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Restaurant or bar profitability requires using and understanding a few important accounting tools.
The restaurant balance sheet is one of those tools.
This single sheet gives you insight into your restaurant's financial health, guidance on how to increase revenue, and insight into your restaurant profit margin, the most important restaurant KPI.
Read on to learn what a restaurant balance sheet is, how it differs from a profit and loss statement, and how to create one yourself.
There's also a free downloadable balance sheet template at the end!
What Is a Restaurant Balance Sheet?
A restaurant balance sheet is a list of all assets, liabilities, and equity for a specified point in time.
The balance sheet provides an overview of the restaurant's financial health and is used for short and long-term forecasting. It provides insight into spending that can be used to increase restaurant sales and reduce costs in a restaurant.
Restaurant Balance Sheet vs. Restaurant Profit and Loss Statement
The restaurant balance sheet and restaurant profit and loss statement are both valuable tools for evaluating financial performance. However, they both provide different insights.
Here's how:
- Purpose. The profit and loss statement shows the amount of profit or loss generated by the restaurant. That is, how sales compared to spending. The balance sheet is intended to show the overall financial situation of the restaurant. This includes all business expenditures, debt, and ownership equity in the business. If you were to invest in a perpetual inventory system like BinWise Pro, the cost and savings would all appear in your balance sheet. This all-in-one solution tracks inventory, cuts costs, par level, and provides real time insight into stock and sales trends.
- Data. A profit and loss statement includes data on the restaurant's cost of goods sold, gross profit, and prime cost. This data analyzes the restaurant's performance over a given time period. Things like labor cost can be found here. The balance sheet includes far more data including all assets, debts, and investments in the business. Things like overhead expenses and business loans can be found in the balance sheet.
- Usage. The profit and loss statement is intended to highlight sales data and profits or losses. This lets a restaurant know if they need to adjust plans to increase profits. They may then try things like menu engineering using psychological pricing or try bar promotion ideas like new happy hour ideas. The balance sheet provides a higher overview of the business as a whole and helps identify cost savings and opportunities to increase margins.
Balance Sheet Restaurant Example
To help make restaurant balance sheets a little easier to understand, here's an example of how creating one works.
For this example, we'll be operating a restaurant/bar called JJ's British Pub. First, we need to look at our financial data for our total assets, liabilities, and equity. We'll break those out more below if you don't know what they are.
You can find most of this data by looking at your POS system and restaurant accounting software If you use BinWise Pro, you can pull the most accurate inventory numbers from there for data you can trust.
In our case, we find that we have:
- Total assets: $379,000
- Total liabilities: $193,250
- Total equity: $185,750
Next, we need to make sure these numbers are balanced. We can do that by using the formula below.
Assets = Liabilities + Equity
If the data in your balance sheet is correct, both sides of this formula will be equal. If they aren't, there is an error somewhere in your data and you'll need to work backward to find it.
Let's put in our numbers.
Assets = Liabilities + Equity
$379,000 = $193,250 + $185,750
$379,000 = $379,000
Both sides of the equation are equal, so we know the numbers are correct.
Now, we can use that information to determine if we should invest in restaurant marketing, we should cut ingredients to reduce food cost, and more.
How to Create a Balance Sheet for a Restaurant
Creating a restaurant balance sheet requires the collection of three sets of data.
They are:
- Restaurant assets. Assets are things that the restaurant owns or is owed. These include two further subcategories of current assets and fixed assets. Current assets include cash and any assets that can be converted into cash quickly like inventory. Fixed assets are everything else and include costs like restaurant equipment, tools, and vehicles. Essentially, everything you’d find on your bar equipment list.
- Restaurant liabilities. A liability is another term for an expense. These expenses are broken down into current liabilities and long term liabilities. Current liabilities include things that need to be paid within the year like utilities, short-term loans, and rent. Long term liabilities include deferred income taxes, deferred revenues, or capital leases. Long term liabilities are not common in restaurants but need to be included in the balance sheet if they are applicable to your business.
- Restaurant equity. Equity means ownership. In many businesses, stock is the most common form of equity, but few restaurants trade on the New York Stock Exchange. Instead, various ownership stakes will likely be factored in here. It's essentially the earnings left over when liabilities are subtracted from assets.
Once you have these numbers, it's as simple as putting them into a spreadsheet and balancing the sides. Our template below makes that step even easier.
Sample Restaurant Balance Sheet Template for Excel
You can easily track your restaurant or bar’s assets, liabilities, and equity using this free downloadable sample restaurant balance sheet.
Once you download it, you can edit the cells and it'll do the calculations for you. Input your assets, liabilities, and equity and let it calculate the totals for you. You’ll see an example of a pub's financial information for reference. Once you understand how it works, try entering your own data and doing some calculations.
Bring Balance to the Books
Once you understand how to create a restaurant balance sheet, you can make informed decisions to help grow your restaurant or bar business. Like embracing restaurant SEO, for example. Stay on top of your balance sheet and track all incoming and outgoing transactions. This way you can make the right choices to optimize your business and grow your bottom line. You should also make sure to have a robust restaurant business plan and read some restaurant management books for even more guidance.
Two of the best ways to increase your profits are to teach your bartenders how to upsell and by investing in a perpetual inventory system like BinWise Pro. This combination of cost-saving and selling high can increase your revenue dramatically and avoid issues like excess inventory. You should also perform a swot analysis for restaurant to find more ways to beat your competition.