Restaurant Accounting: A Beginner’s Guide
There is a common mistake that eager restaurant entrepreneurs often make. And that is branching out on their own without sufficient accounting education. You might have worked many years in the restaurant industry. But without the necessary accounting knowledge, your experience will only take you so far.
Our goal today is to help you avoid the pitfalls of ill-planned restaurant ventures. Our beginner’s guide to restaurant accounting teaches you the basics of the financial side of being a food-based business owner.
Here’s What We’ll Cover:
Is Restaurant Accounting Really That Important?
Chefs and cooks starting their own business often struggle with the financials of the restaurant industry. You might have a general understanding of accounting. But restaurant accounting is another animal entirely.
What’s more, even the most successful chefs can fail if they don’t know how to manage restaurant accounting. So, is it really all that important? Absolutely. A lack of accounting wherewithal can crush your endeavours in an instant, no matter how well-intended you are.
When you have a firm grasp on the accounting side of business, you stand a much better chance of turning a profit. And profit is one of the single most important aspects of being a business owner.
It’s also worth noting that almost half of all start-up failures are due to poor accounting knowledge. So as you can see, the need for restaurant accounting is essential to your success.
Restaurant Accounting 101: Where to Start
Let’s go ahead and get an unavoidable truth out of the way: restaurants tend to have thin profit margins. Because of this, your success hinges on an accurate accounting process and limited accounting mistakes.
The basics of restaurant accounting start with creating a profit and loss statement. This will enable you to keep track of your business’s profits over a set period of time. You can further simplify your accounting duties by downloading FreshBooks.
This cloud-based accounting software consists of tools that streamline your financial reports. You can track your incoming and outgoing expenses, track employee time, create invoices, and so much more.
FreshBooks makes it easy to maintain your financial records, too. You can create a daily sales report and use key performance indicators to improve your operations. And that’s not all. Want to create a balance sheet to better manage your assets and liabilities? FreshBooks has you covered.
It’s ideal for anyone unfamiliar with accounting in general. But because the tools are so robust and intuitive, FreshBooks is perfect for accountancy professionals, too.
Once you have FreshBooks in your corner, managing your finances will be a breeze. It’s the edge every new business owner needs to ensure their success. And you’ll have all the tools you need in one place to better manage your profit and loss statement.
In fact, FreshBooks lets you create profit and loss statements straight from its accounting software. As such, your restaurant bookkeeping efforts will be far more manageable.
What to Include in Your Profit and Loss Statement
As one of the most important records you can keep, your profit and loss statement needs to be perfect. That means making sure you include the proper components. Let’s take a look at what your profit and loss statement should look like.
For obvious reasons, you want to keep a log of how many sales you make and what they total. It’s important that you keep track of every menu item that you sell, regardless of how insignificant you might think it is.
Costs of Goods
This category is for your supply cost and food cost. Depending on what’s popular, your restaurant expenses can vary each month. But you can order food ingredients and other supplies more accurately by keeping track of your sales based on what trends over time.
What’s more, you will enjoy better financial health when you are able to predict your food cost on a daily basis. It will take some time before you get the hang of your restaurant’s financial performance. In fact, you might struggle to predict your food cost on a weekly basis or even a monthly basis. But when you finally do, your financial statements will become much easier.
Fixed Operating Expenses
This category is for operating expenses that stay the same each month (or about the same). Such operational expenses include things like:
- Waste disposal and collection
- Building rent
There are many other fixed costs that you might pay each month.
Every restaurant owner should know how much inventory they have on hand at any given time. This means knowing the value of your stock, so you know what’s in your restaurant. Moreover, restaurant inventory works hand-in-hand with your ordering process and sales.
And proper inventory management ensures optimal financial health and better profit margins. What’s more, accurate inventory management leads to fewer accounting errors. It is therefore imperative to your success that you strive for precise inventory counts at all times.
You should see a trend with each category at this point. They all tie in with one another to make your profit and loss statement succinct and accurate. But there are still a few more that you should add.
You need to keep track of what you spend on supplies, and the same holds true for your labour costs. Part of the revenue you make in sales goes toward paying your employees. Leaving out this data will result in an inaccurate profit and loss statement.
The majority of your expenses are those which you can anticipate every month. But there will be occasions when you might have to pay for an unexpected repair or replacement. Those payments go in your Miscellaneous category.
You won’t always have these types of expenses each month. In fact, this category might be blank for some months. But when you do have an unexpected expense, you’ll know where to place it in your profit and loss statement.
What You Will Learn From Your Profit and Loss Statement
The data from your profit and loss statement tells you a lot about your restaurant’s financial status. By seeing your financial transactions and sales ratio in real-time, you can make adjustments where needed.
In doing so, you can tighten up operating costs, which is essential to make a business profitable. And the more you excel at accurate bookkeeping, the easier it will be for you to adjust your controllable expenses.
By using these restaurant accounting tips in your business plan, you can look forward to a stronger daily sales report.
Restaurant owners who are just getting started may feel the need to seek out restaurant accountants. But you can manage your own restaurant accounting services with the right software. When you have the accounting tools that FreshBooks offers, you won’t need to spend money on accounting firms.
FreshBooks puts restaurant accounting software in your hands. Its simple yet robust interface helps you learn accounting principles as you manage your restaurant. You can easily create accounting reports to fit your needs. And because FreshBooks gives you professional tools, you are in control of your accounting method.
If you would like more helpful insights and tips for small businesses, be sure to head on over to our Resource Hub. You’ll find information on how to start a business in the UK, tax essentials, and much more.