Skip to main content

Paul S. Hewitt, CPA, CA


Home  Professional Services  For Restaurateurs  Tax Information for Investors  Estates & Trusts  Resources  About Me  Privacy Policies  Site Map   
Canadian Restaurant Tax Advisor > Canadian Restaurateur > Restaurant Tax News > Case Studies >  
Resources for Savvy Restaurateurs
Sample Business Plans for Restaurants

Every restaurant (or business) should have a well-thought out business plan to help owners plan for success and stay focused on their objectives.  In addition to a number of resources for preparing business plans, including detailed guides and templates, the following links provide sample business plans for various types of restaurants. 
While these plans were written for U.S. based businesses (and will need to be tailored for the Canadian environment), they provide a very useful guide to the important components of restaurant business plans and the types of issues that should be addressed by management.
QuickBooks Help


Most small businesses, including restaurants, use QuickBooks to maintain their accounting records.  For the most part, it's a good package and relatively easy to learn.  In order to get the most out of the accounting system, it needs to be set up properly.  Ideally, you want to have a "standard" chart of accounts that matches up with the usual industry categorization of expenses.  That way, you can compare your results with the industry and other restaurants.  Unfortunately, the QuickBooks suggested chart of accounts is a bit weak in this area. 


Standard Chart of Accounts


You should have an account for each expense that you wish to monitor.  For example, rather than have one account for utilities, you'll probably want to have separate accounts for hydro, gas and water.  That way, you'll be able to see at a glance the cost increases over the previous period.  That said, you don't have to get too detailed in your breakdown of expenses.  Few restaurants send out enough mail or use couriers.  So, it doesn't make much sense to monitor postage separate from other office expenses.


I've posted a sample chart of accounts for use in QuickBooks. [coming soon].


Purchases & Payables


You should enter as many of your purchases as possible using the Enter Bills function in the Vendor Centre.  This way, you will always know how much you owe to each supplier.  You can check your balances with vendor statements at the end of each month, to locate discrepancies and ensure credits are issued and applied correctly.




Do not, repeat not, use the inventory features of QuickBooks in an attempt to keep track of your inventories!  You will create an accounting nightmare.  Instead, keep track of inventories by counting them at the end of each period and summarizing the counts using Excel spreadsheets.  Record all purchases of inventory to the applicable Cost of Sales accounts.  At the end of each period, make a journal entry to adjust the inventory to the correct balance, with the offsetting debit/credit to the related Cost of Sales account.


Recording Sales & Receipts


There are two methods of recording sales in QuickBooks - using the sales invoice or the sales receipt.  I highly recommend the sales receipt method, because it is designed to capture the total sales and receipts for a period (usually a day).  The sales receipt should also capture sales discounts (customer comps, staff discounts, etc...), gift certificate sales and redemptions, cash shortages, and tips owing to servers.  All of the sales and receipts information should come from the daily summary report taken from the POS system.


You can customize a sales receipt form in QuickBooks to capture all of these items and keep track of the HST/GST and PST (if applicable).  Each day's POS summary should be entered on the sales receipt form, which must balance to zero, indicating that all items have been correctly entered into QuickBooks.  Visa, Mastercard and Debit receipts can be deposited directly into the bank account.  American Express receipts can be processed through the undeposited funds account or, even better, in a separate American Express clearing account.


Here is the process for setting up a custom sales receipt:


[coming soon]


Handling Server Tips


Many restaurants, end up owing tips to their servers, because gratuities are added to credit card and debit transactions.  As a result, there is not enough cash receipts to pay the servers the tips they are owed for the day.  Some restaurants maintain a cash float to pay these gratuities.  Others keep track of the amounts owing and pay them weekly.  It is possible to set up QuickBooks to keep track of each server's tips owing, by setting each server up as a vendor and recording the amount payable each day.  Alternatively, you may wish to keep track of server "due backs" using an Excel spreadsheet.


Just a cautionary note about gratuities and taxes.  The Canada Revenue Agency (CRA) has been cracking down on unreported gratuities.  Rather than go after the individual servers, however, the CRA has decided to focus on the restaurants (because it is easier).  The CRA makes a distinction between "controlled" and "uncontrolled" tips.  Uncontrolled tips pass from the customer to the server, directly.  Note that tips on credit card receipts are still considered to be "uncontrolled".


Controlled tips are those that come under the control of the restaurant management, at some point, before passing to the servers (or other employees).  Examples include automatic gratuities for large groups, tip pooling and tip outs to kitchen staff and management.  Where the restaurant's management performs the reallocation of tips to other employees, all of the tips will be considered "controlled tips".  This has serious tax implications to both the owner and the employees.  You can read about this on my blog, but I'll briefly summarize the consequences here.

Canadian Restaurant Tax Advisor


Controlled tips are considered to be income of the restaurant, and therefore, taxable.  The restaurant can get a deduction for tips paid out to employees, but they must be documented.  Furthermore, the tips paid out to any employee are considered to be part of their taxable employment income, meaning that the restaurant must withhold the appropriate amounts of CPP, EI and income tax and pay the employer's portion of the CPP and EI.  If the tips paid to employees are not documented (i.e. in cash), the CRA may examine the employees' personal tax returns to determine how much tip income was reported and give the restaurant a deduction for this amount.


Employers who fail to withhold CPP, EI and taxes from their employees will be required to pay both the employer and employee portions along with penalties and interest.  If the practice has been going on for several years, the tax liabilities can become staggering.  Note also, that the directors of the restaurant are personally liable for these taxes, if the company is unable to pay them (bankruptcy).  If the employees are still employed by the restaurant, the employer may be able to recover the employee portions of CPP and EI, but the recovery is spread out over the same period that gave rise to the liability in the first place.  Few ever recover these amounts in full.


Reporting Periods


If you want to have easily comparable reporting periods, I suggest you use 4-week periods instead of months.  This way, every period will have exactly the same payroll period.  If you use a bi-weekly payroll (most do), two months will have three pay periods, requiring adjustments to make all months comparable.
Also, with a 4-week period, there are the same number of Mondays, Tuesdays, etc... in each period.  It all depends on how accurate you need the financial figures to be, in order to make proper analyses.  Some restaurants use purchases as their cost of sales for calculating margins.  While this is quick and easy, it may indicate problems that aren't there or hide real problems, simply because of the timing of purchases or the theft of inventories.
How does your Restaurant Compare?

Most industry statistics are not very useful, if you want to compare your restaurant's results with the "average" restaurant's.  The smallest restaurant is averaged with the largest and everything inbetween.  The results of QSR outlets are averaged in with those of fine dining and other full service restaurants.  Some statistics are averaged by province, but even that fails to account for smaller towns vs. large cities. 
The other problem with most of these figures is that they are usually compiled based on surveys of restaurant owners.  The figures provided during these surveys are often not accurate, because the owners don't have the information handy at the time.  As a result, the survey responses are more like guesses.  They can also be skewed to be more favourable than they are in reality.  Who wants to admit their food cost is 40%?
There is a partial solution.  Statistics Canada has a business profile series that obtains its data from tax returns filed by restaurants and sorted by standard industry classifications (NAICS).  They sort the data into quartiles, based on revenue.  After a bit of reclassifying by me, I analysed the results for full service restaurants for each of the quartiles.  I've presented the results for Ontario restaurants in charts along with my commentary.

Restaurants in this segment had sales ranging from $733,000 to $5.0 million, with an average of $1,570,000.


The average profit was only $33,300 or 2.1%.
Occupany and operating expenses were relatively low compared with those in the other segments, because most of these expenses are fixed and spread over much higher sales.
Interestingly, the cost of sales and labour cost percentages were higher than they were in the other segments.  Larger restaurants would tend to sell more wine, which has a higher cost of sales, increasing the overall cost of sales percentage.  Larger restaurants also have more staff, in order to provide better service in a larger venue.
Despite the fact that these are the most profitable restaurants, their performance is rather poor.  Few operations are sustainable with only a 2.1% net income.  Efforts should focus on stronger cost control and even more promotion to generate greater sales.


These restaurants had sales between $317,000 and $733,000, with the average being $487,700.


On average, these restaurants broke even, showing a slight loss of $200 on average.


Of note, the percentage of fixed occupancy costs is much higher than that for the top quartile restaurants.  These restaurants appear to lack sufficient sales to bring their fixed costs into line.  It is little coincidence that these restaurants spend about half as much on advertising and promotion as the top quartile restaurants. 


These are still relatively small operations that need to improve their cost controls and generate more volume through effective advertising and promotion.


These restaurants generate sales between $142,000 and $317,000, with the average being $223,000.


On average, these restaurants lose $3,400 per year, or (1.5)%.


Again, the low volume of sales creates an even bigger problem with fixed costs.  Occupancy costs are 22.4% vs. 13.5% for the top quartile restaurants.  Also, advertising and promotion is much lower than that for the best restaurants.


It is extremely difficult to generate a profit from such small operations.  Relatively high occupancy costs are the barrier to profitability.


Sales for these restaurants ranged from $30,000 to $142,000, with the average being only $81,300.  These are very small operations.


These restaurants lose an average of $7,100 or (8.7)%.


While cost of sales and labour costs are substantially lower than for the larger restaurants, as a percentage of sales, all fixed costs are substantially higher.  These figures reflect the owners working in the restaurants (instead of hiring staff) and minimal food preparation costs.


This is definitely the category of restaurant to avoid.

Other observations: 
  • Only 61.3% of all restaurants are profitable. 
  • Among the profitable restaurants in the top quartile, the average profit was $78,700 or 4.9%
  • Among the non-profitable restaurants in the top quartile, the average loss was $69,800 or (4.8)%
  • Clearly, size doesn't guarantee profitability.