Non-compliance with debt agreement financial covenants can be costly, time intensive, and distracting to your business. Once you are out of compliance, lenders typically charge significant waiver fees and the process to return to compliance often requires weeks of back-and-forth negotiations between your company’s chief financial officer/controller, the bank representative, and the underwriter.

Therefore, when initially negotiating debt funding with your lender, it is important to understand the financial covenants your lender expects you to uphold and the variables that could prevent compliance. In addition, know the risks you assume when personally guaranteeing debt obligations.

Two common financial covenants typically included in a debt agreement are: (1) fixed-charge coverage ratio and (2) funded debt to EBITDAR. Many variables should be considered when negotiating these covenants to ensure you can comply, including: Continue Reading »

Even with recent changes in the treatment of repairs and maintenance expenses for tax purposes, GAAP considerations should serve as a refresher or reminder to formalize your policy.

Deciding whether to expense or capitalize repair and maintenance costs can be difficult. Per GAAP, these costs should be capitalized when they extend the life, increase the capacity, or improve the efficiency or safety of the property.

For example, if a roof was put on with a 10-year life but a new layer of shingles had to be added within that decade, the old asset would come off the books and the cost of the new layer would be added. If only a few shingles needed replaced, it would be considered a repair. Continue Reading »

With the 2011 tax filing season coming to a close, it’s time to start thinking about next year and the impact of tax legislation. During 2012, many beneficial tax incentives restaurant owners have grown accustomed to will no longer be available. Set to expire are the Work Opportunity Tax Credit (WOTC), 15-year life for qualified leasehold improvements and qualified restaurant property, and 100 percent bonus depreciation.

The WOTC credit allows employers to take a credit for a percentage of wages paid to certain targeted groups of people such as veterans, ex-felons, and welfare recipients.  The credit – a dollar-for-dollar reduction of tax owed – can be computed using wages of all qualified employees hired before Dec. 31, 2011 (before Dec. 31, 2012, for qualified veterans). Continue Reading »

Live in Chicago? Join our Restaurant CFO Roundtable, a unique networking group for restaurant-industry financial executives in the Chicago area. Mix, mingle, and share success stories and strategies with your peers at a luncheon hosted by SS&G.

Our May 15 meeting features Robert Hill, a principal at J.H. Chapman Group, the food industry’s leading investment banking firm. Rob will address the state of the M&A and financial markets, and point out common pitfalls. Dirk Ahlbeck, SS&G’s director of restaurant services for the Chicago market, will facilitate a group discussion following the presentation.

For more information and to register, click here.

Employee benefit plan audit season is nearly here. As plan administrators are aware, the IRS and Department of Labor require a Form 5500 to be filed annually.

Unless an extension is requested, the Form 5500 is due seven months after its plan year ends.  For most plans, the deadline is July 31, with an alternate deadline of Oct. 15 for plans that filed for an extension. Beware: If a plan submits its Form 5500 late or it is incomplete, the IRS and DOL can impose hefty fines.

Other administrative errors can lead to fines from the IRS and DOL as well as increased audit fees from your CPA firm. To help keep costs low, watch out for these common errors:

• Definition of eligible compensation is improperly applied. Unless the plan document specifically excludes tips, they must be included when calculating 401(k) contributions. In addition, many companies improperly exclude bonuses and auto allowances even though these are commonly included as eligible compensation per the plan document. Continue Reading »

Many restaurant companies choose to end their fiscal year on the same day of the week closest to the end of a particular month (e.g., the last Saturday in December) – rather than ending on the same date each year (e.g., Dec. 31). Therefore, fiscal years will fluctuate between 52 and 53 weeks per year.

Fiscal year reporting allows restaurant companies to make more meaningful comparisons from year to year (four weeks per period, 13 weeks per quarter, 52 weeks per year). But this equals only 364 days for a 52-week year. As a result, every five to six years, the remaining day plus another during a leap year creates a 53-week year that still requires closing to occur on the designated day of the week.

While it would be beneficial to choose your 53-week year (who doesn’t like a higher sales number!), your year-end is not a choice. If your organization operates on a 52/53-week fiscal year and your year-end is defined as “the last Sunday in December,” 2012 is your 53-week year. The last time this anomaly occurred was 2006. Continue Reading »

Many restaurant companies consider outsourcing their key accounting functions. But what are the advantages and drawbacks? Read on to learn what’s best for you.

Advantages:

• It is generally more cost beneficial as opposed to hiring employees as needed. Outsourcing providers typically charge a per-month, per-store fixed cost. To add internal personnel, you’ll incur expenses related to search, training, and employee benefits.
• Depending on the size of your business, by outsourcing the accounting function, office space may not be necessary. This could yield additional savings.
• It ensures quality. If you cannot afford or find a full-time CPA/ qualified controller, outsourcing can provide a capable individual overseeing the accounting function. Continue Reading »

SS&G’s Brad Saltz will share his restaurant-industry expertise with attendees of next month’s NRA Show in Chicago. His presentation, “Tax Write-Offs for the Restaurant Franchise Owner,” is May 5 at 2 p.m. For more information, click here.

Commodity-level prices are expected to continue trending upward in 2012. While you can’t control the market, there are ways to keep rising food costs from running away with your profits. Consider the following strategies:

1. Evaluate menu prices. As consumer spending bounces back from recessionary lows, many restaurants – once reluctant to offset higher input costs with higher menu prices – are now implementing increases. Menu prices should be regularly evaluated and, if necessary, judiciously increased. Consider just changing prices on particular items or in certain markets.

2. Embrace menu engineering. Help maximize profitability with a menu designed to encourage customers to buy what you want them to. Evaluate current and proposed menu pricing, menu layout, and product promotions. Whether you hire a consultant or do it yourself, know that menu engineering is an ongoing process. As food costs change, so will profit margins and relative profitability of items. Continue Reading »

Individual taxpayers who have paid alternative minimum tax (AMT) as a result of timing differences, including depreciation add-backs passed through to them by an S corporation or an LLC, may have unknowingly accumulated minimum tax credits. This could translate into cash!

Restaurant owners are likely candidates for an AMT credit refund. If you paid AMT from 1986 forward, you may be entitled to a refund of some or all of that tax. Continue Reading »