Long hours, high overhead, wasted ingredients, and difficulty making profits are some of the barriers to success for restaurant owners.
Yet, for those who love the business or who dream of having a place where everyone knows your name, there’s no other opportunity that comes close.
An often neglected aspect of restaurant management is bookkeeping. Unfortunately, once you are behind on your restaurant accounting, it is difficult to get caught up.
The profit margins in the restaurant industry are too tight to let your bookkeeping slip. If you aren't watching your financials closely it may be too late to fix problems by the time you catch them.
This guide will help you understand the basics of what a trained accountant will help with as you develop a reporting and growth plan.
For a restaurant that already has a trained accountant, or is just looking for tax deductions for restaurant owners, it's crucial that the books are already up-to-date.
Effective restaurant bookkeeping starts with you. Whether you’re running the accounting services yourself or outsourcing your restaurant accounting, staying on top of the day-to-day bookkeeping is essential to stay ahead of your competition and turn a profit.
How do you handle bookkeeping for a restaurant? 5 Easy Steps!
|1. Record Sales||2. Set Up Accounts Payable||3. Outsource your payroll|
|4. Reconcile all accounts||5. Analyze financial reports|
1. Record Sales Through Your POS Daily
One of the first items you will have to figure out is how to properly record your sales. Many find using QuickBooks for restaurants is an effective recording system.
Record Your Sales Entries Per Day
Record a separate daily sales entry for each day (not monthly or weekly). With this method, your are mimicking how the cash and credit card deposits hit the restaurant's bank.
Most restaurants accept credit cards and settle the batch on a daily basis. This will result in a credit card deposit or deposits hitting your bank account separately for each batch.
You need to analyze how funds are hitting your bank and set up your restaurant bookkeeping system to mirror that activity.
Generate a Sales Report
In order to record the daily sales you will need to generate a report that summarizes your sales.
Most restaurant POS systems will have a daily sales summary built into them. If you need to customize the report to get more detailed information you will need to work through the customization with your POS system.
Create a Daily Sales Journal
Once you have a sales summary you should set up a daily sales journal entry and create a memorized transaction in QuickBooks.
2. Handling Accounts Payable
The next step of an effective restaurant bookkeeping process should be to set up accounts payable correctly. Keeping your vendors happy will be important if you want them to continue to do business with you.
- To start, learn how to enter bills and pay bills in QuickBooks; both are easy tasks to accomplish.
- Enter your bills 1-2 times per week and pay them once per week.
- If you are cutting checks for your bills you want to make sure to print checks from QuickBooks. This will automatically feed the payment information into your QuickBooks file, thus reducing unnecessary data entry.
- Another option is to pay your bills with online bill payment by linking your bank account to QuickBooks and signing up for online bill pay.
Pro Tip: Another part of your accounts payable will be setting up a credit card in QuickBooks. I have seen many users set up credit cards incorrectly in QuickBooks. A credit card should not be set up as an expense type account; it should be set up as a credit card type. Your expenses are recognized as you enter credit card charges. Setting up a credit card with the correct type will also allow you to reconcile the account, which is very important.
As a business owner, you are at major risk by doing your own payroll. If you incorrectly file your payroll taxes or file them late, the penalties and interest you will be assessed can be quite large. You are held at a high level of liability if you do not outsource your payroll to an accounting firm.
Outsourcing your payroll is surprisingly affordable and a necessary option to ensure consistent and reliable paychecks and accounting.
Every small business should outsource its payroll.
Pro Tip: Look for a payroll company that is very reputable. Require the payroll data to have the capability to be imported into QuickBooks and all reports and paychecks to be sent digitally. Not only does this save time, but it will also reduce payroll liabilities.
We use ADP's payroll service and recommend it to all our clients. Not only do our employees have a way to see electronically their pay stub, all their tax deductions, and even what they're saving on retirement, but they can also manage how much of their funds are deposited to their IRA or bank accounts.
Reconciling QuickBooks accounts is the single most important piece of the entire bookkeeping process.
Reconciling your accounts is the only way to know that you have recorded all of your financial transactions. You need to reconcile all of your accounts not just your bank accounts.
You should reconcile bank accounts, credit cards, loans, lines of credit, and payroll liabilities.
Any account that gets a statement with a beginning and ending balance can be reconciled. Account reconciliation ensures that you are looking at accurate financial reports.
5. Financial Reporting
If you are not using financial reporting for your restaurant, then you are running your business blind. With such tight profit margins in the restaurant industry, it is important to analyze your financial reports on a regular basis.
Restaurants should be looking at sales vs. cost of goods sold ratios as well as labor ratios.
Another ratio many restaurants should consider is the prime cost, which aims to keep the cost of food + beverage + labor at roughly 60% to 65% of your total sales.
Cost of Goods Sold
“Cost of goods sold” refers to the products you buy that make up your product. And in the restaurant business, it’s no secret that, in order to make food, you’ll have to buy ingredients.
If you’re opening a franchise restaurant business, such as Pizza Hut or TGI Friday’s, you’ll source your food directly from suppliers as instructed by the home office. But if you’re striking out on your own, you’ll be responsible for buying ingredients, possibly every day.
According to Toast.com, restaurants typically try to keep the cost of food to about 33 percent of their total sales.
Beverages are another expense, but the good news is that liquor is a great way to boost your profit margin. Chances are you’ve noticed this already if you’ve ordered a bottle of wine. The same bottle that costs $15 in your local liquor store could cost $30 or $45 when you’re out.
Cost of Labor
Labor expenses depend on your restaurant. Will your wait staff work for tips, or will you add gratuities to every bill? Will you furnish uniforms, or provide an allowance?
Waiters and waitresses that work for tips typically earn smaller hourly wages than those who don’t, but you’ll also need to pay for kitchen staff, hosts, valets, cleaners and other essential personnel.
Regardless of your choices, you’ll still need to pay unemployment taxes. And if you hire full-time wait staff, you may also need to furnish benefits. Many restaurants rely on part-time or seasonal employees to avoid this expense. Once you can anticipate your busy times, you can schedule your staff members accordingly.
Cost of Occupancy and Equipment
Unless you’re lucky enough to own space and your own equipment outright, you’ll need to pay for your infrastructure. That could be rent, or a mortgage and property taxes.
Utilities, cooking and cooling equipment, insurance and signage are common expenses, but you’ll also need to consider maintenance costs.
Remember, servicing your commercial ovens and refrigerators will probably cost more than what you pay for your Frigidaire at home.
Cost of Marketing and Administration
Lastly, you’ll want to get the word out that you’re open for business. That may include newspaper ads and billboards, in addition to social media.
Social media, at least, is free — and you’ll have direct access to the customer marketplace you want to serve. Offer promotions and coupons to get customers in the door.
There are a lot of free solutions that work really well. We actually have used Adobe Spark (now Adobe Express) in the past to create social media graphics.
You’ll want to pay yourself, of course, plus any contractors you need to help with necessities, such as bookkeeping. You’ll be plenty busy managing day-to-day operations, so consider outsourcing payroll, payables and other functions to a firm that can let you focus on making your business a success.
Looking at profit and loss comparisons to previous periods and years will also give you some insight as to how things are going financially.
Restaurant financial reporting can be the difference between success and failure.
Should I Outsource My Restaurant Bookkeeping?
As they say in the business industry, leverage your strengths and outsource your weaknesses.
Or, in the case of learning how to grow your restaurant, outsourcing leverages the actual cost of having an outsourced bookkeeper, versus an owner doing it themself.
Learning to delegate tasks is a necessary step in becoming an effective manager.
As a business owner, it can be tempting to take on all of the roles; however, outsourcing your restaurant accounting services will take the pressure and liability off of you and allow you to focus on the growth and management of your restaurant. Are you ready? Get started by scheduling a financial consultation of your business.
There are many other aspects that go into your restaurant bookkeeping like restaurant POS selection, inventory controls, controlling theft and handling cash. However, the 5 simple steps above will put down the foundation for a solid bookkeeping system. As you grow you will have to continually modify your bookkeeping system to meet your needs.
Is your restaurant bookkeeping system dialed in?
What is your biggest bookkeeping challenge?
[Original post date: 01/05/2015] Comments in the comment section may be dated before the revised publish date of this article.