The restaurant industry deals with numerous clientele the whole day. However, their business is seasonal and peaks at specific points and lowers at others. It does not mean that these industries do not need accounting. Accounting plays a critical role in managing the restaurant books. Firms can use accounting software for restaurants to prepare financial reports and statements, including income statements, balance sheets, cash flow statements, etc. Without it, these firms will not know where they stand economically and where they want to go. With the help of financial reports, companies can analyze their situation and progress levels and set future goals accordingly.
Ratio analysis accounting is one way to interpret the financial results. It involves converting complex financial numbers into simplified data for a regular person to understand. These metrics cover efficiency, liquidity, profitability, solvency, coverage, and market value. Numerous ratios enable businesses to outline and track the most crucial results that indicate their performance. Ratio analysis offers insights into specific areas like inventory, expenses, etc., for the restaurant industry.
It depends on the company's nature, needs, and objectives to track particular ratios. The critical ratios for restaurants to follow consistently include:
· Prime costs to total costs:
The restaurant industry incurs several expenses that they must track separately and know how it contributes to its purpose. The prime costs for restaurant industries include beverages, food, management, benefits, hourly staff, etc. Per the rule of thumb in the restaurant industry, the prime costs to the total cost ratio must be 65% or less. The firm that owns the structure it operates has a higher ratio. However, restaurants must strive to lower this as much as possible without compromising the quality.
· Inventory turnover ratio:
The restaurant industry deals in perishable goods and thus should have optimal inventory levels at all times. They cannot over or understock the items as it can significantly impact their operations. For instance, understocking can affect their operations and lead to a shortage of food and beverage supplies to customers. On the other hand, overstocking can result in expired unusable products after a specific point.
Inventory turnover ratio= Sales or Cost of goods sold/ Average inventory
The restaurants handling fresh ingredients must not keep the stock for more than seven days. A higher percentage indicates supply shortage, inadequate discount availing, and inefficient purchases. On the other hand, a lower ratio shows slow business, excess purchases, or declining food quality due to the lack of fresh products. As mentioned earlier, firms can also use premium accounting software for restaurants to assist them with ratio analysis.
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