What You Should Know about Restaurant Accounting

Most restaurateurs are drawn to the food industry due to their passion for food and the career opportunities fueled by their competitive entrepreneurial spirit. Driven by the desire to succeed and provide the best food service in the industry, they are eager to get started. However, accounting often doesn’t factor into the equation when they first open their restaurant. Yet, restaurants can only survive so long on razor-thin profit margins. You can improve your odds of success by learning how to manage restaurant accounting properly.

Operating a restaurant is a significant responsibility. It requires more than just passion and talent for cooking and hospitality. Having a business strategy, along with organization and the determination to maintain accurate accounting records, will help your restaurant start strong. Keeping records can reveal where you are making progress and where you need improvement. Even if you feel more comfortable flipping burgers than making general ledger entries, you still need an efficient system to record all transactions. Restaurant management and investors can use these records to gain deeper insight and understanding of the restaurant business.

Every industry has specialized bookkeeping needs. Keeping books does not necessarily require you to have a CPA or hire one. While large multi-chain units often have in-house accountants to manage their books, smaller, independently operated restaurants tend to computerize their expenses and profits, with or without professional assistance. Some of the most popular accounting programs used by restaurateurs include QuickBooks, Wagepoint, Sage 50, and Microsoft Dynamics GP, as these programs are user-friendly and more efficient than the advanced software used by larger corporations. A fully integrated restaurant bookkeeping system typically consists of a POS system, a middleware system, and financial management software, designed to make importing numbers into your program easier. Middleware acts as an intermediary between the restaurant POS system and financial management software by extracting inventory and sales data from your POS system, processing the figures, and importing the necessary information into your bookkeeping software.

Before deciding which bookkeeping software to use, you need to determine how involved you plan to be with your restaurant’s accounting. If you run a small restaurant startup, your options may be limited. In such cases, you may need to handle all the bookkeeping yourself until you can afford additional help. Alternatively, you might want to weigh the pros and cons of hiring an in-house accounting professional or outsourcing bookkeeping services. While the cost may be a concern, it can save you valuable time needed to run your restaurant. There are many ways to track your books, tailored to your personal preferences and budget, including accounting software, restaurant-specific programs, paper ledgers, and spreadsheets.

Like any endeavor, bookkeeping requires a starting point. How can you record your transactions if you don’t know where to begin? Setting up your books and learning which entries to make for specific accounts is often the most challenging part of the process, especially if you’ve never done it before. Double-entry accounting can be particularly complex. It is, of course, easier to have an accountant or bookkeeper set everything up for you. However, if hiring a professional is not within your budget or immediate plans, you can find sample accounts online or through industry resources. Many accounting and bookkeeping programs also offer sample restaurant accounts that you can use. If setting up your books becomes too time-consuming, it might be worthwhile to pay a professional for a few hours to guide you through the process. Doing so could save you significant time, stress, and confusion.

An accounting system can provide various types of information related to your sales, such as tax obligations, labor costs, and food expenses. Unless you choose to handle all the bookkeeping yourself, accountants can manage tasks like taxes, payroll, and year-end reports. In most cases, utility expenses and lease payments are largely beyond your control, so your focus should be on the aspects that contribute directly to the success of your business:

• Sales: understanding how much revenue you generate daily.
• Orders: recording purchases made for restaurant furniture, kitchen utensils, food, etc.
• Inventory: manually tracking your items may be necessary, as most accounting systems can only indicate what you should have on hand.
• Payroll: this can be a significant expense if managed by an accountant or bookkeeper. It includes paying employees appropriately, calculating payroll taxes, withholding income tax, determining worker’s compensation, reconciling vendor invoices with purchase orders, and ensuring payment accuracy for services and supplies.

Restaurant accounting is one of the most critical aspects of running a business in the food industry. However, the idea of managing your books independently can feel overwhelming. Even if you’re not mathematically inclined, the process becomes manageable with commitment to organization and precision. The main purpose of this system is to track when to spend, how much to spend, what to spend on, where your revenue originates, and how much you need to earn to make a profit.

Your restaurant may proudly serve the most delicious food or provide the best table service in your area. However, the only way to truly assess whether you are thriving or struggling is to evaluate your current position. In other words, if you can’t clearly differentiate between success and challenges, you need a structured approach. Drafting a restaurant analysis report, or a SWOT Analysis, will help you monitor your progress. Additionally, inviting your staff to share their input and suggestions can provide valuable insights from different perspectives. If needed, a financial consultant with expertise in the food industry can assist in drafting a comprehensive restaurant financial report.

Depending on the frequency of their production, a profit and loss statement can provide a broad overview of your sales history. This information is especially useful when it highlights the cost of sales, labor, and other overhead expenses. A restaurant analysis report critically examines profits and losses to identify specific areas that require improvement.

Cost of sales, sometimes referred to as cost of goods sold, accounts for all the expenses involved in creating menu items. Running a financial analysis can help you determine the appropriate percentage for your restaurant’s cost of sales. Cost of labor is closely related to the cost of sales. There is a fine line between overstaffing and hiring the optimal number of employees to ensure efficient restaurant operations. Smart hiring practices and effective scheduling not only boost employee productivity but also help manage labor costs. A SWOT analysis can be used to review payroll reports, sales data, and patron counts to optimize productivity and reduce labor expenses.