Successfully closing out a period sets the foundation for effective restaurant financial management, helping you avoid missed opportunities in future periods. If your last financial period ended in a blur of receipts, miscategorized expenses, and missed insights, you’re not alone. But every period-end close is a chance to gain sharper control over your restaurant’s performance. A Period End Financial Close is a valuable opportunity to identify areas for improvement and gain insight into exactly where your money is going, empowering you to make faster, more informed business decisions.

A sound financial management strategy should include regular reviews of your key financial statements. These are pivotal in identifying areas of improvement and helping you take proactive steps to optimize your business. To get started, begin by reviewing The Profit & Loss Statement, The Balance Sheet, and The Cash Flow Statement. Each reveals key performance areas that operators need to monitor for ongoing success. In this article, we’ll walk through two essential components to prioritize during a Period End Financial Close, Capital Expenditures and Preopening Expenses, along with bonus accounting tips to help strengthen your restaurant’s financial practices.

How Restaurant Financial Management Plays a Role in Capital Expenditures and Preopening Expenses

Effective financial management is essential for maintaining control over key investments like capital expenditures and preopening expenses. These costs are critical to your restaurant’s long-term viability, and understanding how to track and manage them is vital for informed decision-making. By incorporating solid financial practices into the period-end close process, operators can identify trends, adjust spending, and efficiently allocate resources to support sustainable growth.

Closing Out Capital Expenditures

Capital Expenditures represent the value of tangible assets in your restaurant. These include costs related to buildings, signage, kitchen equipment, furniture, fixtures, and POS systems. Your CPA can depreciate these expenses on your year-end tax return.

Because they generate long-term value, it’s crucial to maintain a clear, accurate view of your Capital Expenditures—especially if you’re preparing to sell the business or present its worth to investors.

Common Causes of Inaccurate Capital Expenditure Balances

• Small operating expenses are incorrectly coded to asset accounts instead.
• Bank reconciliation items are misclassified.

How to Fix Inaccurate Capital Account Balances

If overstated (more than you actually own):

• Review the Trial Balance for miscoded activity, especially smaller amounts below your asset capitalization threshold that should be expensed to the Profit & Loss Statement.
• Share the identified entries with your accountant to process the necessary adjustments.

If understated (showing less than you actually own)

• Review the P&L and Trial Balance for expenses that may have been miscoded.
• Reclassify any applicable items to the correct Capital Asset account.
• Discuss the needed adjustments with your accountant to update the records.

Best Practices for Managing Capital Expenditures

• Double-check accounts payable before submission to ensure all invoices are properly coded to the correct GL accounts.
• Regularly review your Balance Sheet and monitor activity within the Capital Asset account to catch issues early.

Closing Out Preopening Expenses

Preopening Expenses capture all startup costs incurred before your restaurant officially opens. These are treated as Capital Expenditures and can be amortized on your year-end tax return.

Examples include:

• Training payroll
• Food prep and tastings
• Utility setup
• Initial marketing efforts

These expenses should be recorded on the Balance Sheet, not the Profit & Loss Statement, to reflect their long-term value. This approach ensures accurate financial reporting and enhances your business’s valuation for potential investors.

Common Causes of Inaccurate Preopening Expense Balances

• Expenses incurred before opening day are incorrectly coded as regular operating expenses instead of Preopening Expenses.
• Bank reconciliation items are miscoded.
• Expenses incurred after opening day are mistakenly coded as Preopening Expenses instead of being expensed on the Profit & Loss Statement.

How to Fix Inaccurate Preopening Expense Balances

If overstated (higher than they should be)

• Review the Trial Balance for transactions outside the true preopening window (bookkeeping start date to opening day).
• Reclassify those expenses to the Profit & Loss Statement and work with your accountant to post adjustments.

If understated (lower than they should be)

• Review the P&L for expenses that occurred during the preopening window but were not coded to the Balance Sheet.
• Identify these and consult your accountant to reclassify them properly.

Best Practices for Managing Preopening Expenses

• Verify that all accounts payable invoices are accurately coded before submission.
• Monitor the Balance Sheet regularly to ensure all activity in asset accounts is correct.

Maintaining Momentum After Your Period-End Close

Once you’ve tied off your balance sheet items, like capitalized costs and preopening expenses, you’ve set the stage for a clean financial close. But closing the books isn’t just about accuracy. It’s about using the process to uncover actionable insights. With your foundation in place, shift your focus to operational levers like food cost, labor, and POS integration. This is where your financial close turns into strategic momentum.

Understanding Fixed vs. Variable Expenses

Restaurant Expenses come in two flavors: fixed and variable. A fixed expense is steady and does not track your restaurant’s sales levels. Some examples of fixed expenses are your monthly mortgage, rent, and management salaries. Variable expenses depend on the activity in the restaurant, rising with busy days and falling with slow ones. Representative variable expenses include hourly wages and food costs.

You have the most leverage over your variable restaurant expenses as an operator. That’s where you want to trim the fat. The highest variable costs to control are the most prominent—labor and cost of goods (COGS), also known as your Prime Costs.

To Better Handle Your Labor Costs

Compare scheduled shifts over the last period to your sales data. Are you consistently setting the correct number of team members to match demand? If you consistently see you have extra staff on slow nights, that’s an easy place to cut back. Conversely, you might notice that data indicates dishes have been regularly delivered slower on busy nights, an indicator that you may be leaving money on the table by not having more servers who could increase table turns.

To Control Your COGS

To get a better handle on your COGS, it’s vital that you optimize your purchasing habits and your menu, and manage waste, theft, and portioning. To get the best deals on products, consider joining a Purchasing Program, which leverages the power of bulk orders (based on the consolidated demand of multiple restaurants) to bring down food costs. Once you have purchasing sorted out, optimize your menu through menu engineering to lower dish costs without affecting quality. That will earn you a more comfortable margin on sales. Finally, keep an eye on spoilage and kitchen waste by tracking the food that gets thrown away.

Understand How and Why to Read Your Profit and Loss Statement

Your restaurant’s profit and loss statement is a snapshot of the financial health of your business. Unless you’re vigilantly reviewing these figures, costs can creep up on you, hurting your profitability and the long-term prospects of success as a business.

The first component of the P&L statement to understand is your sales. Sales can be either gross or net. Gross sales is all the money that comes across your register. Adjusted net sales is gross sales less sales tax, which you’ll eventually pass on to the state. Hence, net sales is the correct figure to measure how much revenue you retain from sales.

On the P&L statement, your sales are broken out into departments such as non-alcoholic beverages, beer, liquor, and food. The exact categories are up to you—make them as specific as necessary to get a clear picture of where your sales are coming from.

After reviewing sales, turn your attention to Cost of Goods. A P&L statement divides food and beverage costs into significant classifications such as produce, dairy, meat, seafood, etc.

Pro Financial Management Tip:

You can use a Budget vs. Actual to review each category that showcases your budgeted amount compared to actual usage. For instance, you might see that you budgeted $3,500 for seafood and spent $2,750. Watch for consistent overspending and major underspending, both of which indicate you should take a closer look at the category and determine why your budget was inaccurate.

Next, look closely at labor expenses, which, together with COGS, make up half of your prime cost (the most significant expenses for restaurants). Typically, labor expenses are divided up into operational labor (servers, hosts, cooks) and nonoperational labor (managers). Operational labor can be subdivided into front-of-house and back-of-house. For both these categories, check how accurate your budgeting is. Labor that comes in on or under budget shows that your scheduling works as expected.

Integrate Your POS with Your Accounting System

Your Point of Sale is a trove of information on sales and employee performance. After completing your period-end close, ensuring your POS data flows seamlessly into your accounting software for the most up-to-date and accurate financial analysis is crucial.

Integrating your POS with your accounting software eliminates manual data entry, saving time and reducing errors. If you’re using Back Office for accounting, you’ll also gain access to our Forecast Module, enabling you to make predictive decisions to optimize sales and labor. Automated systems allow managers to consult numbers frequently and with greater trust, leading to more informed operational decisions and increased profitability.