The Importance of Restaurant Accounting- How to Keep Track of Your Money

What is Restaurant Accounting?

Restaurant accounting looks at a restaurant's financial transactions, including the management of fixed assets like kitchen equipment, air-conditioners, refrigerators, point of sale or POS hardware, furniture, etc; management of costs, revenue, accounts payable (amount of money that the restaurant owes to vendors), and accounts receivable (amount of money owed to the restaurant). When done with the help of software, accounting can take advantage of automated and in-depth data reporting and analysis.

A comprehensive account of the restaurant's assets, liabilities (like leases on equipment and property, outstanding supplier bills, and loans), costs, and revenue is what populates the general ledger, providing the business owner with a sea of data on the basis of which financial statements like balance sheets, cash flow statements, income statements, and equity statements can be cobbled together.

Some of the specific elements that are considered while undertaking accounting exercises for restaurants include food sales and food cost, labor cost, expenditure on purchasing and holding inventory, expenditure on loyalty programs, rewards, and discounts, cost of goods sold (COGS), prime cost (a combination of labor cost and COGS), and money spent on utility bills, taxes, repair, maintenance, and purchase of new hardware and software.

Restaurant accounting integrates with, and has a bearing on, all other aspects of restaurant management, namely inventory management, supply chain management, customer relationship management, workforce management, task and time management, point of sale or POS system, food safety management, and business intelligence.

Why is Restaurant Accounting Important?

Accounting is one of the most vital parts of running a restaurant business. It ensures that the resources of the restaurant are used optimally, and helps in sales/demand forecasting, budgeting, and provisioning. Careful tracking of accounts sees to it that the restaurant doesn't end up with a shortage of funds. Accounting also serves up data to suggest ways to increase revenue and cut costs.

Restaurant accounting covers all aspects of restaurant management and integrates them as part of a single whole.

Restaurant accounting examines the amount of money allocated for purchasing and maintenance of stocks. It then matches it against current and projected demand/sales to decide whether your expenses on food are overshooting your budget and if you are making wasteful purchases or buying products that don't have many takers. Purchasing more than what is in demand will lead to food wastage and undue additions to food costs.

Accounting allows restaurants to divert money to the pressing needs of the business, such as securing ingredients for most sought-after menu items. Additionally, an examination and analysis of sales figures will reveal the varying popularity of a restaurant's offerings. With the help of this accounting data, businesses can make stronger decisions around which items to produce more of or advertise, and which to discontinue.

Similarly, a look at the accounts of multiple units of a restaurant will tell an operator which unit deserves more investment, either to expand a well-functioning business or to shore up a struggling one.

Accounting will also tell you if your establishment is adequately or excessively staffed. It shows you which employees are more productive than others so that you can offload additional and unproductive labor, and thereby reduce costs. A look at sales at different times of the year, and even at different times of the day will tell you when you need more employees and when you can make do with reduced staff.

Examination of your finances is also necessary to decide if you want to continue with or extend discounts, rewards and customer loyalty programs. It will also guide you on how much to spend on advertisements. Accounting will also tell if you are well-placed financially to expand your business, for instance, invest in new hardware or software, add to your seating capacity, offer more exotic items, or open a new store.

A look at the operating costs would also let restaurant owners determine how much is to be invested for regular repairs at brick and mortar stores, and for establishing a robust online architecture, including online ordering and delivery, curbside pickup, etc.

Restaurant accounting can be difficult and time-consuming, especially for small business owners who are juggling a lot of different tasks.

If you want to run your restaurant and make money at the same time, restaurant accounting is an important part of the process. This article will help you get started.

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Traditional Restaurant Accounting Systems

Accounting in restaurants was traditionally done manually with accountants scribbling away numbers on sheets of paper and doing minute calculations. Financial transactions were entered into accounting books by hand. There were often multiple ledgers with separate accounting books for recording different types of account, from sales to payroll. This information would then be used to generate financial statements.

A manual ledger for accounting contains several rows and columns for recording transaction date, account type, amount of transaction, and whether it is a credit transaction or a debit one.

A startup or a small business that has limited resources may want to make do with manual accounting systems, considering their low costs. Moreover, such systems may serve small businesses adequately given their low volume of transactions.

When pen and paper was replaced by computers, the software initially developed was quite rudimentary. It was wedded to fixed computer terminals at the business site, which meant that data stored in on-premise computers could be accessed only through a visit to the office. This affected efficiency, making collaboration between stakeholders difficult.

Traditional computer-based accounting systems were also costlier than cloud-based systems because on-premise systems occupied server space, and called for regular maintenance, updates, and troubleshooting. In fact, updates to traditional accounting software have to be done manually in response to changing needs. This makes it a tedious process that hinders scalability. Traditional accounting systems are also prone to data loss as a result of system crashes, hardware failures, and theft.

The answer to the difficulties faced by traditional systems of restaurant accounting rests with cloud-based platforms that can be accessed by anybody in real time sitting anywhere in the world, and since they use remote servers, the overhead costs of a business are greatly reduced. Data are also highly secure in the cloud owing to the application of measures like data encryption, authentication, and secure backups.

Benefits of Restaurant Account Software

In order to stay competitive and keep earning profits, no food and beverage establishment can do without monitoring its finances, including accounts payable (money that the company owes) and accounts receivable (money that is owed the company). The restaurant needs to expand food sales and at the same time control costs. With accounting software, financial monitoring is automated, which allows restaurants to be less dependent on accountants and minimize human mistakes while ensuring that accounting is done regularly.

Accounting solutions also automate expense tracking and provide a comprehensive view of expenses such as labor costs, food costs, taxes, maintenance and repair costs, and so on. This makes sure that the cash flow doesn't dry up. Automated software also alerts users to payments that are to be made. Moreover, business owners can get an idea of exact cash situations with the accounting software reconciling cash transactions with bank statements.

Restaurant accounting software supports detailed financial reporting, gathering information from various types of restaurant management software like the POS system, inventory management system, employee management system, task and time management system, customer relationship management system, business intelligence system, and food safety management system.

The information collected is then interpreted by the accounting software to generate actionable insights in the form of pie charts, tables, and graphs. These insights allow restaurants in identifying obstacles to revenue growth, as well as cost escalations.

Financial reporting and analysis can also lead to improved budgeting and sales forecasting. Accounting software can also aid in asset management, including functions like acquisition, capitalization, depreciation, and retirement of assets such as the restaurant building, refrigerators, kitchen equipment, furniture, air-conditioners, POS hardware, etc.

Another vital role played by restaurant accounting software is to ensure tax compliance by acting as a database for tax forms, and by automatically calculating taxes, filling up forms, and even filing taxes. This spares restaurant owners the trouble of undertaking highly complicated tax computation and filing processes.

How Does Restaurant Accounting Software Work?

Accounting software for restaurants employs either the cash-based or the accrual accounting method.

Under cash-based accounting, income is recorded when it enters the account, and costs are noted at the time of making payments. A software aligned with the cash-based accounting method generates customer invoices and exports them as PDF or other types of files. This method specifies rates of sales tax, line items, and prices, and lets organizations manage payments.

A cash-based solution helps in monitoring payments to suppliers, generating and printing tax forms, and processing payments to independent contractors, attorneys, and payments for rent and royalties. Rudimentary reporting, including tax summaries and payment history, is also offered.

On the other hand, accrual accounting recognizes costs and revenue as and when business transactions occur, irrespective of when payment is actually made and cash enters or leaves the account. In fact, accruals are entered into the balance sheet even prior to the payment or receipt of money.

Accordingly, accounts payable point to the money that businesses can expect to spend, while accounts receivable refers to the money expected to be earned as revenue.

Of the two accounting methods, the accrual method paints a clearer picture on what the sources of income are and how expenses are incurred. It makes better sense, especially for organizations handling sizeable revenue (for instance, more than $1 million).

However, the simplicity of cash-based accounting sometimes leads businesses to avoid the accrual method, even though sophisticated accounting software can streamline and automate accrual accounting.

Keeping track of your restaurant expenses is hard work. There are so many expenses to consider and it's easy to lose track of what you're spending.

Restaurant accounting software can help you keep track of your finances, so you can spend your money wisely.

Download now!

Top 3 Restaurant Accounting Software

1. Zip Reporting-
This software gathers highly complex data, including financial data, consolidates it in a single location, and presents it in a simplified, visual form. The reports generated by this software solution help businesses identify variance in food usage at different stores, variance for ingredients, and scheduling variance. These insights then allow restaurants to control their operating costs. In fact, reports can be produced for multiple locations, and data for all branches or franchise stores can be accessed from one nodal point. Thanks to cloud syncing supported by this software, data can be accessed in real time on any mobile device, even far away from the business site. This software solution is available on the Hubworks app store.

2. QuickBooks Online-
This software solution customizes invoices and sales receipts. Another defining feature of this software solution is banking integration by virtue of which financial statements and transactions can be automatically updated. Accounts can be accessed and businesses managed using any handheld device, at any time of the day and from any place. Reports and customizable dashboards ensure that the financial health of the organization can be monitored in real time. It saves time by allowing the scheduling of recurring payments. Furthermore, the time tracking feature of this software allows businesses to clock staff time and billable hours accurately. It also lets billable hours of clients and workers be monitored and automatically added to invoices.

3. Sage Intacct-
This is a cloud finance software that automates complicated billing processes. Businesses are able to track several accounts with real time visibility which helps in robust cash management. This software solution lets businesses automate and speed up the functioning of quote-to-cash cycles. These refer to sales cycles, from the sharing of a quote to the closing of a deal. Quick and actionable insights can be produced with the help of strong reporting features, and users can conduct data analysis on-demand. Sage Intacct supports quality predictive analytics, and allows users to choose from an array of over 200 built-in visuals, and customize the way data is visualized.

Restaurant Accounting FAQs

Q. What is a chart of accounts?

A. The entire list of financial accounts used by an organization for its internal accounting is referred to as a chart of accounts. It describes each account, notes the account type, and contains summaries of account balances. A chart of accounts lets business owners gather data on the status of each account, while monitoring and reporting the financial health of the organization.

Q. Is it safe for an organization to store financial data in the cloud?

A. Yes, storing data in the cloud is absolutely safe. Businesses, however, should not be in any doubt regarding the credibility of the software service provider and ensure that the software in question hasn't had any security breach. A software solution that uses data encryption should be preferred.

Q. What is the ideal accounting period?

A. The business volume in a restaurant tends to be influenced by the day of the week. For instance, a restaurant may see high customer footfall on Friday nights, and hence, earn more handsome revenues than on a quiet Tuesday. Therefore, according to the food cost management platform Orderly, a four-week period of accounting may be used in place of monthly accounting. The former looks at four weeks at a time, with each week extending from Monday to Sunday. This facilitates comparison between time periods in different years. Monthly accounting doesn't offer this benefit, as the same month in different years may have a different number of Fridays. This is a vital statistic for the restaurant industry.

Q. Does a restaurant's staff need to be trained to run accounting software?

A. Accounting solutions are usually very user-friendly and easy to use, and no special training is required to operate these software platforms. They can be used to monitor costs and income, print reports, and produce invoices.

Running a restaurant is hard enough without having to worry about the accounting. If you're not careful, you could end up spending your money in all the wrong places. Or worse, you could lose it altogether.

You need to have a system that will help you keep track of your money and avoid wasting it. Restaurant accounting software will do just that.

Download now!