best practices

A Payroll Guide for Restaurant Owners

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A thriving restaurant operates like a finely-tuned machine. Each employee carries out their specific tasks to keep the entire operation moving forward at a steady pace.

As a restaurant owner, you need to make sure you’re fully staffed so all the cogs in your machine keep moving. Depending on your restaurant, you might need to employ quite a few cooks, dishwashers, servers, bussers, bartenders, and other positions. And each employee will likely work different hours at varying pay rates, making payroll difficult.

In this blog post, we’ll provide tips for efficiently managing payroll in your restaurant.

You withhold and pay taxes for your employees

Withhold and paying taxes on behalf of your employees is one of your main responsibilities as an employer. Each new hire needs to complete the correct paperwork before they start so you can determine the right amount of taxes to withhold. As they work and earn income, you’ll need to collect their taxes and keep on-going and accurate records.

Tips are taxable income

While all businesses need to keep accurate employee tax records, it can be more difficult for restaurants since tips are considered taxable income. Your wait staff and bartenders need to declare what they earn in gratuities so none of their income goes unaccounted for.  

It’s good practice to have a straight-forward policy on how tips are managed in your restaurant. You can brief your staff members on the policy when they’re hired so they’re clear of the expectations from then on. You can learn more about how to manage and account for tips in your restaurant in this blog post.

Keeping the right employment records

You’ll find that keeping the right records on each employee makes managing payroll much easier. The forms they complete when hired, the amount in tips they report, and records for each pay run can all be stored in the cloud. Cloud document storage keeps your office free of clutter and makes it easy to find and access the right documents when you need them. When it comes time to file your taxes, you’ll be able to easily find the information you need instead of digging deep into a filing cabinet.

Use cloud payroll software

One of the best ways to simplify your payroll responsibilities is to implement cloud payroll software. Different cloud-based systems are able to connect and share data, automating many of your back office responsibilities.

In the case of payroll, each employee can enter their hours and the tips they earned into the system. The software will automatically arrange for each employee to be paid and update your staff and accounting records.

Does your restaurant need help managing payroll or implementing cloud payroll software? BookKeeping Express (BKE) can help!

How to Set the Right Menu Prices in Your Restaurant

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The general principle for running a profitable business is simple. Generate more revenue than you pay out in expenses. This can be accomplished by charging the correct amount for the goods or services your business offers.

However, if you own a restaurant, you know how difficult setting prices can be. Your goal is to provide customers with delicious food and a great experience but you also need to make sure every item on your menu helps recoup your operating costs and then some.

Setting just the right menu prices boils down to having a thorough grasp of your costs and understanding how customers perceive your restaurant.

Food Costs

Food costs are the total costs of each ingredient used to prepare a menu item. It includes everything from the main ingredient to minor items like seasoning, garnishes, and cooking oil.

To calculate food costs, you need to know the exact cost for each ingredient and follow a consistent recipe each time you prepare a dish. However, some food costs do fluctuate due to seasonality, availability, or other factors. Many restaurants use the highest possible ingredient cost when determining their prices or rotate menu items with seasons.

Once you have a solid understanding of each menu item’s total cost, you can start to work out the correct amount to charge. Food costs should be about 30-35 percent of your sales, depending on the type of restaurant you operate.

Other costs that factor into menu prices

Restaurants also incur a number of other costs that need to be covered by menu prices. Here are some common examples:

  • Labor costs – You need to account for the wages and benefits you pay your employees to prepare food, serve customers, and help operate your restaurant.

  • Preparation costs – Not all menu items take the same amount of time and effort. The ones that take more work merit a higher price.

  • Overhead expenses – Restaurants have a lot of overhead costs, such as rent, utilities, equipment, maintenance, marketing, and much more.

There will likely be other costs that are unique to your restaurant you’ll need to take into account. Just be sure you have insight into all your restaurant expenses, so nothing goes unaccounted for.

Determining your menu prices

Once you have all your costs worked out, you can finally set your menu prices.They’ll need to cover all your restaurant's costs and provide you with a profit. But you’re likely asking yourself how much of a profit is reasonable? You of course want to make as much money as possible but you don’t want to be labeled as an overpriced restaurant. Here are few factors to take into consideration:

  • What type of restaurant do you operate? – People expect a meal at a fine dining restaurant to be expensive and look for more value when eating at a fast-casual restaurant. Be sure that your menu prices align with your customer’s expectations.

  • What do your competitors charge? – Go around your community and see what similar restaurants are charging. It’s also an opportunity to learn what you can do better than your competitors so you can develop a loyal customer base.

  • What else makes your restaurant appealing? – Do you use local and organic ingredients? Are you located next to a famous landmark? Is there a beautiful view from your dining room? Is your restaurant historic or well-known? These small advantages that help attract customers allow you to have slightly higher menu prices.

Setting menu prices is a delicate balance and requires deep thought and cost analysis. But it’s an exercise that will set your restaurant up for long-term success so be sure to give your menu pricing the attention it deserves.

BookKeeping Express (BKE) can manage your restaurant’s books and give you insight into your expenses, revenue, and overall financial performance. Find out why so many restaurants love working with BKE.