How to Manage Restaurant Balance Sheets [& Template]

Most entrepreneurs open a restaurant to showcase their food and create a great experience for customers. Many have been to culinary school or have generations of family recipes, and they don’t have to think twice about the theme and ambiance they want to create—but managing the financials of the business often comes with a learning curve.

As with any business, monitoring financial health is paramount to success and longevity for restaurants, and restaurant balance sheets play a key role in doing so.

What Is a Balance Sheet?

A balance sheet is a financial statement that lists a company’s assets, liabilities, and equity—everything it owns and everything it owes—at a specific point in time to show the company’s financial position. The balance sheet is an accounting financial statement used by stakeholders such as management, investors, and creditors to assess a company's financial health and make informed decisions. It is typically prepared at the end of an accounting period, such as a quarter or a year.

What Is a Restaurant Balance Sheet?

A restaurant balance sheet looks very similar to the balance sheets of companies in other industries, featuring assets, liabilities, and equity. A restaurant balance sheet is a vital tool that restaurant owners and investors use to analyze financial health, make informed decisions, plan strategically, and ensure operational efficiency—it is a cornerstone document in the financial management of a restaurant.

While the fundamental structure remains the same, restaurant balance sheets have certain peculiarities and focus areas that stem from the operational characteristics and the nature of the restaurant business. Leaders of restaurant businesses use the balance sheet, along with other restaurant financial statements, to gauge the company’s overall financial health. They can also compare it with previous balance sheets to get an idea of whether business is improving and take action if it isn’t. A restaurant balance sheet can be a key tool in forecasting the short- and long-term health of the business, as well as verifying the accuracy of the restaurant’s profit and loss statement.

Restaurant balance sheet vs. restaurant profit and loss statement

A restaurant balance sheet isn’t the same as a profit and loss (P&L) statement, though they complement each other and provide a comprehensive view of the restaurant's financial health. Restaurant profit and loss statements—also known as income statements or statements of operations—show performance over a specific period and cover the business's revenue, expenses, and gains or losses.

While the balance sheet is comprised of assets, liabilities and equity to show a restaurant’s net worth at a point in time, the P&L statement focuses more on performance, how the restaurant turns a profit (or loss) over a period—and that net profit or loss contributes to the owners’ equity section of the balance sheet, and P&L statements begin from scratch in the next period. In short, a P&L statement is a tool for profitability analysis, as opposed to a way to analyze cash flow, liquidity, and solvency.

Key Takeaways

• In restaurants as with all businesses, the balance sheet equation must be in equilibrium: Assets = Liabilities + Equity.
• A restaurant balance sheet gives greater insight into the financial wellbeing of a restaurant than a simple profit and loss statement.
• Assets can be fixed or liquid, while liabilities can be current or long-term.
• Accurate balance sheets are useful for restaurant owners, investors, and the tax office alike.

Restaurant Balance Sheets Explained

A restaurant is a complex business with a lot of factors playing into its financial position—including the bricks and mortar, equipment such as ovens, furniture such as tables, accrued labor, outstanding bills, food and drink inventories, and even trademarks and patents if it has created a revolutionary recipe or invention that’s impacted the industry. Each of these factors is included on a restaurant balance sheet to give owners a snapshot of the business’s financial position at a given time, offer an idea of its liquidity, and act as a resource when leadership considers the restaurant’s overall financial wellbeing.

Essentially, a restaurant balance sheet is a pair of scales with everything a restaurant owns on one side (its assets) and everything it owes on the other (its liabilities). As the name suggests, the goal is to ensure that the sides balance while factoring in the third element: equity, or the ownership interest in the restaurant, including funds the owner themself has invested.

Restaurant leaders can use the balance sheet to help gauge elements of their business’s financial health such as solvency, or the ability to pay off long-term debts, and liquidity, or the ability to turn assets into cash.

Why Are Restaurant Balance Sheets So Important?

Having a strong grasp of the restaurant’s financial position is useful for owners, staff, and internal stakeholders, who can work together to build on successes or change tack amid issues in what can be a fast-changing and unpredictable industry. Restaurant operators typically focus on driving revenue and controlling expenses, favoring the income statement over the balance sheet when it comes to financial statements. The balance sheet is worth their attention, however, as it can reveal whether the restaurant investing money efficiently. For example, a multi-unit operator might use the balance sheet to compare inventory among locations and realize some have too much cash sitting on shelves in the form of stock while others are sacrificing revenue by frequently running out of food and losing sales. With this insight, the operator can allocate excess inventory across locations and solve the problems.

How Are Restaurant Balance Sheets Used?

Restaurant leaders can use the balance sheet to get an idea of the business’s financial health at a given point in time—specifically its solvency, or ability to meet long-term financial obligations, and liquidity, or ability to meet short-term financial obligations. They might use a variety of financial ratios to do this.

The debt to equity ratio, for example, is a measure of solvency that expresses the restaurant’s ability to repay any loans. The restaurant industry is known for thin margins, which makes it especially easy for a restaurant to plunge from solvency to insolvency. As food and other costs rise, some restaurants struggle to maintain their margins and end up with no choice but to restructure or sell the business. Thus, it’s imperative they use the balance sheet to gauge solvency.

Meanwhile, the cash ratio is a measure of liquidity that determines whether the restaurant can meet short-term financial obligations using only cash and cash equivalents, without adjusting its inventory. Liquidity is often a challenge for restaurants because assets such as kitchen equipment depreciate relatively quickly and are expensive to maintain. Given the high upfront costs of opening a restaurant, owners should use their balance sheet to assess their liquidity frequently. Later in the business’s life span, they can use the balance sheet to assess whether to repair or replace assets. Say the restaurant’s four-year-old refrigerator is worth $1,000; balance sheet analysis can reveal that the business would benefit more from purchasing a new asset for $7,000 rather than continuing to spend money repairing the old one.

Balance sheet analysis can drive strategic planning too—by helping leadership determine whether the restaurant is financially stable enough and has enough cash on hand to open a new location, for instance. Restaurants can also use their balance sheet to demonstrate financial health to investors, who are especially interested in short-term liquidity and the restaurant’s ratio of debt to equity.

How Do I Create a Restaurant Balance Sheet?

It’s possible to create a restaurant balance sheet using a spreadsheet by inputting figures and either adding formulae to cells or doing the math manually. Alternatively, restaurant leaders can source a restaurant balance sheet template that already has formulae inputted. A balance sheet typically includes one section for assets and another for liabilities and equity combined—we’ll offer a visual example later. Restaurant accounting software saves even more time and effort, updating the balance sheet automatically and ensuring it is balanced, whereas using spreadsheets can require a significant amount of time to reconcile accounts.

What is included in a restaurant balance sheet?

All restaurant balance sheets feature three categories: assets, liabilities, and equity. The more detailed the financial statement, the more useful it will be for the purposes mentioned earlier.

• Liabilities + Equity = Assets

  The balance sheet equation helps restaurants find balance between liabilities, equity, and assets—hence the name of the financial statement. As long as the assets are equal to the sum of the liabilities and equity, the business is keeping its books well.

• Restaurant assets

  Assets can be separated into current or liquid assets and fixed assets. Restaurants’ current or liquid assets are those they can convert into cash in one year or less. They likely include items such as:

  • Money in the bank
  • Petty cash kept on-premises
  • Food and drink the restaurant has purchased
  • Prepaid expenses

  Fixed assets are items that can’t readily be turned into cash. In a restaurant, these can include:

  • Professional kitchen equipment
  • Front-of-house furniture
  • Artwork
  • Vehicles used for deliveries
  • Restaurant premises (owned or on a long-term lease)

  Restaurants may also carry intangible assets. As the name suggests, these may be difficult to put a dollar amount to but can contribute to the financial health of the restaurant. Restaurants include intangible assets on their balance sheets if the assets were acquired (as opposed to generated internally). These types of assets can include:

  • Copyrights and trademarks
  • Patents
  • Licenses
  • Franchise agreements

• Restaurant liabilities

  On the other side of the balance sheet equation are current and long-term liabilities. Often, restaurants have more current liabilities than long-term ones, given the nature of the industry. These can include:

  • Accrued wage before payroll
  • Loans or other credit lines
  • Rent
  • Accrued income tax
  • Accrued sales tax

  Long-term liabilities are less common for many restaurants, which usually deal with outgoings in the here and now. When they do surface, long-term liabilities can take the following forms:

  • Capital leases
  • Long-term rent agreements
  • Deferred tax payments

• Restaurant equity

  The equity on a restaurant balance sheet shows what is left once the liabilities have been subtracted from the assets. As many of the assets are fixed and some of the liabilities are only payable over the longer term, the figure is largely theoretical, so it is known as the book value—as opposed to the market value, which is the amount the business could realistically be sold for. Equity generally comes in two forms:

  • Retained earnings (profit kept aside for investment or debt repayment)
  • Stocks and shares (money invested by owners and/or shareholders)

Example of a Restaurant Balance Sheet

Let’s look at a typical balance sheet—for Ed’s Deli, a fictional restaurant.

A few noteworthy points: Equity in Ed’s Deli has increased year on year, although retained earnings have decreased. We can see that much of the equity built over the past 12 months has come from investment capital and the eatery’s location, since property value has increased. Total liabilities have decreased, namely because long-term debt has been paid off.

The components of a given restaurant’s balance sheet may vary from this example. A restaurant may have items to add into the assets and liabilities columns; equity could be realized in the form of stock; and rather than comparing years, the balance sheet could reflect two or more months to compare the restaurant’s financial wellbeing in more detail.

Whatever the components, the same formula remains:

Assets = Liabilities + Equity

Using these numbers, it is possible to work out financial ratios for additional insight into the deli’s financial health.

To calculate the debt to equity ratio, for example, we can take the total liabilities for Q1 2023 ($23,880) and divide them by total equity for the same time period ($276,185), leaving us with a ratio of 0.08, which is below the commonly accepted threshold of 1 and means Ed’s Deli is generally capable of repaying any loans.

To work out the debt to asset ratio, we take the total liabilities for the quarter ($7,450 in accounts payable + $1,400 in short-term debt + $4,780 in taxes + $10,000 in long-term debt = $23,630) and divide them by the total assets ($21,565 in current assets + $278,500 in fixed assets = $300,065) for a ratio of about 0.08—higher than the generally accepted threshold of 0.6. In response, Ed’s Deli should look for ways to lower its debt levels.

Restaurant Balance Sheet Examples

Restaurant businesses with multiple subsidiaries use NetSuite OneWorld as their ERP system because it allows them to manage separate balance sheets for each subsidiary. The system automatically accounts for transactions between subsidiaries—like sharing an over-order of stock—to keep both balance sheets in order, and balance sheet matching ensures that the books line up with each other.

All sizes of restaurant businesses, from startups to mature companies and beyond, use NetSuite because they can add NetSuite modules over time; the software effectively grows with them. For example, San Francisco-based Philz Coffee moved to NetSuite from QuickBooks, a basic accounting system, because of the scalability it provided. And Jollibee deployed NetSuite to fuel its international expansion plans with a financial system that could handle various languages, currencies, and tax laws.

Manage Your Restaurant Balance Sheets With NetSuite

Restaurant leaders use NetSuite cloud accounting software to manage all accounting in one place, making financial statements like the balance sheet available in real time with automation. Working in an automated, cloud-based platform also means they can be confident that their books will comply with changing accounting standards, government regulations, and tax obligations.

Restaurant teams also use the system to automate accounts payable and receivable, boosting cash flow by, for example, getting invoices paid or reflecting cash inflows on the books faster. NetSuite Fixed Assets Management handles both depreciating assets, such as kitchen equipment, food inventory, and furniture, and assets that don’t depreciate, such as land.

Restaurant Balance Sheet FAQs

What is a balance sheet for a restaurant?

The balance sheet is an essential financial statement that provides a snapshot of a restaurant’s assets, liabilities, and equity at a given point in time. It plays a key role in determining the financial health of a restaurant, especially when compared to previous balance sheets as well as cash flow and income statements.

What items are on a balance sheet in a restaurant business?

A balance sheet in a restaurant business contains three main categories: assets, liabilities, and equity. This includes both current assets—money in the bank, inventory, and accounts payable, for example—and long-term assets, such as property and kitchen equipment. It also includes both short-term liabilities, such as accounts payable and taxes, and long-term liabilities, such as deferred tax contributions and long-term loan repayments. Equity can include retained earnings and stock.

Is a restaurant an asset or liability?

By displaying the restaurant’s financial assets and liabilities, the balance sheet allows stakeholders to gauge whether the restaurant itself is an asset. If the business is on sound financial footing, then continuing operations usually presents limited risk. However, if financial ratios such as the debt to asset ratio consistently exceed commonly accepted levels, stakeholders may deem the restaurant itself a liability.

What are the current assets of a restaurant business?

On a restaurant balance sheet, current assets are those that will likely be used or converted into cash—i.e., sold—within one year. These can include cash on-hand, accounts receivable—that is, money the business is owed for services rendered or promised—and food and liquor inventories.