It takes more than a passion for food to run a successful restaurant. Being a great bookkeeper takes an efficient bookkeeping system to keep track of your restaurant’s financial health. It’s important to understand the principles behind the food and beverage industry so that you know which bookkeeping method is most tailored to this particular industry.

Here, we will cover the basics of the food industry, how to set up your books, what to track, the financial reporting involved, and the best practices for restaurant accounting, so that even if you aren’t passionate about numbers, you can still enjoy your passion for food and hospitality.

What is restaurant accounting?

Restaurant accounting is the organization of financial records so that the owner has a better understanding of the restaurant’s financial position at any given time. Restaurant bookkeeping involves recording, tracking and monitoring the financial transactions that take place while operating a restaurant and adjusting the budget to align with actual income and expenses. These financial transactions range from the cost of inventory, equipment, and utilities to the prices on the menu. A restaurant bookkeeper oversees the finances and budget for the restaurantRestaurant bookkeeping with accurate accounting records is one of the most important aspects if you want to run a successful restaurant.

Restaurant Accounting by Matt Plapp

What does a restaurant accountant do?

If the restaurant is going to make a go of it, the first thing a restaurant accountant should do is work with the owner to have a business strategy and budget in place.

The following are key responsibilities that the accountant or bookkeeper will perform to ensure that the restaurant stays on track with its strategy and budget:

  • Keep track of where the money is being spent

  • Keep track of how much money is being spent

  • Track where the revenue is coming from

  • Track how much revenue is coming in

  • Calculate how much revenue is needed to turn a profit

  • Account reconciliation

  • Maintain records for tax obligations and file taxes for the business

  • Prepare financial statements such as a profit and loss statement, budgets, and accounts payable records

  • Oversee payroll and vendor invoices

Restaurant accountants stay on top of inventory, revenue, and costs to make sure the restaurant is turning a profit. By performing these tasks, restaurant accountants or bookkeepers should be able to offer advice on reducing food and overhead costs so that the restaurant can make the most out of its profit margin.

Plate with money, coins, noodles, peepers and tomato,

Plate with money, coins, noodles, peepers and tomato,

How do you set up the books for restaurant accounting?

How you set up your books for a restaurant lays the foundation for how smoothly the rest of the bookkeeping process will go.

Step 1. Use accounting software

Restaurant accounting software is designed to make your life as a restaurant owner much simpler and more efficient. Software will streamline your data entry, generate customized invoices and profit & loss statements, and track revenue, expenses, and cash flow. Restaurant accounting and receipt management software is designed to automate and organize common bookkeeping practices.

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When choosing your accounting software, make sure it’s easy to use, easy to add and remove staff members due to the high turnover in the restaurant industry, seamlessly integrates with your point of sale system, and is accessible from anywhere at any time.

Step 2. Set up the chart of accounts

A chart of accounts is used to categorize income and expenses. The chart of accounts includes assets, liabilities, revenue, expenses, and owner’s equity. This chart can be broken down into subcategories that specifically tailor to your business. That way, each category can easily be monitored and compared to industry averages. It also provides a great snapshot of where your money is going.

Step 3. Choose a point of sale system

Point of sale systems are computerized systems that record orders and process payment transactions. These systems are ideal for cash management, processing receipts, running sales reports, and tracking inventory, methods of payment, and labor costs. When choosing a point of sale system, just make sure it ties in and seamlessly integrates with your accounting software. A POS system really is a life saver in restaurant accounting because it allows you to see data in real time.

What financial statements should be included in restaurant bookkeeping?

There are certain financial statements that should be a part of your restaurant accounting cycle process.

a. Profit and loss statement

Restaurant profit and loss statements (P&L) or income statements reflect the expenses, costs, and sales of your restaurant during a specific period of time. This statement enables you to analyze the financial progress of your restaurant. With this statement, you’ll be able to determine where you are making or losing money.

b. Daily sales report

A daily sales report is a report of all the money you took in for the day. It breaks the revenue down into different categories so you can see what is selling. It also tells you what methods of payment were used, which is helpful when reconciling your accounts.

c. Cash flow statement

A cash flow statement is a report that records all of the incoming and outgoing cash during a specified amount of time. That way you can easily see where your money is going and where it is coming from and make sure that you have an appropriate amount flowing each way.

d. Balance sheet

A balance sheet spells out the restaurant’s equity, liabilities, and assets during a specified time frame. This report is used to assess the financial health of the restaurant and to forecast short-term and long-term cash flow.

Wooden board with peppers and tomatoes, indianexpress

Wooden board with peppers and tomatoes, indianexpress

What do you need to keep track of in these financials?

If you’re going to stay within your budget, meet required deadlines and obligations, and meet the desired goals you have set for your restaurant, then there are certain things you need to constantly monitor and keep an eye on. Some of these include the following:

a. Payroll

Calculating payroll in the restaurant industry can sometimes get a little tricky for a business owner who is dealing with multiple wages, employees coming and going, and irregular work hours. There are also benefits, insurance, and federal and state tax obligations to keep up with.

Restaurant payroll is not simply a one-step process. It’s a process with stepping stones that ultimately lead to federal and state obligations. It’s important to track payroll so you don’t miss out on important reporting deadlines and payroll tax obligations. Outsourcing payroll or using payroll software in the restaurant industry will take a load off of your shoulders.

b. Accounts payable

Accounts payable is the amount you owe vendors, etc., for the products or services they provide. Restaurant owners need to keep track of when a bill is received, when it’s due, and that it actually gets paid in a timely manner. Paying your bills on time will ensure that you are avoiding any possible late fees, which is just an additional and unnecessary expense for your restaurant. In fact, sometimes you can get a discount for making a payment early.

You also don’t want to create a negative impression of yourself or the restaurant because this will ultimately affect your business.

c. Inventory

One thing you don’t want to do is to run out of ingredients for an item that is listed on your menu. So, it’s extremely important that you keep track of your inventory at all times and to place the order in a timely manner so that you don’t run out while waiting to receive the restocking order.

Most restaurant bookkeeping software offers an inventory management system that helps you keep track of your inventory, which will help curtail food shortages and surpluses. This will help to optimize food costs and reduce waste.

d. Cash management

A restaurant owner should constantly monitor cash flow, which is the money coming in and going out of your restaurant. This includes making sure there is always an emergency fund set aside for unexpected expenses like equipment breaking and needing to be replaced.

e. Food sales

If you didn’t track sales, then you wouldn’t have a clue as to how your restaurant is performing financially. In addition, keeping track of revenue will give you a better picture of what source is the most profitable and bringing in the most money.

f. Account reconciliation

It’s important to reconcile all of your bank accounts on a monthly basis to ensure that your financial records are accurate and that you have a realistic view of your financial performance. This also ensures that there are no accounting errors and that nothing has been left out. Reconciliation will confirm that you’ve taken all transactions into account and that the balance of your account is accurate.

Calculator balancing spoon holding coins at one end and potatoes at the other,

Calculator balancing spoon holding coins at one end and potatoes at the other,

What are the key financial indicators to look for when analyzing the financial performance of a restaurant?

There are some key financial analysis tools that you will want to implement when reviewing your financial reporting. Financial statements should be reviewed and analyzed on a monthly basis so if something is off track, it can be caught early before it snowballs.

a. Cost of goods sold (COGS)

Cost of Good Sale (COGS) is the actual cost that goes behind producing what you sell. This key figure will indicate how efficiently you are controlling your inventory and pricing your items. Keeping track of this indicator will help you reduce and stabilize your inventory costs.

Cost of goods sold is calculated by adding the beginning inventory costs to any purchased inventory costs and subtracting your ending inventory from that amount. Again, this is a great indicator of how to manage your inventory.

b. Prime costs

Calculating prime costs will help you boost profit, increase efficiency, and cut costs. Prime cost is determined by adding labor costs to the cost of goods sold.

c. Food costs

Calculating food costs will indicate whether you are making a profit from each item on the menu. To calculate food costs, the preparation cost of each item is divided by the revenue from each item.

Food Costs Formula: How to Calculate Restaurant Food Cost Percentage by The Restaurant Boss

d. Overhead rates

Overhead is the monthly fixed rates that it costs to run your business. This includes expenses such as rent or insurance. This figure will tell you how much it costs to run your business. To calculate overhead rates, the total fixed costs are divided by total operating hours.

e. Breakeven point

The breakeven point is the amount of revenue needed to cover your restaurant expenses. For the breakeven point, subtract variable costs from the price and then the fixed costs are divided by this amount. To make a profit, you want your revenue to come in higher than your expenses.

See also: What Is Annual Revenue? Meaning, Formula & Examples

f. Gross profit

For your gross profit, you’re going to subtract total expenses from total sales. This amount will be the gross amount or gross profit before any deductions are taken into account.

g. Total sales per head

Total sales per head comes in handy when you’re tracking trends, mealtime averages, or exploring marketing strategies. To calculate total sales per head, take the total sales and divide that number by the number of customers.

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Frequently asked questions

What does a bookkeeper do for a restaurant?

A restaurant bookkeeper oversees the financial reports of the restaurant. They ensure that the figures are accurate, track inventory, and meet tax obligations. The overall goal with bookkeeping is to minimize operating expenses and maximize profits.

What accounting method should be used for restaurants?

The accrual method should be used in restaurant accounting. This is one of the best methods to use when dealing with accounts receivable and accounts payable. The cash method would make your restaurant seem profitable while it is actually suffering from losses.

In conclusion

We have covered quite a few restaurant bookkeeping tips. Start by utilizing restaurant accounting software. This will make your life so much easier. Make sure you have a point-of-sale system that easily integrates with that software.

Use accounting software or outsource payroll if at all possible. There are a lot of complexities to restaurant payrolls, and it can be very time-consuming and time-dependent. Take this load off your shoulders so that you can concentrate on what is really important: enjoying your passion for food and concentrating on your customers.

Be sure to keep accurate records. Account for all transactions, reconcile all accounts, and generate monthly reports so that you can track and analyze the key elements that indicate how well the restaurant is performing financially.

Last but not least, consult other restaurant owners. See if they can pass some of their expertise on to you.

Caryl Ramsey has years of experience assisting in different aspects of bookkeeping, taxes, and customer service. She uses a variety of accounting software for setting up client information, reconciling accounts, coding expenses, running financial reports, and preparing tax returns. She is also experienced in setting up corporations with the State Corporation Commission and the IRS.

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