Restaurant owners should learn as much as they can about the financial aspects of their business. Most restaurants have an accountant or use accounting software to manage their books and to create financial reports.
Even if you are working with an accountant, it may be helpful to understand the following terms when discussing the financials of your restaurant with a CPA or banker.
- Assets can be thought of as things you own, the things you have rights to, and expenses that have been paid for and have not been used up. Assets can include items such as cash, inventory, equipment, vehicles, furniture, and fixtures. They can also include intangible assets such as patents and trademarks.
- Current assets are any assets that are expected to or can be easily converted to cash within a year. Typical current assets are cash, accounts receivable, inventory and prepaid expenses.
- Fixed assets are any assets that take longer than a year to convert to cash, such as land, buildings, and machinery.
- Accounts receivable are any money owed to your restaurant by your customer for services or goods provided. For example, if your restaurant provides catering to a large group and the customer agrees to pay you at a later date, you have an accounts receivable balance.
- Liabilities are things that you owe. Like assets, liabilities are classified as current or noncurrent (long-term).
- Current liabilities refer to items that are expected to be satisfied within the next twelve months, such as paying your food vendor for a purchase.
- Noncurrent liabilities are those liabilities that are not expected to be satisfied within the next twelve months. A portion of your mortgage, for example, can be classified as noncurrent liabilities. (On the other hand, the portion that is due within twelve months is considered current liabilities).
- Accounts payable are any money that you owe to others. It is used whenever your restaurant buys anything on credit. For example, whenever you purchase inventory and promise to pay the vendor at a later date, you are accruing an account payable.
- Notes payable refer to loans that you took out for your restaurant. This includes any money that you borrow from friends and family.
- Inventory refers to the goods that a company sells. For a restaurant, inventory refers to the products, supplies and ingredients to produce meals for your customers.
- Depreciation is the process of an asset (such as equipment or building) wearing out and losing its value over time. There are different ways to account for depreciation, but the straight-line depreciation method is the simplest. An accountant can help you determine the best method for your restaurant.
