Why do so many restaurant owners hate doing accounts?

Often, it?s because they don?t see accounting as something that adds value to the business. Bookkeeping is one of the many admin tasks that pulls you away from where the real action is, in the kitchen and out front.

But this is a myopic view of financial admin work. Good restaurant accounting can transform businesses, allowing you to make smart decisions and helping you to identify problems before they get out of hand.

Setting your accounting goals

Before you dive into the nitty-gritty, think about what you plan to achieve with good accounting practices. For example, you can:

Improve tax reporting

Tax reporting is the most basic function of accounting. You will have to pay taxes, but rigorous restaurant accounting practices can help you to keep your tax exposure to a minimum. Plus, you?ll have nothing to fear in the event of an audit.

Manage your expenses

Detailed spending reports will tell you exactly where your money is going. This makes it easier to eliminate waste and identify areas where you need to cut costs.

Have better menu pricing

Setting the correct price of each dish right is a major challenge. To make sure your prices aren?t too low (or too high), you need detailed financial data such as item costs, labor costs and sales information.

Accurate staffing levels

Labor is one of your biggest costs, and you can?t afford to have too few or too many people working per shift. Your accounts can help with this ? sales data tells you how many staff you need, and your profit/ loss analysis tells you how much you can afford to pay.

Control cash flow

Cash flow is one of the biggest causes of failure for small businesses. You may be solvent on paper, but not have enough cash on hand to pay creditors. Good restaurant accounting practices can help you avoid liquidity issues.

Plan for growth

Detailed, accurate accounts are a powerful forecasting tool. They can answer questions like: do we have an opportunity to expand? How much capital will be required to support our growth? Which parts of the business are succeeding and where do we need to improve?

Once you know what you want to achieve, you?re ready to start implementing your bookkeeping processes.

Restaurant Accounting Software You Need

Accounting is all about information. The more data you have about your restaurant, the more accurate your accounts will be.

Even if you outsource all aspects of bookkeeping and accounting to someone else, you?ll still need to provide your financial admin partner with your information. In the old days, this meant handing over a manila folder filled with till reports and paper invoices.

These days, however, you can use technology to capture a lot more data and generate more detailed reports. Commonly-used systems include:

Accounts Receivable (AR) and Accounts Payable (AP) automation

Invoicing can happen via a number of channels now, including paper, email and online invoices. Consider using a service such as Sourcery, that can easily process all invoices, providing you with a concise report, as well as one-touch payments.

Point of Sale (POS)

This is the front-of-house order management system used by your wait staff. POS data is vital because it tells you exactly which menu items are sold. You can then reconcile this information with your purchase invoices.

Employee Timesheets

If these are done on paper, you may want to switch to an electronic system so that you can generate reports on total labor costs, overtime costs, and monitor changes in shift patterns.

Accounting Software

This will be the heart of your restaurant accounting infrastructure, used to track the data above and generate some of the reports listed below. The most popular systems for restaurants include:

• Quickbooks

• Sage

• Netsuite

• Xero

• Dynamics GP

All of these systems are compatible with Sourcery, as well as the more popular POS systems.

Restaurant data you need to capture

Let?s take an overview of the kind of information you?ll need to start gathering in order to build effective restaurant accounting practices.

The most important stats to track include:

Cost of goods sold (COGS)

This is the cost price of all food and beverages sold on the premises. You should be able to track this on a per-item level, so you need to know exactly how much each dish on the menu costs to prepare. Make sure that your chefs follow agreed-upon measurements for each recipe so that you can accurately track this.

Food wastage

Every time something goes in the garbage, it has an impact on your accounts. Food wastage represents a financial loss and therefore has to be recorded if you want accurate figures.

Tracking waste is one of the trickier problems in restaurant accounting. If you have a smaller kitchen, you may actually be able to keep a record of all items that go to waste.

If that?s not practical, you can estimate the average waste and apply it to all purchases. Your figures will be more accurate if you work out different wastage rates for perishable and non-perishable items.

Labor costs

Two important things to bear in mind when calculating labor costs:

1. Employees who work more than 40 hours per week have a statutory entitlement to overtime rates for each additional hour worked.

2. Depending on your locale, tips received by staff may impact your minimum wage obligations. Find out what the local tip credit rules are and incorporate them into your labor cost calculations.

Scheduling data can give you further insight into labor costs. Look out for instances where you?ve had to cancel shifts suddenly, or where you?ve paid overtime because the restaurant was busy.

Tips received

You?ll need to keep a separate record of tips received by staff members. These are not considered income for the restaurant unless it?s a service charge that appears on the bill. However, you?ll need this information when calculating tip credit in respect of minimum wage. This information is also required for income tax declaration purposes.

POS data

POS systems will give you one of the most important figures ? how much cash you took in each day ? but it will also capture a lot of information about each transaction. Some of the basic things a POS capture include:

• An itemized list of everything the table purchased

• How many covers were at the table

• How long the table was occupied

• Whether they paid cash or card

When you have this kind of data stored electronically, you can perform complex analysis and start to really understand your main sources of income.

Overheads and operational expenses

As well as food and labor, you have any number of regular outgoings such as mortgage, rent, rates, utilities, permits, and leasing costs. Sourcery will allow you to keep all of these invoices in one place so that you can get a quick overview of your major outgoings. A system like Sourcery will also help categorize these expenditures, as each of them will be handled differently in your chart of accounts.

Reports you need to prepare

All of this data is important, but it?s meaningless until you start to run reports.

This is where an investment in good restaurant accounting practices ? and quality accounting software ? really starts to pay off. By running regular reports, you can start to see exactly how your business is functioning. A few common reports with which you?ll need to be familiar are the following:

Daily Sales Report

This report gives you a full overview breakdown of the day?s transactions. Your POS should be able to generate this automatically, or you can feed data into an Excel template.

The format of the report may vary depending on your system, but the main areas covered will be:

• Gross sales

The total figure billed to customers over the course of the day. Usually, this will be broken down into categories such as food, beverages, alcohol, etc. to give you an idea of the main sources of revenue that day.

• Deductions

Any items that impact the total amount received, such as coupons, discounts and comps. The report may include a separate section for deductions related to sales tax and tips received via card.

• Payment breakdown

Details of how customers paid their bills ? card, cash, discount, etc. These figures should reconcile precisely with what?s there, i.e. cash received should be equal to what?s in the till.

You can usually combine these reports to see how the business performed over the past week, month or quarter.

Chart of Accounts

The Chart of Accounts is essential for keeping track of everything happening in your business on a financial level.

A Chart of Accounts is divided into a number of sections, and within each of those sections are a number of accounts. Each account relates to a particular type of transaction. For example, within your Expenses section, you may have one account for dairy purchases and another for meat purchases.

There are five main sections in a chart of accounts:

• Assets

These are things that you own as part of the business. That includes property, kitchen equipment, the furniture out front, installations, computers, and cash held in reserve.

• Liabilities

These are your major debts, such as your mortgage or money borrowed for investment.

• Equity

Equity is the overall value of your business. Effectively, this is assets minus liabilities. Most of this will be yours, as the owner, although other investors will also appear in this section.

• Income

Revenue will mostly be sales revenue. You will probably break this down into individual accounts, however, such as food sales, beverage sales, alcohol sales. Often, these accounts will match up with the sales categories on your daily sales report, allowing you to easily import data.

• Expenses

The main things within this section are COGS (your expenditure on food) and labor expenses. You might need multiple accounts to cover expenses of this nature ? for example, you may have divide COGS into categories such as meat, dairy and non-perishable. For labor, you might have one account for regular pay and another for overtime rates. You?ll also need accounts for recurring expenses, such as utilities, rates, and permits.

Accounting packages like Quickbooks or Sage make it easy to put together a Chart of Accounts, and most of these systems will integrate with Sourcery or your POS so that you don?t need to manually import data.

P/L Report

The Profit and Loss, or P/L report, is a short overview of your overall performance. Here you can find the answer to the most important accounting question of all: are you making money, or losing it?

You can do a P/L report on a weekly, monthly or quarterly basis, depending on your business needs.

The P/L report has two sections:

• Sales

This is similar to the sales section of your daily sales report, with income broken down into categories such as food, beverages, alcohol, etc. You?ll be looking at combined figures for the period of the P/L report, and those figures will be net of any comps or discounts.

• Costs

These are the expenditures related to those sales, usually broken into three categories:

• COGS ? the total cost of goods sold in during the period of the P/L report.

• Labor ? Salary and other payments to staff during the same period.

• Operating costs ? all other outgoings. You may need to break these up in order to get an accurate P/L. For example, if your rent is $4,000 per month and you are running a weekly P/L report, then calculate your rent at $1,000 per week.

At the end of each report, you?ll have a simple figure: sales ? costs = profit/loss. While this doesn?t cover capital investments, such as the purchase of new equipment or furniture, it does tell you exactly how much money is flowing into or out
of the business.

KPI Dashboard

Key Performance Indicators (KPIs) are the metrics that tell you if you?re hitting targets. Managers of multiple locations rely heavily on KPIs to track the performance of each branch. Such managers will usually have software that allows easy access to such indicators.

If you don?t have this functionality, you can build your own dashboard using Excel, or just work out the figures using a calculator. Some examples of KPIs in a restaurant include:

• Sales per head

Relatively simple, this is average ticket value per customer. You can work this out by taking the daily sales and dividing it by the number of covers, which you can obtain from your POS.

• Sales per labor hour

To get this figure, you divide total sales by total hours worked. That tells you how much each person earned on average, and allows you to see if your labor costs are too high.

• COGS ratio

This is the cost of goods as a proportion of the menu price. For example, if you sell a burger for $10 with an associated COGS of $3, your COGS ratio is 30%. When food prices change, it impacts your COGS ratios, so keep track in case you?re charging the wrong price.

• RevPASH

Revenue per Available Seat Hour is an excellent indicator of how you?re performing overall. To work this out, take the total number of seats and multiply by the number of hours open. For example, if you have 50 seats and you?re open 10 hours per day, you have 500 seat hours per day. Now, divide the day?s revenue by the number of seat hours. This is your RevPASH, the hourly value of each seat in your restaurant.

• Lease as a percentage of sales

Rental payments are one of the largest recurring costs for most restaurants. Have a realistic idea of what you can afford and make sure that your sales are covering it. If the percentage is getting towards 10 percent, you may need to negotiate with your landlord.

How to Find the Right Accounting Partner

As you?ve now seen, restaurant accounting can do a lot for your business. It can help you identify where you?re getting things right so that you can focus on growing revenue streams. It also helps you to identify where things are going wrong, so you can cut out waste and reduce costs. Once you?ve looked at your accounting reports, you?ll start to see what your next steps should be.

But that doesn?t change the fact that bookkeeping is still a lot of work.

The right software can help a lot, which is why we recommend tools like Sourcery for managing your accounts receivable and accounts payable. But, at the end of the day, you?ll need an accounting partner who can help you pull all of this data together and turn it into meaningful reports.

When looking for the right partner, consider the following:

• Ask whether you need a bookkeeper or a fully-licensed CPA

• Find someone with a background in working with restaurants and cafes

• Work with a partner who understands technology and modern accounting systems

• Check to see if potential partners have a verifiable track record of delivering results

• Look for someone who understands your goals and speaks your language

Here at Honest Buck, we specialize in dealing with restaurants and cafes. If you want to find out how we can help you, just get in touch.