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  • Hemlock Business Solutions

10 Financial Mistakes in Food Service and How to Fix Them

Updated: Jun 10, 2023

Mistakes are almost inevitable when running a food service business, from forgetting to place that produce order to entering the wrong transaction into your accounting system. The good news is that most mistakes can be easily fixed with the proper safeguards in place. Here’s a list of 10 common financial mistakes that food service businesses make and how to fix them.

1: Lack of Proven Accounting System

As a business owner, an accounting system will be one of your top resources. Working with a proven accounting system not only leads to fewer issues in transaction processing, but can also provide you with an extensive list of resources and information to help guide you. Knowing the ins and outs of your accounting software can be done by using one of our complete guides that help you manage your finances while still focusing on other important areas in your business.

2: No Recent Profit Margin Analysis

With the inflationary environment we are in, analyzing the breakdown of your profit margins is vital to make the right decisions. Our software analyses cost control for you on an as needed basis, giving you the resources to pull data when you need it. Profit margin analysis can tell you how profitable your operations are, indicating where areas of improvement may be necessary, such as looking for a new supplier.

3: Uncontrolled Operating Expenses

Operating expenses directly take away from your profit at the end of the period. Without having a budget in place to control spending, your operating expenses might result in a net loss for the year. Take a look at your current income statement to see where you can cut costs. Start small by setting spending limits on changeable categories, such as subscriptions or office expenses.

4: Inventory Levels Exceed Sales

As a food service business owner, one of your top operating costs is inventory. You don’t want to have all of your cash tied up in inventory because this can leave you with little room for unexpected costs. Compare the current amount of inventory you have on hand to sales for a specified period to determine if you need to scale back on inventory purchases.

5: Lack of Inventory Accountability

Poor controls over inventory accountability lead to waste and excessive spending. By having the proper safeguards in place, you can minimize your waste and maximize your spending limits. Why overpay for items that will go to waste? Make a list of how frequently you are ordering items and assess your waste rate. Can your business get by with one fewer order a month?

6: No Daily or Weekly Operational Data

Your data gives firsthand insight into your operations. Business decisions can happen at a moment’s notice. By having your accounting system updated daily or weekly with transactions, you can pull real-time reports on which to base your decision. Our system provides you with the tools needed to data dump on a regular basis to ensure your business stays profitable and adjustments are present in your accounting system.

7: Error in the Accounting System

Errors can happen. Catching these errors timely is important to make the most informed business decisions and file accurate reports from your system. By working with a system that has safeguards already in place to prevent and detect errors, you can promote accuracy and efficiency throughout your accounting records.

8: Liabilities Greater than Assets

Your assets are everything you own while liabilities are everything you owe. Having liabilities isn’t a bad thing, as an effective cash flow management strategy relies on leveraging certain debts. However, you want to be sure you have enough assets on hand to cover your liabilities. When your liabilities exceed your asset, you may have trouble paying vendors and suppliers. Compare your current liabilities to your current assets. How do they compare?

9: Spending Not Based on Cash Flow Statements

Business owners know about the balance sheet and the income statement, but often forget to utilize the cash flow statement. This statement tracks spending in your checking account, breaking your transactions down into operating, financing, and investing. By analyzing the cash flow statement, you can eliminate purchasing discrepancies and build a positive cash flow.

10: Lack of Financial Statements

Financial statements are important to assess the health of your food service business. Many business owners fall short of understanding what each statement tells them, leading to lost insights. By working with an accounting expert, like Hemlock Business Solutions, you can stick to your expertise and let us handle the financial obstacles.

Understanding the common mistakes made by food service businesses can help you avoid them. There isn’t a one-size-fits-all approach when it comes to running a business. That is why working with the team at Hemlock Business Solutions is so beneficial. We can serve as an independent opinion on where your business may need to improve, giving you the resources to enact effective change. For more information, reach out to us today.

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