Restaurant accounting is a uniquely complex process. Financial transactions pass through a variety of employees, including hosts, servers and bartenders. With all these inputs, a comprehensive accounting process is a must for restaurant owners — it helps you maintain accuracy, stay legally compliant and maximize profits.
Importance of efficient restaurant accounting
Restaurant accounting is the process of recording, monitoring and analyzing a food-service company’s financial transactions. A solid accounting system tracks the restaurant’s finances, providing a clear picture of the health of the business.
Efficiency is critical, especially in the restaurant industry — restaurants often operate on tight profit margins, so every dollar counts. Accurate records help you manage cash flow and calculate the cost of goods sold. That way, it’s easier to make smart decisions about vendor selection, inventory management, menu development and menu pricing.
The transactions at your restaurant involve a variety of unique factors, including tips, sales taxes and sales of non-food items such as gift cards. As you track your finances, you’ll also need to monitor information such as:
- Daily sales
- Payroll costs
- Inventory costs
- Food costs
- Money owed to suppliers
Historically, restaurants used pen and paper to manage their books. Today, most businesses use accounting software to save time and increase accuracy. Some programs even integrate with your point-of-sale (POS) system.
Restaurant accounting methods
Whether you handle your own bookkeeping or work with a restaurant accounting services provider, it’s important to select and stick to a specific method. Most restaurant owners use one of two accounting methods:
- cash accounting. With this restaurant accounting method, you record income as soon as you receive the cash. Similarly, you record expenses as soon as you pay for them.
- Accrual accounting. This strategy requires you to record income when the transaction happens, regardless of when you receive the funds. When you order goods or services, you record them right away — even if the money hasn’t left your account.
Because diners typically pay for their food costs immediately, cash accounting is a popular method of accounting for restaurants. It’s well-suited to smaller businesses; this method tracks money as it flows in and out, making it easier to monitor cash flow.
As your restaurant grows, accrual accounting is a better option. It’s more complicated, but it provides a more accurate picture of your finances. The IRS requires you to use this method if you carry inventory or if your gross receipts for the previous three tax years were more than $26 million.
How to do bookkeeping for your restaurant
An efficient and accurate restaurant accounting system creates a foundation for long-term success. Whether you’re opening a new restaurant or revamping existing bookkeeping procedures, use these steps as a guide.
- Select the right POS system and restaurant accounting software. The best accounting software for restaurants includes programs that connect directly to your POS system. Your daily transactions will flow into your financial records in real time, so you don’t have to spend time transferring data manually. This strategy also reduces the risk of human error. You might choose restaurant-specific programs such as Restaurant365 and MarginEdge or stick with familiar platforms such as QuickBooks or Xero.
- Track sales. Set up your restaurant accounting software and POS system to record sales each day. Every evening, run a sales report that breaks down food and beverage figures. You can also track other KPIs, such as top-selling items, high-performing services and sales trends for each day of the week. This process helps you identify problems, manage sales tax compliance and discover opportunities to increase profits.
- Record accounts payable. Record the money that your restaurant leaves for things such as food costs, inventory management, delivery fees, grease-hauling services, and advertising. Before you pay each bill, review the invoice for accuracy. To make sure you don’t miss due dates and incur late fees, it’s helpful to set aside time every week to settle accounts.
- Pay your employees. Record and disburse to payroll, paying close attention to tips and required state and federal taxes. Most restaurant owners must manage employment taxes for income, Social Security, unemployment and Medicare. You can handle the process yourself or outsource it to a payroll company to ensure you hold the correct amount and deposit the funds on time.
- Create a chart of accounts. This tool provides a top-level view of your restaurant’s assets, debts, revenue, equity, and expenses. You can customize it to include the cost of goods sold (COGS), or the amount of money it costs to make the dishes on your menu. This information helps you plan inventory and adjust the menu.
- Run and review financial reports. Reports help you understand how your restaurant is doing financially. While the specific reports can vary, most restaurants benefit from analyzing the sales report, profit and loss statement, cash flow statement, balance sheet, and inventory management report. Review your reports on a quarterly basis, and make sure to provide them to your tax services company when you pay income, employment, and sales tax.
- Set up a reconciliation process. About once per month, compare your financial reports to the records your business produces: POS sales data, bank statements, loan documents, payroll records and credit card statements. Make sure the two sets of data match; if they don’t, it’s important to find and correct the problem. Your restaurant accounting software is likely to have built-in reconciliation tools to speed up the process.
A partner that understands your business
Accounting for restaurants takes time, but it’s an essential part of a stable and successful operation. To make sure your delivery orders are flowing directly into your POS system and accounting software, partner with Grubhub — it integrates with top POS brands and offers convenient payment options to streamline your financial processes.