Everything you need to know about restaurant accounting – How to manage bookkeeping

Managing bookkeeping and accounting work of a restaurant is not the easiest thing that you can do. That’s because you need to focus on a variety of aspects to get your work done. For example, you will come across the need to understand how to calculate your prime costs , how to come up with a profit and loss statement and even how to pick the best restaurant accounting application.

The process of working on restaurant accounting can be intimidating. That’s where we thought of letting you know about the basics of restaurant accounting. You can go through these basics and learn the best approach available for you to get your restaurant accounting work done, while ensuring positive outcomes at the end of the day.

When should you get the help of an expert?

Some of the restaurant owners believe that they are in a position to work on restaurant accounting on their own. Before you do that, it is worthy to take a look at your strengths in managing restaurant bookkeeping. Along with that, you should also understand your weaknesses and then take appropriate steps to outsource your weaknesses. This can help you to end up with the best possible returns at the end of the day.

However, it is better if you can outsource all the accounting work that you have to deal with. That’s because experts are in a position to deliver a better service to you at the end of the day. As the business owner, you will also have many other important areas to focus on. Along with all those responsibilities, you cannot work on accounting work as well. Hence, you should get rid from all the accounting related responsibilities by handing over work to a professional. Then you can ensure smooth business operations taking place at the end of the day. Along with that, all your accounting related work will be completed as per your expectations as well.

The expert accountants will not just work on preparing account statements. They have the knowledge to extract useful and effective information out of the reports as well. In other words, they know how good financial look like. Therefore, you will be provided with appropriate recommendations on how to ensure business success through the expert services.

Here are some of the key areas that a restaurant accounting firm will be able to help you with.

  • Financial analysis
  • Financing options
  • General bookkeeping
  • Cash flow management
  • Payroll preparation
  • Prime cost analysis business modeling
  • Tip reporting
  • Financial reporting
  • Reconciliation
  • Handling accounts payables
  • Recording sales
  • Audits
  • Taxes

How to locate the best accountant for the restaurant business?

Now you are aware of the benefits that an accountant can deliver to your restaurant business. Along with that, you are also convinced to get the assistance of an accountant as well. You have following options to find an accountant.

  • You can outsource to a boutique accounting firm.
  • You can outsource to a large scale accounting firm.
  • You can recruit an independent accountant for your company.

Before you make a decision out of these options, you need to keep the following factors in your mind as well.

  • Many accountants are charging on an hourly basis

The accountants usually charge for their services in an hourly basis. The exact amount you have to pay as the hourly rate depends on the experience and seniority of the accountant. You have the chance to get junior accountants to work on menial tasks and get a CPA to work on hard analysis.

  • Look for an accountant that has experience in restaurant industry

At the time of searching for an accountant, you are also encouraged to look for a service provider who has experience in the restaurant industry. They are aware of the industry specific accounting methods.

Both bookkeepers and CPAs are offering the same role. However, a CPA is in a positon to provide a better operational analysis overview to you. In addition to that, you will be able to get tax consulting services as well.

Basics of restaurant accounting

It is better if you can have a basic understanding about restaurant accounting as well. Then you will be able to work along with the accountant and get your work done. While you do it, you will be able to monitor the financial KPIs in an efficient manner and make quick decisions on the go.

Here are the important aspects of accounting, where you need to have a solid understanding on.


It is important for the restaurant to generate reports on a daily, weekly as well as monthly basis. In addition to that, you should also conduct annual monitoring. This can provide you with the chance to understand the financial health of your restaurant business.

  • Daily sales report

You need to generate a daily sales report at the end of every business day. This is where you need to analyze sales, expenses and future sales. In here, you need to consider all sorts of revenue that your business is generating, including tax, sales, tips and credit card fees. In addition to that, you should also take credit card deposits, coupons, and discounts into equation.

The daily sales report can help you to understand how much money you made within the day and how much you composed throughout the day. You can generate such daily sales reports and compare them with the other days as well. Then you will be able to see if your daily strategy to make more profits is working or not.

  • Chart of accounts

Chart of accounts is in a position to categorize money that you receive and you spend. This can help you to get a high-level understanding about your assets, liabilities, expenses, revenues, equity and cost of goods sold. You will also be able to drill down it into smaller expenses, such as alcohol expenses, meat expenses, utility expenses, marketing expenses and laundry expenses.

Chart of accounts is in a position to deliver a quick overview of the major financial reports to you. They include your profit and loss statement, balance sheet and cash flow report as well. In addition to that, you will be able to go ahead and compare the figures with industry averages to see where you are in.

  • Profit and Loss Statement

The Profit and Loss Statement, which is also known as P&L Statement can reflect your expenses and sales. In addition to that, it is in a position to reconcile many different items, such as labor expenses, food expenses, sales volume, profits and operating expenses.

The Profit and Loss Statement can deliver an overview health of your restaurant business. In addition to that, you will be able to make important business decisions based on it, such as how to increase your revenue and cut down expenses.

  • Cash flow statement

Cash flow statement will tell you how cash is coming into your restaurant business and how cash is going out from your restaurant business. Cash that you are getting into the business is called as inflow. Likewise, cash that goes out of your business is called as outflow.

The cash flow statement can help you to understand how much cash that you have in your hand as of now. In addition to that, you will be able to see the operating cash flow, which helps in determining whether you generate enough cash to cover up your operational expenses. If not, you need to go ahead with external financing to save the restaurant business.

  • Balance sheet

Balance sheet is listing all your equity, liabilities and assets. In here, assets are the things that you own, such as your cash and inventory. Likewise, liabilities are the bills and loans that you have to pay. The balance sheet will also show your equity, which is relevant to your net worth. If you have a negative value for the equity, you need to understand that you owe more money to external entities than what you have. Therefore, you need to work hard in order to make this value positive.

The balance sheet can help you to get a better overall understanding about your financial position. In addition to that, you will also be able to understand the debt load you have.

  • Revenue report

Revenue report is displaying the total amount of revenue that you are expecting for a specific duration of time. You will be able to use the revenue reports as a financial projection. Then you can have a better idea of how much revenue that you will be able to generate in the future.

You need to be mindful about short term revenue that you generate at the time of creating the revenue report as well. In addition to that, you will be able to use the revenue report in order to see how you are achieving your sales targets and how realistic the sales targets you have defined are. Based on the revenue report, you can provide sales targets to your staff as well.

  • Controllable expenses report

Controllable expenses are all the expenses, which are within your control. If you want to track the expenses of your food, labor and inventory, you can get help out of this report. Based on the controllable expenses report, you will be able to determine your prime cost as well. This is one of the most important KPIs that every restaurant owner should be mindful about. Based on that, you will be able to define the operating margin as well.

  • Financial forecast

Financial forecast is in a position to deliver a better estimate on how much revenue that you will be able to generate in the future. You will be using parameters such as gross profit, total revenue and operating profit percentage in order to determine the financial forecast. Along with that, you can also determine the percentage of money that is being spent on non-controllable expenses and controllable expenses as well. It can deliver a better overview about the financial environment that you have to work on during the future.

  • Startup costs report

If you are starting a new restaurant business, the startup costs report can help you to get a clear understanding about your expenses. It will also show the startup capital that you need to have. This can help you to remain focused on your budget along with time.

Understanding the bookkeeping process

As a restaurant owner, you must be aware of basic bookkeeping as well. Here’s a quick overview of the basic bookkeeping process.

  • Account reconciliation

Account reconciliation can help you to understand that you have accounted for all the transactions. Then you can make sure that figures displayed on the checking account are correct. The latest accounting software are in a position to automate the account reconciliation process for your convenience.

In order to reconcile the accounts, you need to take a look at all financial transactions recorded and compare them with the bank statement. You should never ignore this because you will be able to understand all sorts of cash variances and incorrect deposits that have taken place. This can assist you to keep track of business transactions as well.

  • Accounts payable

Accounts payable is the bookkeeping process, where you handle all the payments that you have to make to suppliers and vendors. When the payable is locked down, you will be able to go ahead and settle your bills on time and make sure that you operate the business on schedule. It is important to reconcile all accounts payable before you upload information to the accounting software.

  • Payroll

Payroll is the process where you calculate the paychecks of your restaurant employees and distribute them. In addition to that, payroll is keeping information related to the deductions, vacations, bonuses and overtime payments as well. This is included for the year end reports as well. However, you should also understand that working on payroll is a complex and time-consuming process that you will have to go through.

Key Performance Indicators (KPI)

At the end of the day, you will be measuring the success of your restaurant business against key performance indicators or KPIs. Following are some of the most prominent KPIs that the restaurant owners should be mindful about.

  1. Prime Costs

If you are a restaurant owner, you should never ignore Prime Costs. It will help you to determine the cost needed to produce your product and distribute it. For every single dollar that you are generating under the restaurant business, prime cost reflects to the amount that is going out for your products/menu items and your staff.

Following is the prime cost calculation formula

Prime Cost = Total Labor Cost + Cost of Goods Sold (CoGS)

It is important to keep the prime cost in between 55% and 60%.

  1. Cost of Goods Sold and Cost of Goods Sold Ratio

Cost of Goods Sold = Inventory at the beginning + Purchases – Ending inventory

You can use cost of Goods Sold as a KPI in order to understand the actual cost of beverage and food that you are going to use in order to produce the sales generate d by food and beverages.

  1. Breakeven point

Breakeven point reflects the amount of revenue that you need to generate in order to cover up your expenses.

It is calculated by the following formula

Breakeven Point = Total Fixed Expenses ((Total Sales generated – Total Variable Expenses)/Total Sales Made)


EBITDA reflects to Earnings before internet, Taxes, Depreciation and Amortization. In other words, it can help you to understand the amount of money that you can get only through operations. At the time of making purchase decisions, you need to pay extra attention to EBITDA.

EBITDA = Depreciation Expense + Amortization Expense + Operating Profit

Before you go for investment ventures in your restaurant, you need to take a look at EBITDA.

  1. Total sales per head

You need to calculate the total sales per head separately for the three main meals in a day. Here’s the formula to do calculations.

Total sales per head = Total sales/Number of customers

  1. Net profit margin

Profit is the amount of money that you will end up with after reducing the equipment, rent, labor, COGS, and all other expenses. Using the below formula, you can calculate it. You need to think about increasing the net profit margin as much as possible.

Net profit margin = (Gross revenue – Operating expense) / Gross sales

What are the 5 most common mistakes made in restaurant accounting?

We can also see how most of the restaurant owners tend to make mistakes with restaurant accounting. Following is a list of 5 of the most common mistakes out of them. You should be mindful to refrain from committing these mistakes.

  1. Failing to hire a restaurant specific accountant

You need to make sure that you are hiring an accountant, who has a background in working for the restaurant industry. That’s because there are few specific terms that the accountant have to deal with. Tips is a perfect example to prove this fact. Therefore, you must stick to an accountant who specialize in restaurant accounting.

  1. Bookkeeping errors

Humans make mistakes.  However, it is important to make sure that you reduce your mistakes as much as possible at the time of working on accounts. Otherwise, you will even end up with misleading information after you generate reports.

  1. Failing to stick to the right accounting period

As you already know, different months have different number of days. You need to be aware of these variations at the time of calculating the accounting periods. Otherwise, you will end up with misleading information.

  1. Infrequent monitoring of KPIs

You need to review the KPIs on a regular basis. In fact, it is better to focus on monitoring them on a weekly basis. Then you can make quick decisions and keep your restaurant business from sinking.

  1. Not sticking to the right accounting method

Accounting methods available for you to consider can be divided into two categories as accrual accounting methods and cash based accounting methods. You need to stick to the right accounting method out of these based on your specific requirements.

Investing on restaurant accounting software

If you want to make the restaurant accounting process more efficient, you should go ahead and invest on restaurant accounting software. Then you will even be able to integrate it with your POS system and automate most of the manual tasks. In fact, right accounting software can provide a great assistance to you with making your life easy.

How can the POS system complement accounting efforts?

POS system is in a position to provide you with financial information real time. Therefore, you will be able to go ahead and take quick actions accordingly. The effort you have to take in order to go for actions will be minimized as well.

POS technology can also help you understand historical trends. Based on that, you will be able to offer appropriate promotions. On the other hand, POS system can assist you to generate cost and sales reports. Efficiently.

If you want to take a quick look at the menu performance, you can simply refer to the POS system. Then you will be able to understand what the best menu items are and what are the worst sellers are. You will also come across the need to optimize labor working at your restaurant. In such a situation, POS data can provide an invaluable assistance.

Final Words

Now you have a clear overall picture about restaurant accounting. You also have a better picture on how to go ahead and get the assistance that you need with restaurant accounting. Therefore, you should go for it and make sure that you receive the best possible results out of restaurant accounting at the end of the day.







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