Running a successful restaurant involves much more than creating delicious dishes and providing excellent service.
Behind every thriving restaurant lies a robust accounting system that helps you make informed decisions and maintain financial health.
If you're feeling overwhelmed by the numbers side of your restaurant business, you're not alone.
Many restaurant owners find accounting challenging, but it's a crucial skill that can make or break your establishment.
Whether you're a new restaurant owner or looking to improve your existing accounting practices, this comprehensive guide will walk you through everything you need to know about restaurant accounting.
What is Restaurant Accounting?
Restaurant accounting is a specialized branch of financial management that focuses on tracking, organizing, and analyzing the unique financial aspects of running a food service business.
When you run a restaurant, you're dealing with multiple financial streams that need careful monitoring — from daily cash transactions and credit card payments to inventory management and labor costs.
Simply put, restaurant accounting isn't just about keeping track of numbers — it's about using financial data to make smart business decisions that help your restaurant grow and thrive.
Benefits of Accounting for a Restaurant
1. Financial Decision Making
Proper accounting gives you the data you need to make informed business decisions.
Instead of relying on gut feelings, you can use concrete numbers to determine whether to add new menu items, adjust prices, or hire additional staff.
For example, when you track your food costs accurately, you might discover that your popular pasta dish isn't as profitable as you thought, leading you to either adjust the portion size or increase the price to maintain healthy margins.
2. Inventory Management and Cost Control
Through effective accounting practices, you gain precise control over your inventory.
You can track which ingredients you're using most frequently, identify waste patterns, and optimize your ordering process. This detailed tracking helps prevent overordering perishable items and reduces food waste, directly impacting your bottom line.
When you know exactly how much inventory you're using and what it costs, you can make smarter purchasing decisions and negotiate better deals with suppliers.
3. Cash Flow Management
Restaurant accounting helps you maintain healthy cash flow — the lifeblood of your business.
When you track your incoming revenue and outgoing expenses in detail, you can better predict slow periods and ensure you have enough cash on hand to cover your obligations.
This visibility allows you to plan for seasonal fluctuations, manage payroll effectively, and maintain good relationships with your vendors through timely payments.
4. Tax Compliance and Savings
Accurate accounting records make tax season much less stressful.
When you maintain organized financial records throughout the year, you can easily track deductible expenses and ensure compliance with tax regulations.
Furthermore, good accounting practices help you identify potential tax savings opportunities, such as taking advantage of available credits and deductions specific to the restaurant industry.
5. Growth Planning
When you have solid accounting practices in place, you're better positioned to plan for growth.
Whether you're considering opening another location, expanding your services, or seeking investment, having clear financial records and understanding your business's financial health is crucial.
Potential investors or lenders will want to see organized financial statements and evidence of solid financial management.
6. Performance Benchmarking
Good accounting practices allow you to benchmark your performance against industry standards.
You can compare your food cost percentages, labor costs, and profit margins to industry averages and identify areas where you might be underperforming or excelling. This comparison helps you set realistic goals and develop strategies for improvement.
Remember, these benefits don't materialize overnight – they come from consistently maintaining good accounting practices and using the information to make strategic decisions.
Restaurant Accounting Methods
As a restaurant owner, one of the most important early decisions you'll make is choosing between the two main accounting methods: cash and accrual.
Each method has its own advantages and works differently in tracking your restaurant's finances.
Let's explore both methods in detail to help you understand which might work best for your establishment.
1. Cash Method
The cash method of accounting is straightforward and intuitive — you record income when you receive payment and expenses when you pay them.
For example, if you receive a food delivery on March 30th but don't pay the invoice until April 5th, under the cash method, you would record this expense in April when you actually pay the bill.
Similarly, if a customer books and prepays for a large catering event in December for January, you would record that income in December when you receive the payment, not when you provide the service in January.
The cash method offers several advantages for restaurants:
- Simplicity in tracking cash flow
- Easier to understand and maintain records
- A clear picture of how much cash you actually have available
- Often preferred by smaller restaurants with straightforward operations
However, the cash method also has limitations.
For starters, it might not give you the most accurate picture of your restaurant's financial health. Furthermore, it can be harder to make long-term financial projections.
More importantly, the cash method might not be ideal for restaurants with significant inventory or accounts payable.
2. Accrual Method
The accrual method takes a different approach — you record income when you earn it and expenses when you incur them, regardless of when money changes hands.
This method focuses on matching revenues with the expenses that generated them in the same accounting period.
Using our previous examples: the food delivery received on March 30th would be recorded as an expense in March, even though you don't pay until April.
The catering prepayment received in December for January would be recorded as income in January when you actually provide the service.
The accrual method provides several benefits:
- A more accurate picture of your restaurant's financial position
- Better for long-term financial planning
- It helps track receivables and payables more effectively
- Required for larger restaurants (typically those making over $25 million in annual revenue)
- Preferred by potential investors or lenders
However, the accrual method also has some challenges.
For instance, the accrual method is more complex to maintain and it requires more sophisticated accounting knowledge. In addition, the accrual method might not always reflect your actual cash position.
Lastly, the accrual method requires more detailed record-keeping compared to the cash method.
What is the Difference Between Bookkeeping and Accounting?
While bookkeeping and accounting work hand in hand in managing your restaurant's finances, they serve different purposes and involve distinct responsibilities.
On one hand, bookkeeping helps you lay the groundwork for your restaurant's financial management. It involves the day-to-day recording and organizing of all your financial transactions.
In simple words, Bookkeeping is primarily about data entry and organization. It's about making sure every dollar coming in and going out is properly recorded and categorized.
For your restaurant, this might mean recording each day's sales, documenting every vendor payment, and tracking each employee's hours and wages.
Accounting, on the other hand, takes the information that bookkeeping provides and transforms it into insights that help you make business decisions. While bookkeeping tells you what happened, accounting helps you understand why it happened and what it means for your restaurant's future.
For example, while your bookkeeper might record that food costs increased by $2,000 last month, your accountant would analyze why this happened, how it affects your profit margins, and what strategies you might use to control these costs.
How to Do Bookkeeping and Accounting for Your Restaurant
Part 1. Set Up Your Books
Setting up proper books from the start is crucial for your restaurant's financial success. This foundation will help you track your finances accurately and make informed business decisions.
Let's break down the essential steps to get your books in order.
1. Find the Ideal Bookkeeper
When it comes to managing your restaurant's books, you have two primary options: hiring an in-house bookkeeper or outsourcing to a professional service.
If you choose to bring someone in-house, look for a professional who has specific experience in restaurant bookkeeping and understands the unique complexities of food service operations.
Your ideal candidate should be well-versed in restaurant POS systems, capable of handling daily cash reconciliations, and skilled in tracking inventory effectively. They need to demonstrate strong attention to detail, proficiency with restaurant accounting software, and a thorough understanding of food and beverage cost controls.
Additionally, they should be knowledgeable about payroll processing, including the intricacies of tip reporting.
Alternatively, you might find that outsourcing your bookkeeping to a professional service better suits your needs. This approach offers several advantages, including access to experienced professionals without the costs associated with full-time employees.
Outsourced services are typically scalable, meaning they can grow alongside your business, and they provide built-in redundancy to ensure your books are always managed, even when someone is sick or on vacation.
For smaller restaurants, this option often proves more cost-effective while still providing professional oversight and quality control.
2. Use Accounting Software
Implementing the right accounting software is essential for efficient restaurant management.
Modern accounting software can help track daily operations and generate crucial reports. Through POS integration, these systems can automatically record sales, monitor inventory, track labor costs, manage vendor payments, and handle multiple payment methods seamlessly.
Your accounting software should be capable of generating various essential reports, including daily sales summaries, labor cost analyses, food cost percentages, profit and loss statements, and cash flow reports.
When selecting software, prioritize features such as cloud-based access for real-time monitoring, seamless integration with your POS system, mobile accessibility, automated bank reconciliation, digital receipt capture and storage, and multiple-user access with permission controls.
Many popular restaurant accounting software options go beyond basic accounting functions to offer specialized tools like recipe costing, comprehensive inventory management, employee scheduling integration, sales tax tracking, and multi-location support for growing businesses.
These additional features can prove invaluable as your restaurant operations expand and become more complex.
3. Set Up the Chart of Accounts
A well-organized chart of accounts is crucial for your restaurant's financial management system.
Your chart of accounts should be tailored specifically to the restaurant industry, categorizing every financial transaction in a way that makes sense for your business operations.
When setting up your chart of accounts, you need to include several key categories that are specific to the restaurant industry.
Ideally, you should start with your assets, which include your cash accounts, inventory, and equipment. Then establish liability accounts to track what you owe to vendors, employees, and lenders.
In addition, you should also create equity accounts to monitor your investments in the business and retained earnings.
Your income accounts should be broken down by revenue streams – perhaps separating food sales, beverage sales, and catering income. Finally, You must set up expense accounts that reflect your unique cost centers, such as food costs, labor, utilities, and marketing.
In short, your chart of accounts must provide enough detail to generate meaningful reports without becoming overly complex. For instance, you might separate your food inventory into categories like meat, produce, and dry goods, but you probably don't need to create separate accounts for every individual ingredient.
Remember, the key is finding the right balance between detail and usability.
4. Select a Point of Sale (POS) System
Your POS system is the main aspect of your restaurant's operations, so choosing the right one is crucial for effective financial management.
Modern POS systems do much more than just process payments — they integrate with your accounting software, track inventory, manage employee time cards, and provide valuable sales data that helps you make informed business decisions.
When selecting a POS system, you need to consider how it handles various payment types, including cash, credit cards, gift cards, and mobile payments.
Ideally, you should select a system that can easily split checks, process tips, and handle modifiers for menu items. The system should also provide detailed sales reports that break down your revenue by category, time of day, server, and other relevant metrics.
Apart from this, the user interface of your POS system matters significantly, as your staff will interact with it constantly. So, look for a POS system that has an intuitive interface that's easy to learn and use during busy service periods.
The system should also have robust training resources and reliable technical support to help you resolve any issues quickly.
Remember that your POS system is a long-term investment in your restaurant's operations. While cost is certainly a factor, focus on finding a system that will scale with your business and provide the features you need to operate efficiently.
Part 2. What You Need to Track
When running a restaurant, proper tracking of your financial elements is crucial for maintaining healthy operations.
Let's dive into the essential areas that require careful monitoring.
1. Payroll
Managing restaurant payroll goes beyond simply cutting checks for your employees.
Your payroll system needs to handle the unique complexities of the restaurant industry, including tip reporting, multiple wage rates, and varying shift schedules.
On top of this, tracking employee hours requires careful attention to detail. That means your payroll system should monitor regular hours, overtime, and break periods for compliance with labor laws.
Many restaurant employees work different positions with different pay rates — for instance, a server might also work prep shifts at a different wage.
Your system needs to accurately track these varying rates and calculate payments accordingly.
Tip management is particularly crucial in restaurant payroll.
You need to track both direct tips and tip-sharing arrangements. This includes monitoring cash tips reported by servers, credit card tips processed through your POS system, and tip distributions to support staff.
Remember that you're responsible for reporting all tips to the IRS and ensuring proper tax withholding.
Labor cost analysis is another vital aspect of payroll tracking. You should monitor your labor costs as a percentage of sales, breaking this down by department and shift. This information helps you make informed scheduling decisions and maintain profitable operations.
Ideally, you should be tracking metrics like sales per labor hour and labor cost per guest to optimize your staffing levels.
2. Accounts Payable
Managing your accounts payable effectively is crucial for maintaining good relationships with vendors and controlling your restaurant's cash flow.
This involves tracking all money your restaurant owes to suppliers, service providers, and other creditors.
To get started, you need to establish a system for processing invoices as soon as they arrive. Each invoice should be checked against the original order and delivery receipt to verify accuracy. More importantly, you need to check pricing agreements with vendors and ensure you're being charged the correct amounts based on your contracts or arrangements.
Apart from this, you need to create a clear timeline for when bills need to be paid. Some vendors might offer early payment discounts, while others might have strict payment deadlines.
Organizing your payables by due date helps you avoid late fees and maintain good vendor relationships.
For this, you can consider using your accounting software's accounts payable module to set up payment reminders and track payment terms.
Vendor management is another crucial aspect of accounts payable. You need to keep detailed records of each vendor, including contact information, payment terms, pricing agreements, and payment history.
This information helps you manage relationships and negotiate better terms when possible.
Payment approval processes are essential for controlling costs. For this, you must establish clear protocols for who can approve invoices and at what dollar amounts. This might mean having managers approve food deliveries, while larger expenses require approval from an owner or controller.
More importantly, you must document these procedures clearly to ensure consistent application.
Finally, you must maintain organized records of all transactions. We recommend keeping digital copies of invoices, payment records, and any correspondence with vendors. This documentation is essential for tax purposes and helps resolve any disputes that might arise.
Your accounting software should help you maintain these records and generate reports showing your outstanding obligations and payment history.
3. Inventory
Tracking your restaurant's inventory is one of the most crucial aspects of financial management.
Your inventory represents cash sitting on your shelves, and proper tracking helps prevent waste, reduce theft, and maintain optimal stock levels for smooth operations.
Effective inventory management starts with establishing a consistent schedule for counting and valuing your stock. You'll want to perform regular counts of high-value items like proteins and alcohol perhaps weekly, while doing full inventory counts monthly.
Record not just quantities but also prices during these counts, as fluctuating food costs can significantly impact your bottom line.
Your inventory tracking system should monitor both what comes in and what goes out of your kitchen. When deliveries arrive, record not just the quantities but also prices per unit. This information helps you track cost fluctuations and ensures you're being charged correctly by vendors.
As items are used in the kitchen, your recipe management system should automatically deduct ingredients from your inventory counts based on sales.
4. Cash Management
Managing cash flow in a restaurant requires careful attention to both incoming and outgoing money.
Unlike many businesses, restaurants deal with numerous cash transactions daily, making proper cash management essential for preventing loss and ensuring accurate financial records.
This is why it’s best to establish clear procedures for handling cash throughout each shift. This includes setting up cash drawers with specific starting amounts, maintaining detailed records of all cash transactions, and implementing proper closing procedures.
Each shift should begin with a drawer count and end with a reconciliation of all transactions against your POS reports.
Additionally, you should create a clear system for managing bank deposits. For this, you need to determine how often you'll make deposits – many restaurants do this daily to minimize the amount of cash kept on-site.
Then, you also need to establish who’ll be responsible for preparing and making deposits, and create a paper trail that tracks the movement of cash from your restaurant to the bank.
Finally, cash forecasting is another important aspect of cash management. Use your historical data to predict upcoming cash needs for payroll, vendor payments, and other expenses.
This forecasting helps you ensure you'll have sufficient funds available when needed and can help you plan for seasonal fluctuations in your business.
5. Sales
Tracking your restaurant's sales accurately is fundamental to understanding your business's performance and making informed decisions.
Sales tracking goes beyond simply counting how much money you've made — it involves understanding the patterns, trends, and details of every transaction that flows through your restaurant.
Your sales tracking system should capture detailed information about each transaction. This includes the specific items sold, time of sale, payment method, server information, and any discounts or comps applied.
We recommend breaking down your sales tracking by different categories that matter to your business. This might include separating food and beverage sales, tracking sales by daypart (breakfast, lunch, dinner), or monitoring performance by server.
Many restaurants also track sales by specific menu categories or items to understand which dishes are driving revenue and which might need menu engineering attention.
In addition to this, you will also need to track different types of sales channels. With the growth of takeout, delivery, and catering, you need systems to monitor performance across all these revenue streams.
Each channel might have different costs and profit margins, so separate tracking helps you understand the true profitability of each service type.
6. Reconciliation
Daily reconciliation is crucial for maintaining accurate financial records and catching any discrepancies quickly.
This process involves comparing what your POS system says happened with what actually happened in terms of cash, credit cards, and other payment methods.
You can start each reconciliation by comparing your daily sales reports from your POS with actual payment receipts. This includes matching credit card batch totals with your POS credit card sales, counting cash against reported cash sales and verifying any other payment methods like gift cards or third-party delivery services.
If you discover any discrepancies, they should be investigated immediately while the details are still fresh.
Your reconciliation process should also include comparing sales to inventory usage. Your POS system tracks what should have been used based on sales, while your inventory system tracks what was actually used.
Regular comparison between these numbers helps identify potential issues with portion control, waste, or theft.
Remember that reconciliation isn't just about finding mistakes – it's about understanding your business better. Patterns in your reconciliation data might reveal operational issues that need attention, like consistent cash drawer shortages during certain shifts or higher-than-normal void rates with particular servers.
You can use this information to improve your processes and training. So, set up a regular schedule for a more comprehensive reconciliation of your accounts.
While daily reconciliation catches immediate issues, monthly reconciliation helps ensure all your sales data is properly reflected in your accounting system. This includes matching bank statements with your records and verifying that all sales have been properly categorized in your chart of accounts.
Part 3. Reporting and Analysis
Now that you've set up your books and established tracking systems, it's time to focus on how to analyze this data to make informed decisions about your restaurant's operations.
1. Food Costs
Understanding and managing your food costs is critical to maintaining a profitable restaurant operation.
Food cost analysis helps you make informed decisions about menu pricing, purchasing, and inventory management while keeping your expenses under control.
Your food cost percentage is calculated by dividing your total food costs by your food sales revenue.
In most successful restaurants, this percentage typically falls between 28-35% of sales, though this can vary by restaurant type and concept. To calculate this accurately, you'll need to account for all ingredients used in your dishes, including not just the main components but also seasonings, garnishes, and even complimentary items like bread service.
Tracking your food costs requires a detailed recording of all food purchases and regular inventory counts. You need to monitor both your theoretical food cost (what your costs should be based on your recipes and sales) and your actual food cost (what you're really spending).
The difference between these numbers can help identify issues with portion control, waste, or theft.
Recipe costing is another crucial aspect of food cost management. Each menu item should have a detailed recipe card that includes not only the ingredients and preparation steps but also the exact cost of each component.
These costs need to be updated regularly as vendor prices change, allowing you to maintain accurate profit margins on each dish.
2. Prime Costs
Prime costs represent the combination of your food costs and labor costs — typically your two largest expenses.
This metric is crucial because it gives you a comprehensive view of your main controllable costs in one number.
In most successful restaurants, prime costs usually run between 55-65% of total sales.
Your labor costs include not just hourly wages and salaries, but also payroll taxes, employee benefits, and any other labor-related expenses. When calculating labor costs, don't forget to include management salaries, overtime pay, and the employer's share of taxes and benefits.
Many restaurants aim to keep labor costs between 25-35% of sales, though this can vary based on your service style and concept.
Monitoring prime costs helps you make better operational decisions.
For instance, if your prime cost percentage is too high, you might need to:
- Adjust menu prices
- Reevaluate portion sizes
- Modify staffing levels
- Negotiate better vendor pricing
- Improve scheduling efficiency
- Reduce food waste
- Train staff on portion control
Regular analysis of your prime costs should be a key part of your financial review process.
For that, you need to track these costs weekly and compare them to your sales to identify trends and make necessary adjustments.
Remember that while controlling prime costs is important, it shouldn't come at the expense of quality or service. The goal is to find the right balance between maintaining profitable operations and delivering the experience your guests expect.
Sometimes, investing in higher-quality ingredients or additional staff training can lead to increased sales that more than offset the higher costs.
3. Balance Sheets
Your restaurant's balance sheet provides a snapshot of your business's financial position at any given time.
In simple words, it shows what your restaurant owns (assets), what it owes (liabilities), and what's left over (equity). This critical report helps you understand your restaurant's overall financial health and is essential for making long-term business decisions.
In a restaurant, your assets typically include your current inventory of food and beverages, any prepaid expenses like insurance or rent, and your physical assets like furniture, kitchen equipment, and perhaps the building itself if you own it.
On the liabilities side, you'll find everything your restaurant owes to others. This includes short-term obligations like outstanding vendor invoices and payroll, as well as long-term debts such as equipment loans or mortgages.
Understanding your liabilities helps you manage your debt load and plan for future payments.
The equity section shows the owner's stake in the business, including any initial investments, retained earnings, and the current year's profits or losses. This section effectively tells you what would be left if you sold all assets and paid all debts.
4. Profit and Loss Statement
Your profit and loss statement (P&L), also known as an income statement, shows your restaurant's financial performance over a specific period, typically monthly, quarterly, or annually.
This report tells you whether you're making or losing money by detailing your revenue, costs, and expenses.
The revenue section of your P&L breaks down all sources of income. In a restaurant, this typically includes food sales, beverage sales, catering revenue, and perhaps merchandise or gift card sales.
It's helpful to separate these revenue streams to understand which aspects of your business are driving growth.
Your costs section starts with the direct costs of generating your revenue, often called the cost of goods sold (COGS). For a restaurant, this primarily means food and beverage costs.
Understanding these costs as a percentage of your revenue helps you maintain proper pricing and portion control.
The expenses section includes all your operational costs beyond COGS. This includes labor costs (wages, salaries, benefits), occupancy costs (rent, utilities, maintenance), marketing expenses, administrative costs, and other operating expenses.
Breaking these down by category helps you identify areas where costs might be getting out of control.
The bottom line of your P&L shows your net profit or loss – what's left after subtracting all costs and expenses from your revenue. This number, both in dollars and as a percentage of revenue, is a key indicator of your restaurant's financial success.
5. Overhead Rates
Understanding and managing your restaurant's overhead rates is crucial for maintaining profitability and making informed pricing decisions.
Overhead includes all the indirect costs of running your restaurant – the expenses you incur regardless of how many meals you serve on a given day.
Your overhead costs typically include rent or mortgage payments, utilities, insurance, licenses and permits, administrative salaries, marketing expenses, and equipment maintenance. These costs remain relatively fixed month to month, unlike variable costs like food and hourly labor which fluctuate with sales volume.
To calculate your overhead rate, start by totaling all your indirect costs for a given period. Then, divide this total by your sales revenue to get your overhead rate as a percentage of sales.
Most successful restaurants aim to keep their overhead rate between 20-30% of total revenue.
It's important to regularly review your overhead costs for opportunities to reduce them without compromising quality or service.
This might involve negotiating better rates with service providers, implementing energy-efficient practices to reduce utility costs, or finding more cost-effective marketing strategies.
6. Cost of Goods Sold
Cost of Goods Sold (COGS) represents the direct costs associated with producing the food and beverages you sell.
This crucial metric helps you understand the basic profitability of your menu items and guides decisions about pricing and menu engineering.
To calculate your COGS, use this basic formula:
Beginning Inventory + Purchases - Ending Inventory = COGS
For example, if you started the month with $10,000 in inventory, purchased $30,000 in supplies during the month, and ended with $8,000 in inventory, your COGS would be $32,000 ($10,000 + $30,000 - $8,000).
Tracking COGS effectively requires regular inventory counts and detailed purchase records.
You need to monitor this metric both overall and by category (food vs. beverage, or even more detailed categories like proteins, produce, and dry goods). This detailed tracking helps you identify where costs might be getting out of control.
Your COGS percentage (COGS divided by total sales) is a key indicator of your menu's profitability.
Most restaurants aim to keep food cost percentages between 28-35% of food sales and beverage cost percentages between 20-25% of beverage sales. However, these targets can vary based on your restaurant's concept and market position.
7. Gross Profit
Your restaurant's gross profit is a fundamental metric that tells you how much money you're making from your food and beverage sales after accounting for the direct costs of producing these items.
It's essentially what's left after you subtract your Cost of Goods Sold (COGS) from your total sales revenue, before considering other operating expenses.
Calculating your gross profit is relatively straightforward: subtract your total COGS from your total sales revenue.
For example, if your monthly sales are $100,000 and your COGS is $35,000, your gross profit would be $65,000. The gross profit margin, expressed as a percentage, would be 65% in this case.
Understanding your gross profit helps you evaluate the basic efficiency of your restaurant operations. A healthy gross profit margin gives you the cushion you need to cover your overhead expenses and still generate a net profit.
In the restaurant industry, gross profit margins typically range from 65-70%, though this can vary significantly based on your concept and menu mix.
Your gross profit can fluctuate based on several factors. Rising food costs, changes in menu mix, pricing decisions, and portion control issues can all impact on your gross profit margin. Regular monitoring helps you spot trends and address issues before they seriously affect your bottom line.
3 Common Restaurant Accounting Mistakes You Must Avoid
Understanding and avoiding common accounting mistakes is crucial for maintaining accurate financial records and ensuring your restaurant's success.
Let's examine three critical areas where restaurants often encounter accounting challenges and learn how to prevent these errors.
1. POS Transactions and Expenses
One of the most common accounting mistakes occurs in handling POS transactions and daily expenses.
Many restaurants fail to properly reconcile their POS data with actual bank deposits and cash on hand. This oversight can lead to significant discrepancies in your financial records and make it difficult to track your true income.
To avoid this mistake, you need to implement a daily reconciliation process that includes matching all POS transactions with actual payments received.
For cash transactions, on the other hand, you must create a system for properly documenting all voids, comps, and discounts, ensuring each has appropriate management approval and explanation.
Most importantly, you need to track small daily expenses that might seem insignificant. Those quick runs to the store for emergency supplies or minor equipment repairs can add up quickly.
Therefore, you should also establish a clear system for recording and categorizing these expenses, and ensure all receipts are properly documented and entered into your accounting system.
2. Inventory Records
Poor inventory record-keeping is another common pitfall in restaurant accounting.
Many establishments fail to maintain accurate, real-time inventory records, leading to discrepancies between their reported and actual food costs. This can result in pricing errors, waste, and lost profits.
Ideally, you should implement a consistent system for tracking inventory from the moment it enters your restaurant until it's used in a dish. This includes properly recording all deliveries, tracking waste and spoilage, and maintaining accurate recipe costs.
Remember to account for inventory items used for purposes other than direct sales, such as employee meals, tastings, or complementary items.
These uses still represent real costs to your business and should be properly tracked and accounted for in your inventory records.
3. Third-Party Delivery Sales
With the growing popularity of delivery services, many restaurants struggle to properly account for third-party delivery sales and fees.
These transactions can be particularly tricky because they involve multiple parties, different fee structures, and delayed payment processing.
The best way to tackle this is to create a separate tracking system for delivery platform sales that accounts for both the gross sales and the various fees charged by delivery services.
Whatever you do, don’t make the mistake of recording only the net deposits you receive – this can lead to inaccurate sales reporting and make it difficult to evaluate the true profitability of your delivery business.
Furthermore, you must pay special attention to the timing of delivery platform payments and how they align with your accounting periods. Some platforms may batch payments from multiple days together, or there might be a delay between when a sale occurs and when you receive payment.
You need to ensure these transactions are recorded in the proper accounting period to maintain accurate financial statements.
Restaurant Accounting Best Practices
Managing your restaurant's finances effectively requires following established best practices that can help you maintain accuracy, prevent errors, and make informed business decisions.
Let's explore five crucial aspects of restaurant accounting best practices.
1. Regular Financial Audits
Regular financial audits serve as your restaurant's health check-ups, helping you identify potential issues before they become serious problems.
These audits should go beyond just reviewing your numbers – they should examine your entire financial management system.
That said the best way to get started is establishing a regular audit schedule. While daily reconciliation catches immediate issues, you should conduct more comprehensive audits weekly or monthly. These audits should examine all aspects of your financial operations, including cash handling procedures, inventory management, payroll processing, and vendor payments.
Your audit process should include reviewing all financial statements for accuracy and completeness. This means checking that all transactions are properly recorded, categorized, and documented.
In addition to reviewing numbers, you should also consider operational audits that examine your procedures and controls. This might involve observing cash handling procedures, reviewing security footage, or checking that proper documentation is being maintained.
These operational audits help ensure your financial policies are being followed consistently.
2. Effective Use of Restaurant Accounting Software
Modern restaurant accounting software can dramatically improve your financial management, but only if you're using it effectively.
The key is to choose the right software for your needs and ensure you're taking advantage of all its features.
Your accounting software should integrate seamlessly with your POS system and other operational tools. This integration reduces manual data entry, minimizes errors, and provides real-time financial insights.
Most restaurant accounting software can generate a wide range of reports, from basic financial statements to detailed analysis of specific metrics like food cost percentages or labor costs. You can use these reports regularly to monitor your performance and identify trends or issues that need attention.
Furthermore, you must customize your software settings to match your restaurant's specific needs.
This might include setting up your chart of accounts to track the categories most important to your business, creating custom reports that focus on your key performance indicators, or establishing alerts for when certain metrics fall outside acceptable ranges.
Remember that even the best software is only as good as the data it contains.
So, you must maintain strong procedures for data entry and verification and regularly check that information is being recorded accurately and completely.
3. Prime Cost Monitoring
You must always keep a close eye on your prime costs to maintain a profitable restaurant operation.
Your prime costs – the combined total of your labor and food costs – typically represent the largest controllable expenses in your restaurant.
To do this effectively, you need to set up a system for tracking prime costs weekly rather than monthly. This frequent monitoring allows you to spot trends and address issues quickly before they significantly impact your bottom line.
In addition, you should even create a standardized report that shows your food costs and labor costs both in dollars and as percentages of sales.
Based on this, you can compare these numbers against your targets and industry standards to identify areas needing attention.
4. Educate Yourself and Staff
Ongoing education about restaurant finances is crucial for you and your team's success.
The restaurant industry constantly evolves, and staying informed about financial best practices helps you make better decisions for your business.
This is why you must invest in your own financial education and consider taking courses in restaurant management and accounting, attending industry seminars, or working with a restaurant financial consultant.
The better you understand your financial metrics, the more effectively you can manage your business.
Apart from yourself, you should also consider extending this education to your management team. Your managers need to understand how their operational decisions impact the restaurant's financial performance.
Remember that education isn't just about formal training sessions. Look for teachable moments in daily operations.
When issues arise, use them as opportunities to explain the financial implications and discuss better approaches. You can even share success stories when goals are met or improvements are made, helping staff understand the connection between their actions and the restaurant's financial success.
5. Strategic Planning for Future Revenue
Strategic planning for your restaurant's future revenue requires a comprehensive approach that combines historical data analysis with forward-thinking initiatives.
This planning process helps you anticipate challenges, identify opportunities, and create a roadmap for sustainable growth.
The best way to do this is by analyzing your historical financial data to identify patterns and trends. Specifically, you should look at your sales data across different timeframes – daily, weekly, seasonal, and annual – to understand your business cycles.
This analysis helps you predict future revenue patterns and plan accordingly.
Apart from this, technology integration can also play a crucial role in future revenue planning. For instance, you can evaluate how new technologies can help you increase efficiency, reduce costs, and create better guest experiences.
This might include implementing online ordering systems, developing a mobile app, or using customer relationship management (CRM) software to improve marketing effectiveness.
All in all, remember that strategic planning is an ongoing process that requires regular attention and adjustment to remain effective in an ever-changing industry.
Conclusion
Running a successful restaurant requires more than just great food and excellent service — it demands a solid understanding and implementation of proper accounting practices.
As you've learned throughout this guide, restaurant accounting encompasses everything from daily bookkeeping to strategic financial planning, each playing a crucial role in your establishment's success.
Whether you're a new restaurant owner or an experienced operator looking to optimize your financial management, implementing the practices covered in this guide will help you build a stronger, more profitable business.
However, managing restaurant accounting while running a busy establishment can be challenging at times.
That's where VirtueCPAs come in. Our team specializes in restaurant accounting and understands the unique challenges you face.
We provide comprehensive accounting services tailored to the food service industry, helping restaurant owners like you focus on creating exceptional dining experiences while we handle the financial details.
Ready to take your restaurant's financial management to the next level?
Contact VirtueCPAs to schedule a consultation and let us help you build the strong financial foundation your restaurant needs to thrive.