Best Practices for Financial Reporting in the Hospitality Sector

At a glance

• The main takeaway: The presentation of financial statements and proper disclosures are essential for maintaining transparency and accuracy with stakeholders and third parties, which is vital for securing financing for landlords/owners.
• Impact on your business: Financial reporting in the hospitality sector differs from that in other industries, and understanding these differences can enhance transparency when pursuing additional partnerships and equity financing deals.
• Next steps: Aprio’s Restaurant, Franchise & Hospitality team has a dedicated accounting team that can guide you in preparing your financial report. Contact us today to get started.

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The full story:

The presentation of financial statements and proper disclosures is essential for maintaining transparency and accuracy with stakeholders and third parties, which is vital for securing financing for owners and investors. Financial reporting in the hospitality sector differs from other industries, and understanding these differences can enhance transparency when pursuing additional partnerships and equity financing deals.

A traditional income statement presentation typically includes manufacturing expenses, operating expenses, and Selling, General, and Administrative (SG&A) expenses. In the case of a restaurant, the presentation is more detailed, encompassing food and beverage costs, labor, occupancy costs, advertising, royalties, and general and administrative expenses.

This article offers guidance and best practices for preparing financial reports specific to the hospitality industry.

Establishing strong financial management processes

In the hospitality sector, restaurant owners often focus on income statements, but it’s also equally important to check the balance sheet. Regular reconciliation of the balance sheet is essential, at least monthly for cash and accounts payable, and no less than quarterly for items like prepaids and other accruals.

Waiting until the end of the fiscal year to reconcile certain balance sheet accounts can lead to unexpected discrepancies that could potentially misrepresent your financial results. Therefore, properly reconciling your balance sheet is imperative to making sure you have an accurate income statement and cash flow statement.

Implementing robust internal controls and good record-keeping is important in maintaining financial health. Conducting regular and timely checks and balances throughout the year can help in identifying errors early that can impact profit and loss statements. Proper and timely reconciliation and review will also provide for better cash management.

Additionally, examine your software package and make sure it provides you with the reporting tools you need, such as generating necessary reports and accurately allocating expenses. It should also be able to automate inventory management and track fixed assets to improve both efficiency and accuracy in cost reporting. Integrating point-of-sale (POS) systems with your general ledger can also help in reducing errors. The more your processes are automated, the fewer errors will occur, and this will enable your team to focus on reviewing and analyzing data instead of entering it manually.

Common challenges in financial reporting

Many restaurants face challenges as operations continue to grow and expand. One of the significant challenges that restauranteurs face is navigating the complexities of growth and potentially finding themselves in a loss position mainly due to costs incurred with growth. Primarily, restaurant owners should understand their benchmarks as a percentage of sales. For example, as they relate to food and beverage cost and labor, restaurant owners should understand what those ideal benchmarks are and compared to the industry norms. Also, general and administrative costs can vary based on the growth cycle of the company relative to the market. Additionally, understanding and preparing a precise analysis of financial ratios and key metrics is paramount to staying on track, particularly during the growth phase.

Strong cash flow management is vital to the success and sustainability of any restaurant. Owners and investors should understand the cash flow statement and use tools like daily cash reports, point-of-sale (POS) system analytics, and cash flow forecasting software to monitor liquidity. Positive cash flow from operations is a key indicator of financial health. Regular cash reconciliations, along with timely projections of inflows and outflows, help identify potential shortfalls early and support informed decision-making.

Restaurant owners should assure their financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) or another recognized basis of accounting, especially when seeking financing or investment. Clear and comprehensive footnote disclosures are essential, as they provide transparency around accounting policies, financial risks, and operational assumptions. Engaging a qualified accounting firm with experience in these standards can help ensure accuracy, build trust with stakeholders, and support the restaurant’s growth and financial credibility.

Best practices for continuous improvement

A best practice that restaurant owners should focus on is assuring consistent classification of expenses into the right categories. Linking your POS system to your general ledger helps assure accurate revenue reporting. Managing your cash flow monthly and regularly reconciling your balance sheet helps maintain financial accuracy.

Consistency is key when comparing financial data. Leverage automation to improve operations and reduce errors; simply relying on memory without set processes can create problems. Furthermore, establish clear processes that align with the management’s expectations. Regularly review and document the internal controls and procedures to assure everyone’s alignment. Following this structured process helps keep everyone informed and accountable, supporting the organization’s success.

The bottom line

At Aprio, we help strengthen internal controls. Our Restaurant, Franchise & Hospitality team has a dedicated accounting team that can assist you with financial reporting and analysis. We conduct reviews of internal controls, help implement software for your general ledger and ERP systems, and offer outsourcing services to prepare your financial statements. As your auditor, we can also provide management recommendations to improve operations.

Related Resources/Assets/Aprio.com articles/pages

• Aprio Restaurant, Franchise & Hospitality Page
• Financial Statement Audit Preparation of Your Restaurant or Franchise: Steps and Best Practices