Many restaurant business owners are not aware of the basic accounting concepts that can make them more profitable and help with recording financial transactions. This blog post will cover some of the basics, including what they all mean and how to use them to improve restaurant income and operating expenses. The first topic is an introduction to the top budgeting mistakes you can make, followed by a brief look into accounting periods, general restaurant accounting methods, etc. Each one has its own set of benefits so it's important for you to understand which ones would be best for your particular needs.
Before we dive into the concepts of restaurant accounting, let's first quickly cover the basics of what accounting is and why it matters.
So then, how does bookkeeping differ from accounting?
Accounting can be defined as a systematic way to record, classify and analyze business transactions to make better decisions for your restaurant or foodservice business. The keyword here is decision-making because having good information about how much money you are making (or losing) and where that money comes from (and goes to) is critical to making good business decisions.
Accounting doesn't just allow you to make manage financial data, though; it also has a huge impact on non-financial areas of the restaurant such as marketing and staff management. It can even affect your food costs!
Because of its importance in every area of your business, you must get the right information out of your accounting systems. This will help to improve food and beverage sales and profitability while also keeping track of financial obligations like restaurant payroll taxes or other state regulations.
There are many different types of restaurant accounting software available these days which can make tracking specific kinds of data easier than ever before. We will mention these at the end of the blog.
It's important to understand that accounting systems simply organize and record your business transactions into different accounts which will then help you make decisions for the restaurant.
Accounting is the systematic way to record, classify and analyze business transactions to make better decisions for your restaurant or foodservice business. This helps with financial data but also other areas of the restaurant such as marketing and staff management.
Bookkeeping, however, is used to summarize all financial transactions into the three main categories which are assets, liabilities, and owner's equity. These are then recorded as accounts under the chart of accounts.
Top 10 budget mistakes
Here are some budget mistakes you may be doing:
- Management is not involved in budget creation. It can be difficult to implement a restaurant budget that was not created by those who are responsible for the results.
- Operational budgets aren't measured against actuals monthly. This is a mistake because it can make things difficult when you need to tell someone about how your operational budget did during the month, quarter or year based on what happened as opposed to what was planned.
- Failing to budget for marketing. In this competitive world, the marketing budget is a must for any restaurant because it is the only way that you can advertise your restaurant's services and attract customers. This should ideally be a percentage of your sales!
- Failing to account for your POS system costs and/or not factoring in the cost of technology updates. This is a part of the budget that many restaurant owners neglect.
- Incorrectly budgeting for food costs. When you plan your restaurant's menu and determine the fixed costs, make sure that the total amount of all these expenses does not exceed what you can spend on ingredients every month.
- Failing to account for seasonality when planning a restaurant budget. You should be aware of what the budget picture will look like during times when business is typically slow so that you can plan accordingly.
- Not including planned capital expenditures in a restaurant's budget. If there are any major equipment purchases or renovations which need to be made, then it should always go into your operational budget because it shows how much money you have available for this purpose and how much you will need to spend each month.
- Failing to account for the restaurant's change in inventory levels when writing a budget. If there is going to be an increase or decrease in your overall inventory, then this needs to factor into how much money it will cost you every month.
- Making over-generalized assumptions about total food sales and costs. It is important to have a restaurant budget that you can work with. However, this means that it cannot just be made up of arbitrary numbers which you think will happen during the month or year because these assumptions might not turn out how you want them to if your sales forecasts and operational expenses are inaccurate.
- Ignoring external factors. There are a lot of things that can negatively affect your restaurant's budget. For example, if you do not factor in the extra costs associated with employee benefits or insurance when planning for operating expenses then it will be difficult to account for these kinds of expenditures later on because they might end up being much higher than you ever imagined.
What are accounting periods?
An accounting period is the time frame for which your restaurant maintains its books. This can be daily, weekly, or monthly depending on how often you need up-to-date information to make business decisions.
Generally speaking, most restaurateurs choose a month-end date as they find this works best with their financial cycles and reporting needs. The different restaurant accounting periods are:
Some restaurants choose to have a daily accounting period as it allows them the flexibility of being able to update their books at any time during the month. This can be useful if you are looking for specific information on an ongoing basis or need up-to-date sales data to make good decisions about marketing and staffing.
One of the most common types of accounting periods is done at the end of every month. This will give you 12 months to get your books in order so it can be a good idea for larger companies or those with high volume business.
Other restaurant owners choose to have a monthly accounting period for their books because it does not require as much administrative time or effort. It is also easier in terms of budgeting and planning future sales growth since you can get an accurate picture at the end of each month.
The downside, however, is that your data will be slightly less up-to-date than if you had a daily accounting period.
Many restaurants choose to have an annual restaurant accounting period as well – especially start-ups which do not require up-to-date reports or financial information regularly. Quarterly is also another popular choice because it gives the business owner enough time to put together a comprehensive report at the end of each quarter.
The restaurant accounting year is another option that can be useful for those restaurants that only need financial information once per year (such as for tax purposes). If you choose this method, it may make sense to hire restaurant accountants or bookkeepers who will take care of your reporting needs and give you an overview of your restaurant revenue.
Restaurant accounting methods
Net profit is one of the most important things that an accountant or restaurant owner pays attention to because it is a crucial form of information.
It is the difference between what is earned for the year and what has been spent during that same time. Net profit tells you if your restaurant's sales are higher than its expenditures, meaning it is making money, thus your restaurant is in a good position in terms of its finances.
The net profit can be calculated as follows:
Although you do not need to know this number right away it will still provide valuable insight into how much money you are making for every sales dollar you bring in.
The next step is breaking down your net income into its different components which will tell you more about where the money came from or went during a year.
These components are called accounts:
- Cost of goods sold
- Gross profit margin
- Restaurant labor cost
- Cost to sales ratio
Cost of goods sold (COGS)
This includes the prime costs associated with what you are selling; from producing or purchasing items such as, supplies and ingredients for menu items. It also accounts for any fees related to shipping goods directly to a customer's home.
Some examples of supplies and ingredients are:
- Garnishes (Oranges, lemons, cilantro, basil, etc.)
- Napkins, paper towels, toothpicks, straws, utensils to go, etc.
- Condiments (Ketchup, mayonnaise, mustard, etc.)
- Cleaning supplies (Detergents, soap, sponges, etc.)
- Baking supplies (Parchment paper, foil, etc.)
- Ingredients (Sugar, salt, flour, spices, olive oil, etc.)
Often, these costs will be deducted from the revenue which you have earned on a sale of goods or services. This is because COGS directly relates to the cost of providing that good/service and should not be taken into account when you are looking at how much money has been made in total.
COGS can be calculated as follows:
Gross profit margin
Gross profit margin is a ratio that tells you how much of every dollar earned has been kept by the restaurant after all expenses have been paid. It is one way to determine if your restaurant's products or services are priced at a rate where there will be enough money leftover for both operating and capital expenditures.
The gross profit margin can be calculated as follows:
This gives you an idea of how much money has been made after everything has paid for itself in terms of producing or procuring it to be available for sale. Hence, the gross profit margin is expressed as a percentage, the percentage being the amount of revenue your restaurant made over your cost of goods sold.
For example, if your restaurant made $20,000 in revenue and had COGS of $12,000 then the gross profit margin would be 40%.
Restaurant labor cost
This refers to all of your labor expenses excluding payroll taxes. This includes both hourly staff members and salaried managers. Some expenses may include:
- Wages/salaries (including overtime pay, bonuses, and commissions)
- Workers compensation insurance premiums
- Unemployment insurance premiums paid by a restaurant owner or a franchisee to the state unemployment agency in states where they have employees
- Employee benefits (Health insurance, life insurance, worker's compensation payments)
- Taxes / Licenses
In most cases, these costs will be deducted from a restaurant's revenue. However, if you are charging your customers for some of the things that labor cost covers then you might want to consider adding it as an expense in your financial reports.
Cost to sales ratio
This refers to the percentage of food and beverage sales that are directly linked back to a particular product or service. In other words, it calculates how much you have spent on each item in your menu based on what you have sold plus any costs associated with your operating expenses for this section of the business. This can be calculated as follows:
If a company has $100,000 in total revenue and $15,000 of that came from the product, then the cost to sales ratio would be calculated as follows:
$100,00/($15,000 + any other costs) = 0.66 or 66%
The higher the number, the more you are spending on each item; which will make it easier for you to pinpoint profit losses and low-set menu prices. In other words, your costs are too high relative to the amount of revenue that comes from selling those products and services.
Chart of accounts
A chart of accounts includes all the various types of revenue, costs, assets, and liabilities related to your restaurant over time.
For example, you might track the money your restaurant makes from both regular customers and special events separately. You might also track the money you spend on advertising, supplies, and rent separately.
You may also consider having a separate business account for your restaurant. This is particularly useful if you want to track the numbers of each venue separately; that is if you have multiple locations.
In general, you want to make sure that your chart of accounts is set up in a way that makes it easy for you to see how profitable each part of your restaurant is and where you should focus more resources. The best way to do this would be through a profit and loss statement.
A profit and loss statement is an important report for restaurant owners because it allows you to see how much money your business has made or lost over a certain period of time.
A profit and loss statement has:
- Total Revenues
- Gross Profit
- Gross Profit Margin
- Total Expenses
- Net Profit
- Net Profit Margin
An accurate profit and loss statement tells you how much money you are making or losing each month. Restaurant owners must understand this because it tells them how efficient their business is and shows where they need to invest in more resources.
This refers to the costs directly associated with producing your menu items, so it calculates your COGS combined with your labor costs. It is used as a restaurant financial metric that can help you determine how profitable each item on your menu is (versus just looking at total revenue). Prime costs do not include things like rent or supplies. Some examples of costs included in this calculation are:
- Food and drink purchased for use as an ingredient or to be sold (produce, meat, fish, and dairy products). It also accounts for the cost associated with any items such as packaging which gets added at a later stage so it can still be considered part of your restaurant expenses.
- Services used for your restaurant or a specific menu item that you have paid for and do not include in the cost of goods sold, such as Bartender services (Mixing drinks).
- Cooking equipment service fees (such as those from commercial cooking ovens or stoves). These would be reported separately on an invoice from the vendor.
- Cleaning services (Dishwashing, vacuuming floors)
- Shipping service fees for items such as food and paper goods
- Inventory shrinkage costs (Items that are misplaced or become damaged before they can be used). This is a type of loss you would take when preparing menu item components in your restaurant kitchen.
- Delivery service fees from 3rd party delivery companies
Depending on your circumstances, the prime cost of a menu item may be simply calculated by taking an average of what you paid for that food or drink. Alternatively, it can also be determined by looking at the exact prices which were charged to specific invoices from suppliers you have received and labor needed to keep your restaurant in production.
To calculate the prime cost for one dish:
For example, if you made $100 in revenue selling one menu item and the food cost was $40 combined with an additional labor cost of $20 then your prime cost would be calculated as follow:
$100/($40 food costs + $20 labor costs) = 0.
So, a high prime cost means that each item on your menu is costing you a lot to produce and sell which means that the restaurant would need to make more revenue from selling it to make profit. If you were looking at this number as an example, then anything lower than 0 would indicate that it's likely not making much of a profit when sold to customers.
Menu price forecasting
Menu price forecasting is the process of predicting how many customers will be ordering your dish on a particular day, week, or month. By estimating the number of customers who will order your dish, you can predict how much food to order accordingly. If you over-order products, it will cost you more money which is why it's important to consider this when planning how much food to buy.
What would be the most profitable price for a single menu item? In this example, we're going to say that our restaurant charges $7 for a sandwich and just wants to know what is the optimal amount they should charge for that sandwich.
In order to calculate this, divide the COGS cost by the desired profit margin:
$40/$20= $0.75 (rounded to the nearest cent)
The optimal menu price is therefore estimated at 75 cents per sandwich. This means that you would sell more sandwiches if they cost less than this, but it also means that you will end up losing more money.
The worst price to charge for a single menu item is, therefore, anything above this number, which means any prices under $0.75 per sandwich but over the cost of goods sold ($40) would be considered unprofitable when selling one sandwich.
Menu forecasting can also help do the following:
- Keeps the chef in the know about what food and beverage ingredients to prepare daily.
- Helps to ensure that dish inventory on any given day remains at a level that is appropriate for the number of anticipated customers who will be ordering that dish.
- Ensures that your kitchen staff is only preparing what will sell daily.
The turnover ratio is an important part of your restaurant's overall net profit. The total sales figure includes all of the items you sell that add up to your menu's complete cost.
To calculate the turnover ratio, you need to divide the cost of goods sold by the average inventory. This will determine how much inventory gets sold over some time (depending on when you decide to calculate your turnover ratio).
For example, if a particular dish costs you $60 in food and labor cost to make but for some reason, it's not selling, well then your turnover ratio will show whether or not this item is worth keeping on the menu.
By using this type of measure, it will be easier for you to determine which items on your menu are making the most money and which ones are not; making it easier for you to improve profitability.
Inventory turnover ratio can also help you determine which items to keep on your menu and which ones need to be eliminated.
Food cost percentage
Food cost percentage is the amount of revenue you need to spend on food. It's calculated by dividing your total food costs by the total sales.
To calculate your food cost percentage you divide the total food costs by the total sales:
For example, if a restaurant has $100,000 in expenses and $60,000 comes from buying ingredients (food costs) then that would mean they have 60% food cost which means 40% goes towards everything else.
Food costs are the cost of all food products that you use to prepare your dishes which includes everything from meat, poultry, fish, dairy products, fruits, and vegetables as well as other ingredients like spices or condiments, etc.
The reason why finding out your food cost percentage is so important is because it helps you determine what your food costs are and how much money you need to spend on ingredients.
You can start by calculating the average price of all items on your menu, which will give you a good idea about how much each dish needs to cost. Once you have this information, then it's simply a matter of dividing your total food costs by your menu price to find out what percentage of each dish is made up of ingredients.
Once you know the ratio you can use it as a benchmark for future menus or simply continue using this number on an ongoing basis.
This is the total amount of money that you owe your employees and suppliers for products or services. Accounts payable can be divided into two categories: supplier accounts and employee accounts, though in most cases they're usually lumped together under one name which makes it easier to manage all accounting-related tasks.
Your accounts payable total is the amount of money you have to pay out before being able to receive any income or revenue. All aspects related to this number must be understood since it will help you determine how much money your business needs to be successful.
This is the amount of money the restaurant owes to the employees and suppliers. It's important that you know what your accounts receivable total is because it will show you how much of a cash management problem you're having - which means more interest on financing, less money for expansion, etc.
To determine your accounts receivables you need to add up all the money owed by customers for bills, invoices, and credit card transactions. This number will reveal how much is outstanding from clients, so you must keep track of this figure at all times to ensure there aren't any major problems.
The journal is the first step in recording transactions in a double-entry accounting system.
It involves three accounts:
- The Debit account, which will be increased by the amount of the transaction;
- The Credit account, which will be decreased by the amount of the transaction;
- An Expense or Income summary account, which will have a zero balance after all business transactions are recorded.
Journal entries can be classified as either temporary or permanent accounts.
A permanent account is where the transaction amount remains in that account until it's closed out at some point, while temporary accounts reflect income and expenses only for a certain period before being closed out into another type of account.
Temporary accounts are closed out in another type of journal entry called a closing entry, which is used to transfer the temporary account's balance into one or more permanent accounts. The primary function of this process is to ensure that all debits equal all credits within each journal entry before being posted to ledgers and ultimately its respective account.
This refers to the type of accounting method that includes expenses and revenues together in one financial statement balance sheet at the end of an accounting period. Essentially, it is based on estimates rather than actual figures for expenses and sales revenue.
For example, if you are using the accrual accounting method, then it would be recorded as an expense when planning your operational budget; which means that it will not affect income statements until after you have incurred this cost.
The main benefit of using the accrual accounting system is it allows restaurant owners to more accurately reflect expenses and revenue in their financials.
For example, if you are using the cash-basis accounting system then it would be impossible to know how much money your restaurant made after-tax until all of your bills have been paid, which means that there is a chance that it might not even be profitable because many expenses may have gone unpaid for months in advance.
If any of these ratios are not within the limits that you have set for your restaurant, then it is time to take action.
By taking a look at these metrics daily, you will be able to make changes quickly so that they are more in line with what needs to happen over the long term. Some of these metrics may serve you, while others may only apply in the future as your restaurant adapts.
Let's move on to the types of occupancy and operational expenses that come with running a restaurant.
Occupancy and operational expenses
If you are operating on a low budget, then it might be useful for you to examine whether or not your occupancy and operational costs are too high. If so, then it might be worth looking into ways of reducing these costs which could include things like cutting back on expenses or negotiating better deals with suppliers.
When many people think about occupancy and operational costs, they tend to focus on restaurant rent; however, this is not the only expense that should be taken into consideration when planning your budget. There are several other factors that will be listed below.
Are the costs that relate to renting or leasing a property where you can conduct your business. Occupancy expenses are important because they have a direct impact on the total cost of owning and operating your restaurant.
By examining these costs, you can help to ensure that the business has a chance of being profitable after all expenses have been taken into consideration. Data has shown that the restaurant business is growing, with an average sales increase of 8%. Occupancy expenses include things like rent or lease payments as well as utilities and other bills related to running your restaurant.
It also includes things like:
- Utility bills (electricity, hot water, oil, gas, and refrigeration)
- Property taxes and insurance (fire, floods, theft, pest invasion)
- Equipment costs (furniture, appliances, fixtures, uniforms, dish-ware)
They are costs that are associated with running your restaurant on a day-to-day basis, including everything from salaries for staff members to food supplies.
It also includes things like:
- Staff salaries (kitchen staff members, waiters/waitresses, delivery drivers)
- Labor Cost (social security taxes, insurance plans, and payroll taxes)
- Costs of Goods Sold
- Maintenance costs (repairs to equipment / fixtures / furniture / appliances; pest control services; rubbish removal; HVAC service calls; painting expenses)
- Advertising / Marketing Costs
- Promotional expenses (prizes, giveaways, contests)
- Marketing costs (online advertising; flyers and posters)
- Interest payments on your business loan/mortgage payment
- Taxes and licenses: property taxes, business license fees, sales tax, liability insurance premiums
- Inventory variance and shrinkage
These costs will vary depending upon the size of your restaurant or how many employees you have working there at any given time.
For example, if you are running a large restaurant with several waiters on staff then your operational costs will be higher than they would be for an owner who only has one or two employees.
It is important to understand the operational expenses that come with running your restaurant because they are included in calculating how much you make after-tax. If you are not aware of how much your operational expenses are, it can take a long time for you to find out if your restaurant will be profitable.
Tips for restaurant budgets
Set budget targets
It is important to set a budget target for your restaurant because it will help you take a look at the profitability of your operations. There are three components to calculating your budget:
- Calculating your menu's price forecasting (PFP)
- Calculating your cost of goods sold (COGS)
- Calculating your occupancy and operational expenses
For example, if you have been doing well with sales forecasting and inventory turnover ratios then it might be time to invest in other areas which can further increase profits.
If there are certain things that you want your restaurant's operational budget to focus on improving, then you need to set some specific targets so that these improvements will happen.
For example, if you know that the profitability of your restaurant is suffering because you do not have enough employees, then it might be a good idea to use your budget target to hire more workers.
Make sure that the targets are achievable so that they will actually get done and don't go overboard with what can realistically happen. You should also break down these goals into smaller steps if necessary to make them more manageable.
Another budget consideration is your projection budget, which is a tool that will help you determine whether or not your restaurant can make money.
In order to create this budget, you should start by looking at the finances of previous months and how much profit was made on average per month after all expenses were paid.
Once you have reached this number, it might be time for you to consider investing in restaurant accounting software that will help you manage your restaurant's finances better.
Forecast your sales
Sales forecasting is a prediction of future sales and supply requirements that takes into account historical and expected data on your business.
Forecasting sales is an important part of restaurant accounting because it will help you set up your operational budget.
If this is your first time forecasting your restaurant's sales, then it might be a good idea to work with a professional accountant or someone who has experience in a restaurant accounting firm to give you a more accurate prediction.
The reason for this is because over-forecasting sales can detrimentally affect your restaurant's operational budget. By forecasting too high, you might end up having to cut back on certain expenses later which will decrease the profitability of your business.
The other reason why this is important is because, if you forecast sales incorrectly, it can also cause problems with cash management, since supplier invoices may not be paid on time.
If you choose to skip professionals to forecast your sales, you may want to consider using a spreadsheet instead.
To develop a forecast of how much you will make, you should take a look at records from previous years which can help you see how much money people are spending on average. These records may include the income statement, the income tax return, or the bank account statement.
After you have reviewed the records, you should be able to get a fairly accurate prediction of how much money your restaurant will make in the future.
Set your contribution margin
The contribution margin ratio is a key metric that relates to your restaurant's cost of goods sold. It calculates how much money you have leftover from each dollar in sales after accounting for the costs associated with producing and selling any items on your menu.
There are two types of contribution margins: a unit margin, which looks at individual products, and a total margin, which looks at the entire restaurant.
This formula calculates your unit contribution margin:
Your contributions are the earnings you receive from selling meals to customers minus all of your costs for making or buying those items. Items that contribute towards this number include food, beverages, and labor costs.
While a contribution margin shows you how much profit is generated for each individual item that your restaurant sells, it may be more helpful to think of this ratio as the number of dollars left over from every dollar in revenue after all expenses have been paid.
The total margin plays an even larger role than unit margins.
This formula calculates your total contribution margin:
Your total contributions are the earnings you receive from selling meals minus all of your costs for making or buying those items. Items that contribute towards this number include food, beverages, and labor costs.
While a contribution margin shows you how much profit is generated for each individual item that your restaurant sells, it may be more helpful to think of this ratio as the number of dollars left over from every dollar in revenue after all expenses have been paid.
It can also be beneficial to look at what percentage of sales and costs contribute towards the total margins rather than the absolute dollar amounts.
For example, let's say that you sell one type of dish for $20 and it costs your restaurant $15 to make this item. Using the previous formula, we would find out that this unit margin is 25%.
However, if we use a percentage rather than an absolute value here then we can see that 75% of your restaurant's revenue comes from selling this dish and 25% of your costs go towards making it.
You can also use the same formula to calculate a total margin percentage by using an absolute value, which would be $20 in sales minus $15 in variable costs divided by the total dollar amount ($45) coming into your business (in this case, it would be 38.89%.)
Use balance sheets
A balance sheet is a financial statement that shows what assets, liabilities, and shareholder equity an organization has.
Some factors you may want to consider tracking include the opening balance sheet, current year closing balance sheet, income statements, cash flow statements, and working capital ratio.
Subtracting total liabilities from shareholders' equity will give you the net worth of your business.
You may also want to compare previous years with this year's closing balance sheet to see how much money your restaurant has made over time, which can be another indicator of financial health.
Tracking these will allow you to better monitor your restaurant's net worth and see how well your business is doing overtime.
Budget for sales events, promotions, festivals
There are a lot of different sales events that restaurants may want to take part to boost their business.
Some examples include restaurant-specific promotions, holiday specials, and happy hours.
If you are unsure how much to charge for certain items during these events, then you may want to use the cost-plus pricing method. This means that you will take your product's total costs and add a certain percentage on top of it in order to determine what price you should sell it for.
You may also want to take into account the additional time that it will take your employees to prepare for these sales events and factor this cost in as well.
It is important to understand how much money you need, what drives profitability, and all of the factors which influence restaurant success. Once you have gained a better understanding of each one, you will be able to see how they can all work together for your restaurant to run more effectively.
Set accounting periods
Accounting periods are the designated times at which accountants make adjustments to accounting records or prepare financial statements.
As mentioned earlier, you may want to look into monthly and quarterly accounting periods as well as annual ones. These can be set up in your restaurant's system of record (SOR) and will help keep everything together over time.
Since there are 12 months in a year, this means that most people will come up with annual sales which is what they expect for their business over one year.
However, you may want to consider doing it on a per quarter basis instead which can give your restaurant's management team more insight into how sales are going in the current year as well as provide useful information for inventory management.
Another idea is using accounting ratios, which can be calculated from financial statements. Accounting ratios are used by accountants to help them monitor the financial performance of businesses. A lot of these ratios measure how well a business is doing and whether it is healthy financially or not.
Some of the most commonly used accounting ratios include working capital ratio, turnover ratio, asset utilization and liquidity ratios.
- The working capital ratio is based on the current assets and current liabilities. Current assets include cash, stocks, and inventory; meanwhile, current liabilities are those that will need to be paid within a year such as accounts payable and long-term debt.
- Turnover ratio is a comparison of sales and cost of goods sold also known as COGS. We spoke about this in more detail at the beginning of the article.
- A restaurant's asset utilization is measured by comparing its total assets to annual sales
- The liquidity ratio is a comparison of the current and quick ratios, which are all found on cash flow statements. The quick or acid test ratio is calculated by taking the firm's most liquid assets (cash, marketable securities, etc.) and dividing it by current liabilities that can be paid within
You should also keep in mind that some companies may have a different fiscal year-end compared to others which is why you will want to check on this before beginning your analysis.
Pay attention to minimum wage changes
The minimum wage is set to increase in many provinces across the US and Canada in the next few years. This change will affect the restaurant industry and you should be aware of all of these changes if they apply to your business.
You may want to take a look at what's happening in your area as well as with labor laws that are going into effect soon which can affect your restaurant's labor costs.
Find the right accountant/bookkeeper
Hiring an accountant is something that you can do to help your restaurant manage its finances.
You will want to choose someone who specializes in the restaurant industry and has experience working with restaurants so they are well versed on what your business needs in terms of accounting services.
Another factor to consider when hiring a professional accountant or bookkeeper is that they have the right licenses and certifications.
Make sure your accountant passes these tests because it means that they are up to date on tax laws, regulations, and other important information in the restaurant industry. It can be a huge advantage for you to hire someone who has this knowledge since it may save them time when completing certain tasks or projects.
Consider non-profit accounting
Nonprofit accounting is a subset of accounting that is designed specifically for nonprofit organizations. Nonprofits can have a number of different structures, but they all have the same goal: to provide a service or pursue a cause without being financially self-supporting.
The primary function of nonprofit accounting is to track any incoming and outgoing funds in order to ensure the organization's financial stability. Nonprofit accounting services help organizations keep their records up-to-date so that they are able to submit appropriate IRS forms on time.
Nonprofit accounting also helps ensure the organization's finances are always in order, which can help it maintain its tax-exempt status with the IRS.
Restaurant accounting software
One of the most important investments you can make as a restaurateur is investing in restaurant bookkeeping and POS systems that will help manage all aspects of your business, from your beginning inventory to sales forecasting.
POS data gives owners insight into their restaurant's key performance indicators over time to track inventory, sales, and labor costs. It can also help you control food cost since it will allow you to track items that are expiring soon so they don't go to waste.
A lot of restaurant owners use accounting software for everything from creating budgets to managing their cash flow projections. Accounting software connects to your POS which allows your accountant to generate accounting reports, a daily sales report, find out the average check size, determine tax contributions, labor costs, and perform financial reconciliation.
Some benefits of using this type of program include:
- Boosts operational efficiency and effectiveness
- Helps with hiring, training, and managing your employees
- Simplifies your data-entry activities
- Creates your own invoices and regular profit and loss statements (cash flow)
- Increases company transparency by giving everyone real-time access to financial data. This is especially important for owner-operators who want their staff members to be aware of how the business is doing at any given moment during the day/night to be as productive as possible.
- Keeps track of your inventory and receivables so you know where things stand financially at all times. You can also create reports that will help you identify trends, such as which items sell the most during certain seasons or on different days of the week.
- Streamlines accounting tasks and save time since you can do things like schedule bills to be paid automatically, receive real-time financial updates, and create budgets based on your sales projections.
Some accounting software systems are:
- Quickbooks Online - this is a cloud-based solution that can be accessed from anywhere and on any device.
- Xero Accounting Software - this software has over one million businesses around the world using it. It's an easy-to-use accounting program with great customer service which will help you save time and money.
- Sage 50 - this is an accounting program that will help you manage all of your restaurant's finances. It includes inventory control, purchase order management, sales analysis and forecasting, payroll services, job costing features, reporting tools etc.
- Microsoft Dynamics - this software is a great option for those who want to use it on their desktop and mobile devices. It also has access to an online portal where you can manage your restaurant's finances from anywhere at any time.
- FreeAgent - Invoicing & accounting software for freelancers and small businesses. It also integrates with many of the most popular payroll providers such as Paycheque, ADP, or Braintree and allows you to create invoices, manage expenses, and get paid online.
- Freshbooks - online invoicing and time tracking software for solo freelancers, consultants, or teams that bill clients by the hour or project.
- Zoho Books - accounting software with invoicing, payroll & more for entrepreneurs and business owners who want to run their business in one place.
- OnPay - a simple way to pay your employees and get paid by them. It's payroll software that integrates with Quickbooks, Xero, or Wave Accounting.
- Wave - an accounting program that helps you do everything from creating budgets and send invoices to accepting online payments from customers, clients, vendors, etc.
- GP - a free and simple accounting program that helps you do things like create budgets, generate reports, etc.
Restaurant owners can use various forms of accounting software to simplify their business and increase the accuracy of their financial data. Accounting software is a great way for restaurant owners to manage all aspects of their restaurant's finances from anywhere, at any time, and on any device; including desktop or mobile devices.
The right accounting program will make it easier for you to create budgets, find out the average check size, determine tax contributions, labor costs, and perform financial reconciliation.
The restaurant accounting concepts outlined at the beginning of the article are useful in helping you understand what accounting is and the importance it serves when done properly.
Managing a restaurant can also be a question of hiring accountants who can help you create budgets and manage your restaurant's finances alongside your accounting software.
Once you have a better understanding of the basic concepts of what restaurant accounting software can offer, you'll be able to make educated decisions about whether an online or offline solution will work best for your restaurant. Now that you have a basic idea of the do's and don'ts, you can better determine what step to take next to upgrade the accounting techniques you're currently using.
See your ROI rise with WISK, you'll never have to tackle the complexities of restaurant accounting on your own. Our unwavering support and comprehensive solutions are here to guide you through the journey and equip you with the necessary tools. From managing expenses to tracking revenue and ensuring accurate financial records, WISK is your dependable partner in achieving financial clarity. Rest assured that WISK is here to assist you every step of the way. Never miss the chance, book a call now!