How to Manage Your Restaurant Balance Sheet

Do you want to create and manage your restaurant’s balance sheet? Running a restaurant and maintaining its financial reports, including a restaurant’s balance sheet, can be overwhelming. A balance sheet is one of the most crucial restaurant financial statements. It enables you to keep a close eye on your restaurant’s expenses to make a lasting profit.

A restaurant’s balance sheet gives you a comprehensive picture of your restaurant’s finances. A restaurant’s balance sheet lists all the assets, liabilities, and equity at a given point in time. So, this sheet can be used to forecast short-term and long-term cash flow. Besides, it also allows you to verify the accuracy of profit&loss (P&L) statements simultaneously. 

Let’s understand how you can create and manage a restaurant’s balance sheet. 

Understanding a Restaurant Balance Sheet

Do you know how many financial reports a restaurant uses to maintain its cash flow? Well, there are three main financial statements for a restaurant business. 

1. A restaurant balance sheet
2. Income statement (or profit & loss statement)
3. Cash flow statement

Don’t confuse your restaurant profit and loss (P&L) statement with a balance sheet. While the P&L statement shows how much money your restaurant made or lost, a balance sheet reveals assets and liabilities and whether your business is financially stable. 

A restaurant’s balance sheet is a vital document for forecasting short and long-term financial status. It is a financial statement listing a restaurant’s assets, liabilities, and equity at a specific time. The balance sheet also provides valuable insights on how to spend and cut operational costs to maximize restaurant sales.

Before moving to the restaurant balance sheet creation and management process, let’s have a look at how it looks like with an example.

Restaurant Balance Sheet Example

To understand the restaurant balance sheet better, let’s explore through a sample example. Here, let’s take an example of a random restaurant named XYZ. To create a balance sheet, first, you need to download a restaurant balance sheet template that is categorized into three categories: assets, liabilities, and equity (for each month).

To check whether the numbers are correct, we need to use this formula: Assets = Liabilities + Equity. The numbers are correct if both sides of the equation are the same. Let’s check the XYZ restaurant numbers:

$239,000 (Liabilities) + $285,000 (Equity) = $524,000 (Total assets).

Both sides are the same, so the XYZ restaurant balance sheet numbers are correct.

How Do You Create and Manage Your Restaurant Balance Sheet?

Creating a restaurant balance sheet is an easy process. Here is the step-by-step process followed to create a balance sheet for your restaurant to forecast cash flow:

Step 1: Choose a Reporting Period

The first thing you need to do while creating your restaurant’s balance sheet is pick a reporting period and a reporting date. Simply put, it’s the time when you’re creating a report and the date when you compile it. The best part is that you can create balance sheets based on months, quarters, semi-annual, or annually.

For instance, if you want to create your restaurant balance sheets quarterly, you must report by the last day of the quarter. In this scenario, your reporting dates should follow the following pattern throughout the year.

• Q1: April 30
• Q2: July 31
• Q3: October 31
• Q4: January 31

Likewise, you can prepare your restaurant’s balance sheet on a monthly and annual basis; the only difference would be their reporting dates. 

Step 2: Identify Assets

The next step is to identify your restaurant’s assets, including equipment, furniture, inventory, and cash. There are primary assets have three categories.

1. Liquid Assets

Liquid assets (or Current assets) are those assets that can easily be converted into cash. For instance, funds in your bank account and your current liquor or food inventory.

2. Non-liquid Assets

As the name suggests, non-liquid assets are completely opposite to liquid assets. These are the fixed assets that are meant to be used for the long term and can’t easily be converted into cash. For instance, kitchen equipment, furniture, and any property that can’t be liquidated easily.

3. Intangible Assets

Intangible assets are those that have value but aren’t physical (like copyrights or trademarks). On a restaurant balance sheet, you split your assets into two parts:

• Current assets (liquid assets): Things you can easily sell or turn into cash (like money in the bank).
• Fixed assets (non-liquid and intangible assets): Things you bought for long-term use (like your restaurant building).

List each asset in the right category and its value. Then add to the value of both your current and fixed assets to find your total assets.

Step 3: Determine Liabilities

In this step, you need to determine your restaurant’s liabilities. Liabilities, or debts, are your restaurant’s obligations towards other entities, including:

• Outstanding bills
• Accounts payable
• Accrued expenses
• Your property lease
• Other loans

Liabilities are mainly categorized into two parts:

1. Current liabilities

Current liabilities are any external financial obligations that your restaurant needs to satisfy within one year. For example, utilities, wages, short-term loans, income tax, etc.

2. Long-Term Liabilities

On the other hand, long-term liabilities are any external financial obligations that your restaurants require to satisfy in the long term or more than 12 months from now. For instance, deferred income taxes, capital leases, or long-term rent agreements.

Like assets, you’ll also need to list each liability on separate lines and then add up each liability to evaluate your restaurant’s total liabilities.

Step 4: Calculate Equity

Lastly, you need to calculate equity (formally known as retained earnings). Restaurant equity is the remaining amount after you subtract total liabilities from total assets. It’s the amount you invest in your restaurant in the beginning plus any profits you make over time. 

Equity can also subdivided into two categories. 

• Contributed capital: All capital put in by the owner and investors.
• Retained earnings: Profits the restaurant keeps after paying out dividends.

Later, you can evaluate the total equity of your restaurant by summing up contributed capital and retained earnings. Remember, your equity is the ultimate amount that you take home after your total earnings or losses.

Why Do You Need a Restaurant Balance Sheet?

A restaurant balance sheet helps you in many ways, including:

• Identify financial Issues: By reviewing your balance sheet, you can spot financial issues early, like cash shortages or too much debt.
• Reduce expenses: A balance sheet allows you to see where your restaurant is spending money and find ways to save.
• Attract investors: An impressive balance sheet shows potential investors your restaurant’s financial health.
• Get loans: It helps banks and lenders decide if your restaurant qualifies for a loan.
• Track financial health: Regularly check your restaurant’s overall financial condition.

Keeping track of the values of assets and liabilities and others might be time-consuming. Hence, it is best to utilize modern systems, like point-of-sale (POS) machines, which can help you find what you need instantly and precisely. The POS machines are equipped with built-in reporting tools that will help to fill the portions in your balance sheet. Some POS systems can be integrated with third-party software to fetch important metrics, like labor costs and others. 

The Bottom Line

Overall, a restaurant balance sheet is a financial statement that depicts the business’s assets, liabilities, and equity at a given time. The primary focus of a balance sheet is to help you verify your profit and loss statement and provide a comprehensive picture of your financial condition. Therefore, creating a balance sheet lets you know how much you spend, making a profit and losing money. Moreover, you can use this balance sheet to forecast the short- and long-term cash flow of your restaurant. 

However, some of the restaurant owners find it difficult to create and manage a balance sheet. Following our strategies given in this blog, along with examples, can help you create and manage your restaurant balance sheet. You only need to download a restaurant balance sheet template and fill out your restaurant’s asset and liability values to calculate the equity (or total earnings).

Frequently Asked Questions (FAQs)

What is a balanced sheet?

A balance sheet is a financial statement of your business’s assets, liabilities (debt), and equity (net worth) at a specific time.

What’s included in a restaurant’s balance sheet?

The following are the three main components of a restaurant’s balance sheet:

• Assets (cash, inventory, equipment, and property)
• Liabilities (accounts payable, loans, taxes)
• Equity (owner’s investment, retained earnings)

Is a restaurant an asset or a liability?

A restaurant can be both. If it’s profitable and well-managed, it’s an asset. If it’s struggling financially, it might be considered a liability.

What’s the difference between a balance sheet and an income statement?

A balance sheet shows your restaurant’s financial health at a specific moment. On the contrary, an income statement shows your profits and losses over a while.