“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. Chances are you’ve noticed this already if you’ve ordered a bottle of wine.
Whether you’re curious about how to do bookkeeping, or working with a bookkeeper and accountant, this guide is here to help. Cash tips for service industry workers are not considered restaurant income and are not subject to withholding. Employees still need to report cash tips—and both the restaurant and employee must still pay taxes on them. One of the essential aspects of restaurant accounting is understanding your costs. This includes your fixed costs (e.g., rent, utilities, insurance) and your variable costs (e.g., food, labor cost, supplies).
Here’s What You Need to Track
Not all industries have to deal with tips, weekly reporting periods, and hyper-sensitive labor and inventory metrics. Since accounting is complicated and the restaurant industry is unique, the professional you choose should be an expert in both. Restaurant accounting is also made up of essential bookkeeping processes that keep your business running. While you’ll most likely hire an accountant or bookkeeper to handle most of these processes, here’s what you need to know so you’re at least speaking the language. That’s why we want to take you through some of the common terms, reports and processes for understanding bookkeeping and accounting for restaurants.
Keeping track of this indicator will help you reduce and stabilize your inventory costs. One thing you don’t want to do is to run out of ingredients for an item that is listed on your menu. So, it’s extremely important that you keep track of your inventory at all times and to place the order in a timely manner so that you don’t run out while waiting to receive the restocking order. How you set up your books for a restaurant lays the foundation for how smoothly the rest of the bookkeeping process will go. If the restaurant is going to make a go of it, the first thing a restaurant accountant should do is work with the owner to have a business strategy and budget in place.
What Is Restaurant Accounting?
Here are some helpful tips to keep in mind when setting up your restaurant’s bookkeeping process. With profit margins being so tight in the restaurant industry, you can not let your bookkeeping become a second thought. While those are the basics of restaurant accounting, there are some things to take into consideration that are specific to the restaurant business. You need accurate accounting practices to stay in line with the IRS. You also need to follow business guidelines when talking about restaurant accounting.
- If you choose to do your payroll in house, it’s wise to automate the process.
- Including both provides a more granular look at long-term financial health.
- Your balance sheet also shows your equity, so your net worth; it’s what’s left over at the end of the day when assets are subtracted from liabilities.
- Both have pros and cons, so it’s essential to weigh the options carefully before deciding.
- By analyzing different revenue sources, you can determine which areas of your business are the most profitable—whether that’s food sales, alcohol sales, merchandise purchases, or catering.
There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. Your breakeven point represents how much revenue you need to earn to cover your expenses. Luke O’Neill writes for growing businesses in fintech, legal SaaS, and education. He owns Genuine Communications, which helps CMOs, founders, and marketing teams to build brands and attract customers. When you calculate break-even point in units, you’re learning how many pizzas, coffees, fixed price meals you’ll need to sell to achieve that same goal.
At first blush, cash-based accounting might seem like the best kind for restaurants. It records income as it enters your bank account and records expenses when they’re paid. You should review your prime costs, CoGs, inventory counts, and labor on a weekly basis, not a monthly basis. These KPIs are controllable, but they can also easily get out of hand if not monitored. If you’re monitoring these figures on a weekly basis, you can patch any cost leaks without incurring too many damages. So here are the essentials of restaurant accounting and bookkeeping when it comes to reports, processes, and KPIs.
While long-term trend analysis is important, you should also log revenue reports on the daily and weekly. You can also use your revenue reports to show you how to set realistic sales targets and evaluate operations. Revenue reports display total expected revenue for a period and how the revenue is split between food and drink. You can use revenue reports https://www.bookstime.com/ as a financial projection tool to anticipate how much revenue you’ll generate in the future. If you’re working with a firm, you can control accounting costs by ensuring that junior accountants handle the menial tasks, and your CPA completes the hard analysis. Restaurant accountants understand how to compile data accurately and meaningfully.
f. Gross profit
It can show you an overview of your key financial reports, such as your balance sheet, cash flow report, and profit and loss statement. It’s a high-level point of reference when comparing your data to industry averages and also assists in keeping track of your expenses. Restaurant accounting is the process of tracking and reporting the financial performance how to do bookkeeping for a restaurant of a restaurant. It includes recording and analyzing revenue, expenses, managing inventory, and other financial transactions to produce financial statements and other reports. Having accurate financial reports to analyze the health of your restaurant? Most likely, you did not go into the restaurant business because you enjoy tasks like these.