If you’re a restaurant owner or in a management position in the restaurant industry, restaurant accounting is probably the last thing you want to think about. If you’re being honest, restaurant accounting is tedious, confusing, complex, and time consuming, and is more likely than not intimidating to take on. But what if it didn’t have to be?
Restaurant bookkeeping is one of the most important aspects of the business, and is actually pretty manageable, even if it may seem like a daunting task at first. By implementing a few of recommendations, tips and tricks from our accounting professionals at Financial Optics, you can become a pro at restaurant accounting in no time! So how do you tackle the monster that is restaurant accounting?
First, let’s talk about what restaurant accounting is and what it accomplishes. The process of recording, maintaining, evaluating and interpreting your restaurant’s financial data can involve recording transactions, analyzing ledgers, turning in your tax returns, tracking your budgets and making informed decisions from your financial insights.
Accounting practices help restaurants gauge their financial performance from financial reports such as income statements, balance sheets, cash flow statements, and more. Such insights provide the knowledge necessary to enable restaurant owners and management staff to make informed and strategic financial decisions moving forward for their business.
Now that you’re familiar with what restaurant accounting is, here are a few important financial statements and aspects we think you should note and keep track of when it comes to accounting in the restaurant business:
1) Profit and Loss (P&L) Statements indicate your performance on a monthly and weekly basis. Restaurant owners and managers can use this sheet to get an overview of how to shape future budgetary actions. A P&L statement can also help you determine your restaurant’s profitability and your profit margin ratio.
2) A balance sheet will provide a better picture of what kind of assets the restaurant owns versus what the restaurant owes and the kind of equity it has. An easy formula to remember when it comes to your balance sheet is:
Assets = Liabilities + Equity
You can use your balance sheet to assess the financial status of your restaurant at any given time in order to take any actions or make decisions for your restaurant’s financial future.
3) Similarly, your cash flow statement will show you how much cash is coming in and out of your restaurant. This makes it easier for restaurant owners and management to evaluate the ways in which they can cut back on spending and outgoing expenses, and whether or not they have the cash necessary to grow towards their projected targets.
Remember, even if you have large amounts of cash flowing in, it doesn’t mean much if there’s more cash going out.
4) When you track your sales and receipts, you can keep track of total sales for your restaurant’s food, beverages, and sales tax amounts collected on your receipts. Recording these financial transactions alongside food costs, food inventory, and sales can help you stay organized and have a better idea of your overall inventory.
5) Another important metric to track is your restaurant’s prime cost, which includes your COGS (Cost of Goods Sold) value along with all labor costs. This is a significant consideration, as the cost of labor can cover more than you’d think, including employee benefits like PTO, healthcare and insurance, taxes, salaries, overtime, and more! Because COGS and labor costs often make up the majority of a restaurant’s expenses, it’s crucial to be aware of your prime costs.
6) Inventory! Inventory! Inventory! If you’re managing restaurant accounting, you need to be tracking your inventory, especially if you’re using the accrual accounting method. Tracking your inventory (especially food inventory) enables you to reduce your COGS as you can eventually turn your inventory (food, beverages, ingredients, etc.) into a product that you can sell and profit from. For example, food inventory like ketchup, red meat, pickles, bread, etc. can be turned into something that sells: Like burgers!
To calculate this, use the following formula:
Beginning Inventory + Purchases = Ending Inventory.
But how are you supposed to put it all into practice?
Hire an accountant! We know that restaurant accounting and bookkeeping is something that can be stressful or confusing for some business owners to manage. Hiring an accountant can significantly ease the worries you may be having. At Financial Optics, we have the most highly qualified accounting professionals to help you with all your restaurant accounting needs. With an accountant to help you look over, manage, and handle your financial information, you’ll feel more at ease.