Monday, May 10, 2010

RESTAURANT CONFERENCE CANCELLED DUE TO LACK OF INTEREST!?

Every other year the American Institute of CPAs puts on a restaurant conference. There is actually a lot to discuss and learn about restaurant accounting and taxation. The restaurant arena is constantly changing. We have ever changing tax laws, new employment rules and regs and the assertive SEC (Securities and Exchange Commission) setting rules of how restaurant companies report their operations to the public. This stuff might put most people to sleep but it is critically important to the smooth and efficient functioning of one of the largest segments of our national economy. There are over 12 million people employed in the restaurant industry - not counting ancillary employment.

So 2010 is the year "on year" when the conference is to occur. But it has been cancelled for lack of interest; meaning not enough people paying $1 thousand a pop to attend. That is incredibly unfortunate for the restaurant industry. There is an amazing amount of misinformation and just bad practice committed by uninformed restaurant controllers, financial officers, accountants, etc.

What can be done to bring back the National Restaurant Conference? For one thing, stop trying to hold it in Las Vegas! Who in their right mind wants to go to Vegas in June when the temp is 110 degrees and watch a bunch of seniors lose their shirts at the slot machines? Try going back to Chicago and mesh it with the May Food Show. Accountants could get two birds/shows with one stone.

Tell me what you think. Is it good riddance or should we try to hold a regional restaurant conference? Anyone up for a Southeast Restaurant Conference?
Atlanta’s Independent Restaurants – Ordering Up an End to the Recession!
By Robert Wagner, CPA

For many of Atlanta’s independent restaurant operators, the worst recession in a generation is ending, indicates NetFinancials’ latest survey. Our findings are doubly significant given the atrocious February weather that was served up to the Atlanta restaurant industry and consumers.

Aggregate sales in February 2010 are up over last February’s sales. Aggregate sales for February 2010 at our surveyed restaurants increased a little more than 1% over sales for February 2009.

How are individual restaurants doing? Of the 53 Atlanta restaurants surveyed, 32 (60%) recorded increased sales over February 2009. Twenty-one restaurants reported decreased sales compared to last February.

We also examined year-to-date 2010 sales compared to 2009. Here the results were not as good. Of the 53, only 25 (47%) had 2010 sales greater than year-to-date 2009 sales. Twenty-eight restaurants showed decreased year-to-date sales compared to 2009. However the 2010 year-to-date result is an improvement over our October 2009 survey which showed 79% of restaurants with 2009 sales less than 2008 sales.

The Winners: Unique as we are, Atlanta’s restaurant scene mirrors national eating-out trends. Casual-dining and neighborhood-focused restaurants are generally seeing better sales trends than fine-dining and visitor-focused restaurants.

Conclusion: February 2010 sales indicate the recession in the local restaurant market is ending. Customers are venturing out again to take advantage of Atlanta’s many dining out options and special promotions. That said Atlanta restaurant operators are not yet in the clear. Year-to-date 2010 sales levels are no better than anemic 2009 sales levels.

The Sample: The 53 independently operated, non-franchise restaurants were drawn from the metro Atlanta market. The sample includes restaurants in the fast casual, casual and fine-dining segments.

Robert Wagner, CPA is president of NetFinancials, Inc. which provides a full range of tax and accounting outsourced services for restaurant companies. Email: bob.wagner@netfinancials.com. www.netfinancials.com
3 Ways to Survive a Sucker Punch in the Great Recession
By Robert Wagner, CPA

A sucker punch is a blow made without warning, giving a gal or guy no time for preparation or defense. For restaurant operators, the Great Recession has delivered a sucker punch to their businesses. Operators have been “one-twoed” by the perverse and continuing decline in revenues and stubbornly high operating costs.

Some economists have declared the steepest recession in 50 years over; but that is not what it feels like to Georgia’s restaurant owners and operators. Through the first quarter of 2010 there is continued softness in restaurant sales. It’s just not a fair fight when lower sales make it hard to cover fixed costs such as rent, insurance and salaries and still make a profit.

Restaurant operators are not ones to give up - even in the face of very poor odds. They stand and fight as long as there is strength, even after taking a sucker punch or two. But operators can increase their odds of victory. Here are three steps operators can take to improve their chances of staying in the ring.

1. Don’t Mess with the Government

Paying sales and payroll taxes is a big cash drain on a restaurant. It is very tempting to put off paying these taxes and plan to catch up later. Don’t try it! There are two reasons to do everything possible to stay current with your taxes. The first is that penalties are severe for late paid taxes. Penalties and interest combine to make “borrowing” tax dollars by paying late one of the most expensive loans you’ll ever get. Second, officers of the company may be personally liable to make good on unpaid taxes, penalties and interest. That liability could hammer the owners for years after a restaurant closes.

2. It’s the Prime Cost, Stupid

In 1992 Bill Clinton ran a successful presidential campaign focusing on the sorry state of the economy. In his campaign headquarters hung a reminder of the issue that would prove to win the election. It said “It’s the Economy, Stupid”. The sign implied that staying focused on the most important issue on voters’ minds would carry the election. And it did!

Just as Clinton stayed focused on the essential issue, restaurant operators can fight this economic sucker punch by focusing on the basics of running their restaurants. The single most important metric in measuring a restaurant’s health is prime cost defined as cost of sales plus payroll expenses. Of the 100+ restaurants we work with, we have not seen a restaurant in financial trouble that has a consistent and appropriate prime cost.

What is the magic prime cost percentage? For independent restaurant operators it’s 65% of revenues. For franchise operators it’s 60% of revenues. If prime cost is consistently well above 65% of sales, there usually isn’t enough cash to cover other expenses and make a profit.

During the recession many restaurants are seeing prime cost climb to 70% and even 75% of sales. What’s happening? Normally a well-run restaurant can keep a lid on its cost of sales. Almost always the problem is payroll expense. Even when an operator is faced with declining revenues, he hates to cut payroll. The aim is to keep on that manager that’s been there for years or to plan for that sales rebound when more labor will be needed. Whatever the reason, operators hate to cut payroll. But to roll with the punches and fight another day, operators must preserve scarce operating cash. The best way to do that is to get prime cost in line immediately.

3. Reduce Bank Debt

The media is full of stories of debtors who stopped paying the bank - and the bank just let the debt ride. Not a good idea! Lately we’ve seen banks declare business loans in default faster than ever. Big banks have set up huge “special asset” departments meaning bankers working loans in default. The bank machinery handling defaults and foreclosures is running over-time. Don’t get knocked out by that machine.

Studies show that the single best indicator of long-term success of a restaurant company is the amount of debt the company carries. The higher is a company’s debt, the higher the likelihood of failure. It’s a simple concept but hard to correct. After all, how does one reduce debt in a recession? There are only three ways to reduce debt: pay the debt from profits, replace old debt with new debt or pay off debt with additional investment. Of these options, perhaps the only one viable now is bringing in new investment. New investment means giving up ownership perhaps to an outsider and perhaps on unattractive terms. But it is the one way to staunch some of the cash bleeding and guard against foreclosure.

Conclusion

The Great Recession has sucker-punched a lot of Georgia restaurant operators. To have a fighting chance at victory focus on the basics like prime cost, debt reduction and tax liabilities. Watch your numbers and make your swings count!

Robert Wagner, CPA is president of NetFinancials, Inc. which provides a full range of tax and accounting outsourced services for restaurant companies. Phone: 404.874.7002 Email: bob.wagner@netfinancials.com
FICA Tip Tax Credit – A True Benefit
by Robert Wagner, CPA

Go ahead! Try saying “tax” and “benefit” in the same sentence. Can’t do it? Well, try this one– the FICA tip tax credit is a terrific benefit for restaurant operators.


In an amazing concession to the restaurant industry, Congress enacted – then improved – a tax credit for payroll taxes paid on server tips. Operators may make a costly mistake if they don’t claim the FICA tip tax credit on the restaurant’s annual income tax return.

How much tax credit can you expect? The amount of credit varies depending upon the total server tip rate. The higher the tip rate, the higher the tax credit. Our studies show that a typical full-service restaurant can expect a tax credit of up to $10,000 for each $1 million in sales. Restaurants with higher server tip rates can expect higher tax credits.

The FICA tax credit has been available for over 10 years, but the credit was significantly enhanced in a strange bargain between the Congress and the restaurant industry. In 2007 when Congress was debating the minimum wage increase, the restaurant lobbyists were working overtime. They struck a deal with Congress. In exchange for not opposing a higher minimum wage, the restaurant industry got a new, improved FICA tax credit plus no change in the server wage of $2.13 per hour (some states have a higher server minimum wage). Until the 2007 law change, the FICA tip credit was severely limited and so wasn’t much use to operators.

FICA tip tax credit points to remember:

· Restaurant companies claim the tax credit and then typically pass the credit to their owners and investors to be used on their individual income tax returns.
· Only “creditable” tips qualify for the tax credit; i.e., server tips in excess of the old minimum wage of $5.15 per hour.
· The credit is NOT limited by the Alternative Minimum Tax.
· Any unused credit can be carried back one year or carried forward 20 years.
· Even if a restaurant company lost money in 2009, it can still claim the tax credit.
· Restaurants that have not claimed the credit in the past may amend their prior year’s tax returns to claim the credit; however, amending a return may increase the chance of an IRS audit.

No joke! The FICA tip tax credit is the most important tax benefit for restaurant operators passed by Congress in at least 20 years.

Every major payroll service can prepare a FICA tip tax credit report for their restaurant clients - but you have to ask for it! Same goes for employee leasing companies. In some cases the payroll company charges a nominal fee for the report. If your payroll service provider gives you a tip credit report, don’t automatically assume it is correct. Have your tax professional test the calculation so you have peace of mind knowing you are taking full advantage of this tremendous tax benefit. There you go. “Tax” and “benefit” in the same sentence

Robert Wagner, CPA is president of NetFinancials, Inc. which provides a full range of tax and accounting outsourced services for restaurant companies. Email: bob.wagner@netfinancials.com. www.netfinancials.com