By Bridgette Redman Updated January 31, 2019
Restaurants are businesses with high overhead costs and a high potential for waste. The two largest expense categories are labor and food and beverage. Food and beverage expenses are categorized on financial statements as the cost of sales. All other expenses are listed as operating expenses, though they can be further divided into additional categories.
Salaries and Other Labor Costs
Labor is one of the two major expenses of any restaurant. Examples of labor costs include salaries, wages, benefits, unemployment taxes and service commissions. It can also include the cost of providing employees with uniforms. For most restaurants, labor costs are considered variable as they rely on shift workers and part-time employees that vary according to business volumes. Restaurant managers have to forecast labor needs carefully so that they neither schedule too few or too many employees.
Cost of Goods Sold
The cost of goods sold represents the second largest expense for restaurants: food and beverage costs. Other examples of cost of goods sold include the preparation equipment found in the kitchen, however, these will not be categorized as cost of goods sold on an income statement as most equipment – such as stoves, slicers and other preparation equipment – are depreciated over time. Most restaurants have goals for keeping their food cost at a set percentage, such as 33 percent, of their food sales.
Marketing and Advertising Expenses
A restaurant's marketing expenses include everything it does to get guests to come and eat food in the restaurant. One of the most important marketing tools is the menu, as it will dictate many of the other expenses a restaurant has. Other examples of marketing expenses include table tents, entertainment, music, coupons, advertising and website expenses.
Real Estate Occupancy Expenses
Occupancy expenses is a category that splits out into all those expenses related to the restaurant's physical building. This can include property taxes, rents, insurance and utilities. It also includes such things as signage and any parking fees or expenses the restaurant might incur.
Repairs and Maintenance
The repairs and maintenance category of expenses can be defined as all those expenses incurred to keep the restaurant operating. These can be divided into the maintenance needs of the building itself, the dining area, the kitchen and the food preparation and cleaning equipment.
Daily Administrative Costs
The administrative costs of a restaurant are very similar to those incurred by other businesses. They can include office supplies, telephone charges, postage and fees to professionals such as accountants and lawyers. Restaurants also must pay a number of licensing fees to local health departments and for beverage licenses, if they serve alcohol.
