue to get episodes so we'll try to get this one out as quickly as we can because it is tax time. Any other tips, if someone's reading this in early March or so that they can take advantage of it before the next quarter filing or things that they might want to look at?

Mid-Year Tax Review And Strategy

Looking at the profit of your business from a tax perspective. Whenever you do that, but I would say doing that midway through the year. Having that target, that's the other part of doing a budget. It's not just I'm going to do a budget for the sake of doing a budget, but that budget should tie into my tax planning.

If I know I'm opening a new location this year, or I'm doing a big build-up this year, all of that has tax consequences. I think by making sure everyone on your team is working together, whether it's your CPA and you as the owner, everybody's on the same page that will make sure that the information is also on the same page.

I think there are some important things to do when you are finalizing that tax return, looking at what the result was for this year. What do I think it's going to be in 23? You don't have to be someone who has, a crystal ball. Are there major things I know that are going to change and making sure my tax preparer is aware of that?

This is something I want to maybe revisit in our future episode with you, but long-term strategy planning is an important piece that some people forget about. For now, let's go out to you. I want to know about your website because you guys have a lot of content on that. You spend a lot of time to produce content. Talk about the, I know there are courses on there. You do some podcast recordings. There's a lot there. What would you want to share?

What we try to do is provide a great resource to everyone in hospitality, whether you use us or not. I think the biggest lesson of COVID is that you have to know what's going on in your business. That starts with your tax return, it starts with your monthly reports. You as the owner have to have that seat at the table. It's not enough to just have an outsourced person who just gets it done.

This is vital not just today, but when you sell long-term, all of this is important. Our goal is to educate, right? Because my biggest belief above anything is accounting is a skill. There's nothing that you, the owner can't learn on your tax return or your profit and loss statement or balance sheet. You can learn all of this. Our biggest mission is to just educate you to make you an even better business owner.

Quite a question that builds on that. Also on the site, this caught my attention. Business accelerator and coaching. What are you doing in those regards?

Accelerator And Coaching Programs

What we've found is a lot of times there are little things that business owners just know they need to deal with. It's overwhelming to figure out how to deal with that. Our accelerator coaching program is very condensed, 30-day, outcome-driven. Not necessarily, we're going to just spend 10 hours together for the sake of spending ten hours together, but we're going to approach it with a set outcome and deliver for you right away.

A lot of that is, menu-driven, labor driven, and getting a manager back on track. What makes our team unique is not just accountants, but we also come from an operations background. Having another objective third party who's been in those shoes can help bridge the gap between traditional accountants and owners. That program is great.

Then we have our franchise accelerator program, which is built more for the independent who has a great idea, loves what they're doing, and wants to take it to the next level in availability. That takes four months to process, hands-on. One-on-one, specific to your needs, but at the end of it, again, outcome-driven to where we have a complete model set as far along as a pitch deck for finances, all the way ready to go to help you get to that next level.

That's good. I can imagine folks in the restaurant business, you have success, I want location two or three, I should franchise, but how do I do it? I know there's a lot there. That's a good program for folks who are in that territory to check out. Another thing that popped into my head, that we need to revisit and dig into perhaps in the future is that whole menu costing and redoing your menu and analyzing it and pulling stuff off that doesn't make sense. That's a whole episode in and of itself. Tell them exactly where to go. It's TheLargoGroup.com, do I have it right?

Yes, TheLargoGroup.com and you can find us on social media as well as at The Largo Group as well.

Good stuff there from Anne Gannon of The Largo Group. You can find them on the web there at TheLargoGroup.com. For more great restaurant marketing and service and people and tech tips, you can stay tuned to us here at RunningRestaurants.com. We'll see you next time. Thanks, Anne.

Thank you very much. Have a great day.

 

Important Links

 

 


Related Articles: