The Ultimate Guide To Restaurant Accounting

restaurant accounting

Restaurant accounting is a challenging task but the more efficient you are in it, the better you can manage your restaurant operations. Modern-day restaurants deal with a lot of things- rising competition, evolving customer demand, the influx of orders from different platforms (online and offline both), the rising craze of takeaway and deliveries and not to forget the unending pressure of running a smooth restaurant with no breakdowns. No matter what your challenges are, one thing remains constant and that is making it a profitable business.

Now, when we talk about profits, it is all about managing your finances in a way that you do not suffer at any end of the business. This again implies that you must be involved in the detailed collection, analysis, and interpretation of various financial metrics and then make informed financial decisions. This is where efficient restaurant accounting plays a crucial role and helps restaurants understand their financial worth and identify ways to add to it.

The rapidly changing restaurant landscape has also affected the traditional approach to restaurant accounting and today, the smart restaurant takes an automated route to manage their business finances. POS technology has proven a lifesaver, enabling restaurants to be more efficient and profitable. Reports suggest that the demand for POS software for restaurants has increased by 21% since before the pandemic.

So, how do you bring efficiency to your restaurant accounting process? This article talks about every aspect of restaurant accounting to help you take full charge of the financial aspect of your business.

Why restaurant accounting is important?

Before we start with how let us first understand why restaurant accounting is important. Like every other business, a restaurant needs to track its progress in terms of funds. There should be a record of expenses and income, appreciation and depreciation of assists should be accounted and the cash flow should be properly monitored. However, there are a lot of aspects of restaurant accounting that makes it different from other businesses. For example, you are dealing with perishable goods and then there are tips on top of payrolls.

Accounting is more than just monitoring the money that flows in the business. Restaurant accounting includes detailed financial data analyses with constant monitoring of KPIs such as stock turnover, wastage, cash flow, salaries, staff turnover, and gross profit margins. This is why accuracy and efficiency in restaurant accounting are imperative.

Understanding key restaurant accounting reports:

Every restaurant must regularly assess and interpret its financial data and efficient reporting plays a vital role in this process. With an error-free reporting process, you can easily work on a restaurant budget, monitor business transactions, make sales forecasts, and evaluate your financial performance in a set interval. Here are some important restaurant reports to understand:

Balance sheet

It is one of the most important financial reports for any business as it offers a detailed picture of your finances at a given time. This report includes assets, liabilities, and your invested capital (equity). The balance sheet is used for a range of reasons including:

  • Calculating the business assists
  • Assessing the debt-to-equity ratio
  • Identify trends

P & L statement

Also known as Income Statement, P & L Statement tells you how much your business earned and spent in a set period. It is a crucial report that serves as a basis for calculating business profitability, making strategies, and taking key decisions.

Revenue report

As the name suggests, this report talks about your revenue for a set period. This statement also helps calculate profits, make trend predictions, perform business period classification and strengthen budgeting decisions.

Cash Flow Statement

The cash flow statement compiles the data related to the inflow and outflow of cash in your business. A positive cash flow is what you want to maintain business profitability. When you have more inflow than outflow of cash, you are maintaining a positive cash flow.

Important restaurant accounting metrics

Every business is evaluated on certain metrics and monitoring these metrics closely is very crucial to manage your business’s health. To maintain a profitable business, it’s not only the sales that you must focus on but several other factors including all sorts of expenses and operating costs must be well-tracked. Efficient restaurant accounting ensures close tracking of several expenses which are then classified into different categories. Some of the most important restaurant accounting metrics include:

Labor costs

The money that you spend in paying the labor and bearing any other expenses related to them is entered under Labour costs. The labor involved in a restaurant includes cooks, waiters, servers, and all other employees who are registered in your payroll.

Labor costs = salary and expenses paid to the labour+ payroll taxes + employee benefits.

Cost of Goods Sold (COGS)

The cost of Goods Sold covers the comprehensive cost of producing the goods in the business. From a restaurant’s point of view, COGS covers the cost of ingredients, utilities, and other elements used in preparing food and beverages.

COGS= Starting inventory – ending inventory

Effective tracking of COGS is important as it helps you price your product right to maintain profitability.

Occupancy costs

The cost of occupying a place and running your business from it is put under occupancy costs. This includes rent of the property, property licensing fee, insurance, cost of utilities, and property taxes. It is a fixed cost for the business which means that it remains constant and you cannot alter it to reduce expenses and increase profit.

Operating costs

All other costs apart from the ones mentioned above are covered under operating costs. This usually includes equipment repair and maintenance costs, marketing costs, cost of advertising, cost of tableware, napkins, as well as laundry.

This miscellaneous cost head is one of the most challenging ones to handle. The majority of business struggle with managing their operating costs and hence demand a high level of accounting efficiency to categorize costs and then work on optimization.

How to set up an efficient restaurant accounting system?

An efficient accounting system in a restaurant can make or break the business. To ensure profitability and minimal hassle, you must focus on the following aspects of restaurant accounting.

Set up a reliable accounting cycle:

It is important to have a set accounting cycle for your restaurant business as data analysis is always better when you perform in set intervals. Experts have their concerns about keeping your accounting cycle on a monthly basis. This is because each month has different weekends and weekdays as well as holidays, making them unique.

The better solution is a quarterly accounting cycle. Each quarter must be 13 weeks long, preferably two 4 week months and one 5-week month. This allows you a better chance to compare the data, make an assessment of business performance, and calculate profitability.

Say No manual entries

Another important step to take when working on restaurant accounting is eliminating manual entries. The more you are dependent on manual entries, the higher your chances of errors in the financial statements.

The best solution to this problem is using accounting software for business. Modern POS software systems offer you the ease of automating your billing and accounting processes, eliminating the chances of human error. The best POS system can help you maintain error-free books with detailed entries of sale tickets, payment types, tenders, and more. You can also automate the entry of daily sales, labor accrual, and even inventory.

Adopt automation

The more you adopt automation, the better you can work on your restaurant accounting needs. Just like bookkeeping, manual entries and monitoring can work against you when it comes to inventory management, sales report, and more. On the other hand, modern accounting systems come with built-in inventory management and sales report features that guarantee accuracy.

Entries can be made to the software and every time you acquire, transfer, count, or waste inventory, you can make an update.

The same goes with sales reports as the accounting software can collect, organize and interpret the data for you, there are scheduled reporting options that make analysis and interpretation even easier.

Using accounting software for efficient restaurant accounting:

Thanks to technological advancement, efficient restaurant accounting is now easy to achieve. The number of restaurant accounting software available in the market cut short the hassle of dealing with data and analyzing it for better business management and decision-making process.

Accounting software does everything from collecting business data, creating reports, maintaining accuracy in books, and fulfilling all other accounting needs. Choosing a professional and reliable accounting software is important to take advantage of its many benefits, when you are shopping for reliable accounting software, you must keep a few things in mind including:

  • Budget
  • Requirements
  • Features
  • Ease of integration
  • Scalability

Restaurant accounting demands a lot of work and dedication. You must acquire all the required knowledge and invest in credible accounting software to ensure error-free accounting for your restaurant. These are some of the important aspects of restaurant accounting that we mentioned in this article. You must remember that these are the basis and that every business is unique and has its requirements.

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