The Basics of Restaurant Accounting and How to Streamline It?

If you own a restaurant, it’s important to have a strong understanding of accounting. After all, accounting is what tells you whether your business is profitable or not. By streamlining your restaurant accounting, you can save time and get a clear picture of your financial health. Here are some tips on how to understand and streamline your restaurant accounting.

If you’re like most restaurant owners, you didn’t get into the business to do paperwork and manage numbers. But a big part of successfully running a restaurant is understanding your finances and keeping a tight grip on expenses. The good news is, there are ways to streamline your accounting so it doesn’t take up all your time. Here is a guide to understanding and streamlining your restaurant accounting.

In order to streamline your restaurant accounting and ensure that you are making the most of your budget, there are a few key things that you need to understand. First and foremost, you need to be aware of your inventory and how much money you are spending on food and supplies. Additionally, you need to track your labor costs so that you can stay within your budgeted amount for payroll.

Article Content-

• What is Restaurant Accounting?
• Difference Between Restaurant Bookkeeping & Restaurant Accounting
• What are some of the key advantages of effective restaurant accounting?
• What are the several considerations that make accounting unique in the restaurant industry?
• Outsourced vs in-house restaurant accounting
• Advantages of outsourcing restaurant accounting
• Disadvantages of outsourcing restaurant accounting
• Advantages of in-house restaurant accounting
• Disadvantages of in-house restaurant accounting
• Which accounting method is best for your restaurant?
• Frequently Asked Questions (FAQs)
• Conclusion

What is Restaurant Accounting?

If you are thinking of opening a restaurant, you’ll need to understand the basics of restaurant accounting. Restaurant accounting is different from other types of businesses because there are special considerations for things like inventory and the cost of goods sold. In this article, we’ll give you a crash course in restaurant accounting so you can be prepared for success.

Restaurant accounting starts with understanding your sales. You will need to track how much money is coming in from customers, and what they’re spending it on. This information will help you make informed decisions about menu prices, portion sizes, and more.

You will also need to keep track of your food and beverage costs. This includes the cost of ingredients, labor, and overhead expenses like rent and utilities. By carefully tracking these costs, you can ensure that your restaurant is profitable.

Difference Between Restaurant Bookkeeping & Restaurant Accounting

When it comes to restaurant bookkeeping and accounting, there are a few key differences that you should be aware of. For one, bookkeeping is primarily concerned with the day-to-day financial transactions of a restaurant, while accounting takes a more broad approach and looks at the overall financial picture.

Another difference is that bookkeepers typically work with the raw data, such as receipts and invoices, while accountants may analyze this data and prepare financial statements. Finally, bookkeepers typically work on a more short-term basis, while accountants may be more focused on long-term planning.

Overall, understanding the difference between restaurant bookkeeping and accounting can help you make sure that your business is running smoothly and effectively.

What are some of the key advantages of effective restaurant accounting?

1. Take responsible action with your money

What is not measured cannot be improved. Keeping tabs on key performance indicators and metrics might help you identify problem areas in your firm.

If you see a negative cash flow (more money coming in than going out) on your cash flow statement, for instance, you will know you need to act quickly. You can do this by raising monthly sales through a special campaign, decreasing monthly expenses (perhaps by switching suppliers or purchasing lower-quality goods), or securing finance from an outside source.

2. Get your finances in order

A budget is a plan for one’s future finances that details one’s anticipated sources of income and outgoings. The ability to accurately estimate future revenue and expenses is made possible by proper accounting, which in turn allows for the creation of reliable budgets.

3. Remain compliant

Accurate accounting eliminates the risk of a court battle with the Internal Revenue Service over disputed tax returns. Furthermore, it ensures that you follow rigorous accounting standards. Generally Accepted Accounting Principles are a set of guidelines that all American corporations must adhere to (GAAP). The concepts, processes, and procedures outlined below are those that businesses and accountants must adhere to when preparing financial accounts.

What are the several considerations that make accounting unique in the restaurant industry?

Accounting is distinct in the restaurant business for a number of reasons. These consist of:

1. Tip management

Different methods of handling tips are either chosen by restaurants or mandated. It might be challenging to keep your staff satisfied while maintaining an accurate balance sheet and paying payroll taxes, whether it’s tip pooling, splits, or tips by paycheck vs. cash tips.

The way tips are handled is also changing in some areas, with some restaurants opting to raise prices while completely eliminating tips.

2. Inventory control

Restaurants, like most businesses, must maintain an inventory of the raw materials that will be transformed into finished goods supplied to customers. In order to reduce the cost of goods sold, restaurant inventory management enables you to properly monitor and account for the value of these raw materials on your balance sheet.

Businesses often get away with quarterly or annual inventory counts in other sectors, like manufacturing or retail. However, restaurants must do inventory counts on a daily, weekly, or monthly basis.

The beginning and ending inventory values for particular periods, as well as the cost of items sold, are determined by these inventory counts.

3. Cash flow statements or profit and loss (P&L) statements

Frequent P&L statement generation might significantly affect your company. Knowing how your restaurant is doing not just on a monthly basis, but even weekly, can provide you with more cost visibility and enable you to move more quickly.

The ability to see your sales and cost trends on a weekly basis makes it simpler to manage your cash flow and always be aware of where your finances stand.

4. Restaurant accounting periods

Your accounting periods must be appropriately configured.

Restaurants should set up weekly accounting periods, but many firms do it on a monthly basis. Restaurant accounting periods each week:

• Boost the precision of your comparisons.

• allowing you to choose the day your period begins and ends

• The industry’s cyclical and seasonal nature makes weekly reporting easier.

• Your accountant will have a simpler time and receive more accurate reporting if the biweekly payroll periods and accounting periods are coordinated.

• It is advised that you use the 52-week 4-4-5 or 4-5-4 calendar approach to organize your accounting periods.

5. Prepaid credit cards

Consider how to account for monthly or yearly expenses if you decide to set up weekly accounting periods. Rent, lease payments, utilities, and even restaurant management software may be included in these costs.

You wouldn’t want to include the entire cost of supporting your restaurant’s Point-of-Sale software in January, for instance, if the provider bills you annually in January. Instead, you should spread it out over several time frames. Use a Prepaid Expense account to save the balance in order to achieve this. Move 1/12 of it to an expense GL code each month to make progress.

6. Vendor credits and underpayments

There are situations when a delivery doesn’t contain all you were charged for. Your vendor’s goods may deteriorate or fall short of your expectations for quality.

In some circumstances, you ought to alter the invoice total and ask for vendor credit. You have two options for paying the vendor: either pay the full amount and record a credit, or “short pay” the seller by deducting the credit from the invoice and paying only what you owe.

In the end, you need to take vendor credits into consideration and make sure you aren’t paying too much for items you didn’t obtain. Maintaining accurate records of vendor credits can aid in resolving any disagreements when the vendor presents a monthly vendor statement, which you must compare to all of the vendor’s invoices.

Outsourced vs in-house restaurant accounting

There are many factors to consider when making the decision to outsource or keep restaurant accounting in-house. Cost is always a primary concern, but there are other factors that can impact the bottom line as well. Here’s a look at some of the pros and cons of each option to help make the best decision for your business.

Outsourcing restaurant accounting can be a cost-effective solution, especially for small businesses. You don’t have to invest in expensive software or hire additional staff. And, you can take advantage of economies of scale, since accounting firms typically have lower overhead costs than restaurants.

However, there are some downsides to outsourcing. First, you will need to build trust with your accounting firm. Second, you may not have as much control over your financial data and processes.

Advantages of outsourcing restaurant accounting

Hiring an outside firm ensures that you’ll be working with a professional accountant.

• There is no need to stress over employee turnover.
  
• No employee benefits equal cheaper costs (vacation days, sick days)
  
• No private offices – in the food service industry, every square foot counts.
  
• You can avoid spending money on hardware and software.
  
• Accounting services for restaurants might be outsourced for comparison data.
  
• As a result of the rigorous training and certification requirements imposed by their employers, accounting firms can guarantee a constant level of quality from their outsourced accountants.

Disadvantages of outsourcing restaurant accounting

There are a few disadvantages to outsourcing your restaurant accounting. 

• First, you lose some control over your finances. 

• Second, it can be expensive to outsource this type of work. 

• Third, you may not have the same level of expertise in-house as you would if you outsourced the work.

Advantages of in-house restaurant accounting

• Accountants are easier to reach.

• The pay that your internal accountant receives is something you can manage.

• The personnel at your restaurant views your internal accountant more as a team member.

• Internal accountants have the chance to develop and change along with your business.

• Your in-house accountant’s only client will be your restaurant.

Disadvantages of in-house restaurant accounting

There are a few disadvantages of in-house restaurant accounting to be aware of. 

• First, if you don’t have a dedicated accounting staff, it can be difficult to keep on top of your finances. This can lead to errors and oversights that could cost you money. 

• Second, if you’re not careful, you can end up with duplicate entries and discrepancies in your records. This can make it difficult to track your finances and make accurate reports. 

• Finally, if you’re not organized, in-house restaurant accounting can be very time-consuming and frustrating. If you don’t have a system in place, it can be easy to lose track of what needs to be done and when.

Which accounting method is best for your restaurant?

Cash-basis and accrual accounting are the two types of accounting. When sales and expenses are recorded is what differentiates these two approaches.

Only when money actually changes hands do you recognize revenue and expenses under cash-basis accounting. In other words, you track money as soon as it is received and expenses as soon as they are paid.

Contrarily, accrual accounting mandates that you record revenue as it is earned and expenses as they are billed. It’s not necessary to exchange money.

Since you record income and expenses as they are incurred, the cash-basis technique is often the simplest and may seem like the natural choice for your business.

The accrual system is preferred by restaurants for a number of reasons. It is ideal for companies with large inventories, like restaurants. A more realistic picture of your income and expenses is provided. Lenders and investors frequently favor it as well.

Frequently Asked Questions (FAQs):

Conclusion

Restaurant accounting is important for keeping track of finances and ensuring that businesses run smoothly. There are various ways to streamline restaurant accounting, such as using accounting software or hiring an accountant. Regardless of the method used, restaurant owners should make sure that they keep on top of their accounting in order to avoid any financial problems.

You want the best solution after you invest your time and money in an accounting system for error-free accounting. It is unacceptable to switch to other software solutions once you have started using them. So, when looking for the finest accounting software for small businesses, you need to be very attentive.

At SWIL, we provide our customers with a revolutionary software product that fits the standards of business intelligence throughout all market segments. Check out the software on our website, get in touch with us for free demo versions, and see whether it meets your company’s needs.