Accounting for Restaurants: A Step-By-Step GuideEffective accounting for restaurants is one of the most important aspects of making your business successful. Since the profit margins in restaurants are slim, it is important to keep a watchful eye on the bookkeeping process. What makes restaurant accounting unique is the language of hospitality finance. For efficient accounting, you need to understand the ins and outs of how the food and beverage industry. What this article covers: income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
How to Do Bookkeeping for a Restaurant
Setting Up Your Books1. Find the ideal bookkeeper As an owner, you know the challenges of running a restaurant such as dealing with staffing, inventory management and controlling the cost of goods sold. It is important to find a bookkeeper who understands the complexity of the food and beverage industry, both front-of-the-house operations and back-of-the-house management. 2. Use an accounting software Choose an accounting software to streamline your data entry tasks, create customized invoices, track your revenue, create regular profit and loss statements and review your cash flow. The ideal bookkeeping software for restaurants should offer robust reporting features, be easy to use and allow you to access data anytime, anywhere. 3. Set up the chart of accounts The next step is to set up your chart of accounts which is used to categorize the money flowing in and out of your business. A standard chart of accounts includes assets, liabilities, expenses, revenue and owner’s equity. This is further broken down into business-specific categories such as inventory, sales and marketing. While setting up the chart of accounts, it’s important to decide the metrics you want to monitor. 4. Choose a POS system Whether you’re running a small bakery or a fine dining restaurant, you would need a POS system for cash management, sending receipts via text or mail, inventory management, order management and back-office reporting. Choose a system that is easy to use for employees and customers and that ties in with your accounting software.
What You Need to Track
- Accounts Payable
- Cash Management
Reporting and AnalysisHere are some key ratios to consider when reviewing the financial statements of your restaurant, specifically your weekly and monthly income statements.
- Food Costs
- Prime Costs
- Overhead Rates
- Cost of Goods Sold
- Gross Profit
What Is Cost of Goods Sold in a Restaurant?In the restaurant industry, the cost of goods sold refers to the supplies and ingredients that are used to make the items on the menu. COGS is determined by the following equation:
Beginning inventory + purchased inventory – final inventoryThe beginning inventory is the amount of food that you have in your kitchens and your storage rooms at the beginning of the period while purchases refer to the inventory you purchase in food and beverage orders in that period of time. Final inventory is the amount of food product you have left when the work week is over. For example, if your restaurant has $3,000 worth of inventory on hand at the beginning of the week, and you purchase another $2,000 of food products, you have $5,000 worth of inventory. The next week you count $2,000 worth of inventory. This gives you a COGS of $3,000. Choosing accounting systems for restaurants can help you eliminate the difficulty with restaurant accounting and help you manage your food costs easily. Most of these systems include financial software and point of sale (POS) systems to help you organize inventory count and execute transactions quickly.