77 Smart Financial & Tax Tips from a Restaurant Specialist

 

Secrets of Successful Restaurateurs

 Value your time as if it is worth over $500 per hour. Always look for opportunities to reduce your non-productive time by smart recruiting, hiring, training and delegating lower hourly work to your employees.

 Use your time to work ON the business, not in the business. Continuous improvement is the mission of successful businesses.

 Focus on only two or three goals at a time. Be really good at finishing what you start before beginning new projects.

 Remember that there is always more to learn. Discover ways to increase employee loyalty, motivation, and results as you learn what works best in your business.

 Learn from every situation with employees. Ask yourself how you handled a particular event before and consider better ways to handle it now.

 Explore ways to continually improve guest loyalty and satisfaction. This will always be a work in progress.

 Write out the specific results and behaviors you expect from managers. Expect the managers to sign off on the performance agreement.

 Give positive feedback whenever appropriate. This is a direct path to becoming a successful restaurateur and great leader by building confidence and achievement in your people.

 Realize the most important factor in your success is in leading your management to be positively motivated toward reaching goals. This far surpasses the importance of your equipment or your investors.

 Build great employees. When you value your management, your managers value your employees and employees value the customers.

 Treat your employees with respect and caring. Ask them how they are doing. Make your employees feel important. They will want to stay with you and do the best work they can.

 Enjoy your restaurant business. Have fun first, and then the success comes. Making money becomes a fun play game.

 Be profit oriented but be balanced in your life. Find activities that give you joy. Avoid getting burned out!

 Build sales rather than be overly concerned with controlling expenses. Be willing to pay more for lease payments to get a better location that will attract more foot traffic.

 Focus on cost control only when getting a suitable return for your time investment and when sales are not harmed. Controlling costs are often much easier than building sales.

 “Wow” all the senses of your guests, from the outstanding visual décor, food, and drink to well-trained employees who connect with the guests to deliver an outstanding dining experience.

 Engage the best advisors. Find a specialist who understands the restaurant business and is aggressive in legally saving taxes.

 Hire talented managers. Remember you get what you pay for!  It is the difference between success or failure. Ask questions that will help you understand the candidates past behavior that is relevant to the current job opening. Be straight with future employees. It is better to get their agreement in writing that they agree to behave in a way that is acceptable.

Use past misunderstandings that resulted in turnover to avoid the same thing from happening again. If you need a manager to be punctual so other employees are able to get into the food freezer or wine cellar, make sure that you get a written agreement from the job candidate.

 Become open minded. Just because someone doesn’t think like you, doesn’t mean that he will not be successful. Focus on the goal and his behavior rather than what he says or how he does it. If an employee says he wants to write a book and you think that writing a book is a waste of time, don’t feel negative about what the person says. Look at his or her actions. Is he reaching your agreed upon goals?

 Become a great time manager. Make good decisions as quickly as possible so your people are not bottlenecked.

 Have a reliable system to retrieve and act on tasks as effectively as possible. These systems include paper systems as well as computerized ones.

 Consider two examples of reliable systems. One is a letter size filing cabinet for quick retrieval and the other is the computerized Microsoft Outlook  that can be sorted by description of the goal, due date, priority and key person.

 Find a “rhythm” that gives you the momentum to get the important “stuff” done! The important “stuff” is what results in higher cash flows and store profits.

 Decide what to do next by using the productivity tool called “T I M E”

  • T = What Technology Tools like the Telephone and Talented people can do as good a job or better than you can. But you must make the commitment to Teach Them.
  • I = Look at the Investment Return, Investment profit or loss. Focus on spending your time on the “Important” stuff with the highest payoff!
  • M = Minutes available to work on the action step. 10 Minutes until the next Meeting may be perfect to handle unread emails and not enough time to review a large legal document or another action that will take longer than 10 Minutes…stay more relaxed and more productive by Making decisions based on Minutes available.
  • E = Energy Level. Honor your Energy level as much as possible. Call a meet­ing to motivate management to help you implement a new strategic goal when your Energy level is high. Clean out your desk drawer or work out when your Energy level is lower. 


Correcting Common & Costly Errors on Restaurateur Financial Statements

“Month” includes “periods” for those restaurateurs using four week periods.  

 Have comparison financial statements so you can identify increases or decreases in key revenues and expenses. This allows you to readily notice when “things are out of whack.”

 Use the same expense categories between comparable years or between budget to actual. It’s the only way to make accurate comparisons.

 Make it a priority to have financial statements available to you within 1 to 2 weeks after month end. By being proactive, problem areas can be tackled resulting in more profitable operations.

 Develop useful benchmarks to compare with the current months and year to date income and expense. This makes detailed budgets easy to use as a valuable business decision-making tool.

Reconcile all material assets and liabilities reflected on the balance sheet. Positive benefits are more accurate financial information, better business decisions, improved chance of bank loans and winning IRS audits.
Work with an income statement that has the right amount of detail to Minimize financial statement review time and focus on problem areas. Excessive detail can result in “not seeing the forest for the trees.”

 Be sure to isolate on the financial statements the Gross Profits after labor and advertising. When this number goes down, priority must be given to increasing the dollar amount.

 Use a CPA firm who specializes in restaurants because that CPA firm will have other restaurants to use as a comparison with your restaurant(s). For example, Occupancy costs including rent should fall within a percentage range of total sales. Before deciding to renew a lease or open a second location, CPAs with restaurant specialization can be an excellent source of useful information.

 Send one accountant’s copy per month to the CPA firm. More than one copy means additional expenses for your business. The CPA firm must redo all of its adjustments when the original copy including the CPA firm’s adjustments are wiped out by a second copy.

 Calculate food costs as a percentage of food sales rather than as a percentage of total sales. Food cost percentages are directly related to food sales. Before each accounting month, make sure that you have prepared a budgeted food cost as a percentage of food sales. Then compare your budgeted food cost percentage to the actual food cost percentage. If there is a food cost difference of over 0.5% of food sales, investigate the difference.

 Figure bar costs as a percentage of bar sales rather than as a percentage of total sales. Bar costs have nothing to do with food sales, so bar costs should be a percentage of bar sales. If within bar sales there are high dollar sales of wine, hard liquor and beer, you may want to break out bar sales into these categories. Then there would be a need to watch wine costs as a percentage of wine sales, beer costs as a percentage of beer sales and hard liquor costs as a percentage of hard liquor sales. Common problems are bartender “over pours” and incorrectly ringing up bar sales. These problems can result in significant loss of bar profits.

Keep records of food and bar invoices referenced within the same month of the inventory calculation. Common errors are increasing purchases or inventory while not reflecting an increase in accounts payables. The result is overstatement of the restaurant’s liquidity, and a distorted food-cost-of-goods-sold percentage of food sales for at least a two month period.

 Obtain an accurate inventory. This will result in improved decision making leading to more profitable operations and lower income taxes. Two tax years of incomparable inventories and cost of goods sold can trigger an IRS audit.

 Reconcile bank accounts within 7 to 10 days after the month end. Accurate cash balances result in reduced risk of embezzlement or running out of cash and improved financial statement decision making.

 Have a different person open and review the bank statements before giving the statements to the bookkeeper who is depositing funds and writing checks on the bank accounts. Embezzlement and failure to pay payroll taxes can be minimized.

 Question accuracy of check payments of invoices. By doing this, the person writing the checks will know that you are focused on paying only accurate invoices, that you want to correctly classify the payment to the correct category and that you are “on top” of the situation.

 Make it a priority to follow internal control procedures that help avoid potential fraud. Many of these controls are set up through pro­grams like QuickBooks™ software. Use these as a basic structure:

  • Implement appropriate user IDs and passwords for all QuickBooks users.
  • Establish the Audit Trail Preference and review the Audit Trail Report routinely.
  • Activate the Closing Date and the Closing Date Password.
  • Prepare meaningful budgets and periodically review actual-to-budget comparisons.
  • Backup data files on a daily basis and ensure that backups are stored off-site.

 Record the sale and disposition of fixed assets properly. Failure to do so will be a “red flag” to the IRS and could lead to questions from your lender.

 Reconcile your credit card accounts payables. The result is that expenses are recorded in the correct period improving the decision making actions.

 Record correctly all gift certificates sold and redeemed. Accurate records of outstanding gift certificates avoids unnecessary errors in book and taxable income.

 Post any line of credit amounts received from the bank to a liability account instead of income. Income is only earned from operations or bank account interest income.

 Be accurate in your documentation. For example, use a bank Note Payable state­ment of balance to insure that the balance sheet is showing the correct balance. The result is that interest expense on the income statement as well as the Note Payable on the balance sheet will be properly reflected. Book and taxable income accuracy will be improved. Ratios of debt to equity can be compared from one year to the other to analyze the health of the business.

 Record interest expense on payments paid on notes payable and interest income payments received on the notes receivable. This helps reduce “red flags” with the IRS.

 Recognize whether a lease of equipment is a lease-rental or a lease-purchase. Payments will be reflected on the income statement for a lease-rental. Payments will be divided between interest and reduction of debt for a lease-purchase. For a lease purchase, the entire fixed asset and debt will be recorded when the asset is put in service. Then depreciation will be reflected for a lease purchase.

 Declare LLC partnership Guaranteed Payments when required. The results of not doing so can be an IRS “red flag.”

 Record any negative paychecks to servers. Negative paychecks occur when servers have large tips as compared to lower payroll expense.

 Enter discounts and complimentary meals properly. This keeps from understatement of sales and marketing costs and overstatement of food cost percentage of food sales.

 Classify employee meals properly. By proper classification of labor expenses, the true labor cost will be known. Comparisons to prior months or years will help control these costs.

 Use the miscellaneous category for expens­es as little as possible. Classify specific categories to the correct expense item. Too many misclassified expenses get the attention of the IRS and makes it difficult for you to control spending.

 Investigate when “Other Income” is a large income or expense entry. It could be an insurance reimbursement or some other item that has been improperly recorded.

 Use the proper name for the “Equity” accounts on the balance sheet to reflect what is appropriate for your form of business organization. Banks frown on reflecting common stock and retained earnings (for corporations), when the company is a partnership.

Post to Retained Earnings for a corporation, and Member Capital for a LLC partnership, in a timely manner. Do this immediately after the CPA has prepared the year-end financial statements and tax returns. Give your CPA a copy of the final financial statement for the year. Remember to never make a change to the year or the result will be higher CPA firm fees, confusion for your lender and the creation of IRS audit “red flags.”

 Consult with your CPA firm advisors when you are unsure of how to record a transaction. That communication will save substantial time and money for you now and in the future. 


Tax Saving Tips Most CPA Firms Don’t Know Exist

Make sure that you have not created a “negative investment basis” by taking excess distributions resulting in phantom income taxes. A smart CPA can monitor this situation and avoid this common tax trap.

 Get tax deductions for entertaining staff or guest referrals at your home or a second home. Take a picture of the event including the name of your restaurant(s). Check with your CPA to see what percentage of the outlay is deductible.

 Take deductions for testing food and wine at your home. Make sure to get reimbursed before the restaurant’s year end for all purchases of fixed assets or office supplies in your home office

 Ask whether a cost segregation study will result in tax savings by converting lengthy lives of building and leasehold improvement to shorter lives. This faster write-off will usually save a substantial amount of income taxes.

 Explore getting some tax benefits from meal credits. Discuss specifics with your CPA.

 Expect your CPA to recommend whether it is better for you to take the FICA (Social Security) tax credit or to deduct the FICA payroll tax deduction. A credit is a dollar for dollar reduction of income taxes. A deduction just reduces your tax income but doesn’t reduce your tax dollar for dollar.

 Make sure the FICA tip credit reports prepared by the payroll service are correctly calculated. Many payroll services under-calculate the FICA tip credit resulting in lost tax savings to restaurateurs.

 Confirm that the FICA payroll tax deduction is subtracted from the state tax returns when the FICA tip credit is taken. This is a common error made by many CPA firms resulting in addi­tional dollars of taxes to restaurateurs.

 Take advertising deductions instead of charitable donations through your restaurant by getting publicity for your restaurant. Advertising deductions are better deductions for tax purposes than charitable donations.

 Get a double deduction on your furniture, fixtures, and equipment by leasing them from your family. Gift and leaseback depreciated furniture, fixtures, and equipment from children results in deductions to you in your higher tax bracket. This also provides lower tax on family who are in lower tax brackets.

 Watch the IRS website for special deductions (up to 200%) for giving food to charities after a catastrophic natural disaster. Make sure to get positive publicity in exchange for your generosity.

 Convert personal expenses into business deductions based on what your intention is. You can deduct your entire airfare in many situations if your intention is to meet a potential investor or employee or meet with a CPA restaurant specialist to go over accounting or tax questions.

Take advantage of accelerated depreciation for purchases of furniture, fixtures and equipment. Be careful because the rules change regularly and there are limitations on taking the full write-off.

 Hire your children as long as they are at least 7 years old. You get a tax deduction in your high tax bracket. Kids are in a much lower tax bracket and may not even have a tax. Follow the three specific rules to get this tax deduction.

 Deduct much of your entertainment expenses by documenting a business purpose and discussion before or after the entertainment. The documentation can be recorded or maintained on the credit card slip or in a journal. Keep a separate credit card for business expenses.

 Structure multiple restaurants to take advantage of fully writing off start up expenses instead of being forced to do a write-off over 180 months. Many restaurateurs pay too much income tax because of an ineffective ownership structure of multiple restaurants.

 Have your CPA firm create a “mock” IRS audit to test whether your documentation is “reasonable” should an IRS audit occur. The addi­tional time and expense of looking at this ahead of time can save you many multiples of both time and money.

 Make allocation of administrative or management expenses between multiple restaurants reasonable. Never create a management company taxpayer that has a huge loss to be paired with a restaurant taxpayer with a huge income.

 Use a restaurant competition form to justify deduction of meals. By completing the form and attaching it to a credit card slip, more dol­lars can be tax deductible for business while obtaining useful ideas for your restaurant. 


More Client Endorsements

 “They have a record of getting significant tax savings for me and my restaurant! They have saved me significant taxes through every legal tax deduction available!! CPA business consulting has been very helpful and have resulted in increased profits for my restaurant. Because of Jeff’s and Brooks and Associates, CPAs, I am confident about the success of my second restaurant too. P.S. They consistently give friendly, responsive and professional service”

William “Bill” Nelson

President of Dos Amigos Investments, Inc. dba El Encanto Mexican Restaurants

 “Your firm has been instrumental and you have helped us increase our cash flow”

Guy M. Villavaso
Owner and founder of Z’Tejas Grill Eddie V’s Seafood Grill, Roaring Fork

 “I am proud to recommend Jeffrey Brooks, CPA, CFP, MBA because:

  • Jeffrey has helped thousands of restaurateurs increase cash flows and reduce their income taxes,
  • I have observed the very  positive response from other successful restaurateurs,
  • Jeffrey and his firm are superior to other CPA firms.”

Steve Luko

President, Crackers and Company Cafes

Please call me today directly at 602-292-2009. We stop taking on new clients when I believe that our benefits to clients (like you) will suffer by accepting new clients.

 

DISCLAIMER: This publication is designed to provide responsible and authoritative information in regard to the subject matter covered. It is sold and distributed with the understanding that neither the author nor the publisher is engaged in rendering pro­fessional advice or any other professional services. The contents are not meant as a substitute for professional advice. For your individual needs, contact a financial professional. Publisher, author, and distributor cannot in anyway guarantee that this material will be properly used for the purposes intended, and therefore, assume no responsibility for its proper and correct use. 

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009
Email: jeff@jbrookswa.com