Restaurant Accounting: 5 Accounting Tips for Bars & Restaurants
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The Basics of Bar & Restaurant Accounting

May 5th, 2020

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Owning a bar or restaurant is an exciting way to pursue your passion and create an independent income. That said, running a restaurant or bar is fast-paced, demanding, and full of challenges that require thinking on your toes. One of those challenges should not be your accounting.

For many small business owners, including those with their own bars and restaurants, taking on accounting is a big undertaking—from tracking profits and losses and managing food and labor costs to figuring out how to grow in such a competitive industry— and one with significant risks at that. When you consider all the moving parts involved in restaurant expenses as well as the complexity of bookkeeping and accounting processes, it’s no wonder many individuals struggle or even fail to maintain proper restaurant accounting.

However, that doesn’t have to be the case with your business. We’ve broken down the basics of restaurant accounting and bookkeeping to help you keep your food and beverage business on-track. Read our complete guide to accounting for bars and restaurants, or skip to the section that answers your question with these helpful jump links:

How Does Restaurant Accounting Differ from Other Industries?

While accurate financial reporting is essential for every business’s success, bars and restaurants rely heavily on historical information and current records for making daily business decisions as well as forecasting. While restaurants typically have more complex accounting systems because food is the primary driver of their business, many of the same principles can be applied to accounting for bars.

Common Restaurant Accounting Challenges

The hospitality industry is notoriously competitive and challenging, and among those challenges are those related to money management and accounting. Before you can optimize your accounting process, you should have an understanding of these challenges so you can find ways to avoid them. Some of the most prominent accounting problems restaurant owners face include:

  • Difficulty keeping up with bookkeeping: The fast-paced nature of bars and restaurants, as well as the high-demand for supplies, deliveries, and customer management, can make it easy to fall behind on bookkeeping.
  • Making and receiving payments: With the number of incoming payments and invoices that need to be paid to vendors, it can be easy to become overwhelmed and disorganized.
  • Running out of money before opening: It can come as a surprise to many bar and restaurant owners just how expensive opening their own establishment can be. From ordering all the necessities like equipment, seating, and supplies to costly marketing campaigns created to get customers through the door, expenses can pile on. And, of course, these expenses can compound depending on your location.
  • Limited cash liquidity: Since restaurants and bars are cash-heavy businesses, it can be difficult for them to maintain sufficient cash reserves to cover unexpected costs.
  • Accounting for waste and spoilage: In order to correctly account for food costs, you need to be able to track food waste. However, this may be easier said than done since it’s difficult to predict exactly how much food will be needed in the coming week.
  • Categorizing food costs correctly: In addition to accuracy issues, many restaurant owners struggle to properly categorize food costs, which can lead to bookkeeping errors and money mismanagement.
  • Managing labor costs: Labor costs can be difficult to manage because you have to have enough staff to handle the demands on your busiest days, but bar and restaurant foot traffic and sales can be very unpredictable, often leading to disproportionate labor costs.

 

If you’re struggling with these same issues, it’s no reflection of your restaurant or business skills, but it does show how complex accounting can be and may be a sign that you need professional help. If you’re ready to say goodbye to these issues and the headache that comes with doing your own accounting, we have you covered with restaurant bookkeeping and accounting services.

Still deciding what to do? Keep reading to learn more about restaurant bookkeeping and what we can do for you.

Restaurant Accounting & Bookkeeping Tips

There are certain factors specific to bars and restaurants (like those above) that can affect accounting processes, which is why there are special considerations to take into account to properly maintain your restaurant’s accounting.

Based on the nuances of the food and beverage industry, here are some restaurant accounting and bookkeeping tips you should follow:

  1. Use four-week accounting periods: While many businesses use a monthly accounting period for its straightforwardness, restaurants typically use a four-week accounting period (which are each based on Monday through Sunday week) because of how much impact weekdays vs. weekends have on revenue. This can make it easier to compare year-over-year financial performance.
  2. Carefully account for food costs: Since food costs are highly variable and complex, you need to carefully account for the cost to purchase the food supplies you need as well as how much of that food goes to waste. Usually, it’s more of an approximation because it’s difficult to measure, not to mention time-consuming.
  3. Know the value of your restaurant’s revenue per seat: In order to more accurately forecast revenue, one calculation many restaurants use is revenue per seat. This can help you figure out the cost of each seat in your restaurant or bar.
  4. Maintain a healthy cost of goods sold (COGS) ratio: Maintaining a healthy cost of goods sold ratio is important for restaurants because of the impact food and beverage can have on the financial health of these businesses. Basically, you need to subtract how much food supplies are left over in inventory from how much you invested in food. This can help you set pricing and plan sales goals to offset these costs and make your establishment profitable.
  5. Schedule in bookkeeping: Of course, you are busy and certain tasks that present a more immediate issue will take precedence, but that doesn’t mean bookkeeping can slide through the cracks. Scheduling time to record transactions on a regular, if not daily basis, should be a priority.

These tips are tailored to the restaurant industry, but there’s plenty more you need to understand about accounting processes. For a more general introduction to the basics of accounting, read our post on small business accounting tips.

 

Special Considerations for Restaurant Bookkeeping

While they are often used interchangeably, there are actually differences between accounting and bookkeeping. They are related because bookkeeping lays the groundwork for accounting, but these processes serve different functions.

Bookkeeping is more of the administrative side of your restaurant’s finances and includes recording and organizing transactions, maintaining documentation, generating your financial statements, and sometimes overseeing payroll. On the other hand, accounting is more of the big-picture side of your finances, including analyzing your finances, providing advice, as well as helping with financial planning and tax filing. They’re both essential to the financial health of your business.

Bookkeeping for bars and restaurants differs from other types of businesses in several ways:

  • Choosing an accounting method: While you have a choice in deciding whether you want to use cash vs. accrual accounting, most smaller-scale restaurants use cash-basis accounting because most of their customers pay at the time of service.
  • Reporting Tips: Bars and restaurants are one of the few industries that must factor tips into their accounting. While they are not considered revenue, you are required to report them and pay taxes.
  • More frequent financial statements: Restaurants and bars need to generate the statement of cash flows and profit and loss statements more frequently than other industries. While many other businesses produce these on a monthly basis, it’s typically recommended that restaurants review them weekly.
  • Tracking inventory: Restaurants typically need to take stock of inventory much more frequently than other businesses. The industry standard is to inventory on a weekly basis.

Keeping these nuances in mind when preparing your records will help you in the long run.

Restaurant Chart of Accounts

While we’re focused on restaurant bookkeeping, it’s important to cover the chart of accounts. The chart of accounts is a means to organize your transactions, which is then used to generate your business’s financial statements. The chart of accounts divides transactions up into several major categories, including:

  • Assets: Cash, accounts receivable, equipment, real estate, etc.
  • Liabilities: Rent, payroll, income taxes, and other obligations are qualified as liabilities
  • Revenue: Food and beverage sales(as well as any other types of services or revenue-generating activities your bar or restaurant engages in)
  • Expenses: Food and beverage costs, alcohol costs, marketing, discounts given, etc.
  • Equity: Shareholder’s equity

Depending on the complexity of your business, these categories are typically broken down into more detailed subcategories.

Now that you have a better understanding of the special requirements for how to maintain restaurant accounts, you may be wondering if all the extra work of making sure you get it right is necessary. That’s easy, yes it is, and we’ll explain why.

The Importance of Accurate Restaurant Accounting

Accounting is an essential function of proper business management in any industry. However, as we mentioned, with the volatility of the food and beverage industry, accounting for restaurants and bars plays an especially important role in creating financial stability. Here are some of the most notable ways that accounting impacts your restaurant’s financial health:

  • Financial management: Documenting all of your restaurant’s transactions is the best way to set yourself up for successful financial management because you will have a better understanding of your business’s financial status.
  • Getting through financial emergencies: Have a contingency plan for when an emergency arises and you don’t have enough cash on hand. This may be getting a loan, credit card, or additional funds from investors. Having up-to-date accounting records can make it easier for you to secure additional funding when you need it.
  • Keep food-waste costs low: As you well know, food has an expiration date, making accurate inventory essential for restaurants—or else run the risk of significant food waste, which means you’re losing the money you’ve invested.
  • Lower business risk: By having accurate, well-kept accounting systems in place, you can lower your risk of business failure and mistakes because it helps you plan, adjust, and track the financial aspects of your restaurant’s operations.
  • Tax planning: Businesses are required to pay sales and use tax, and if your bar or restaurant has employees, which is highly likely, you’ll also have to make sure you’re in compliance with payroll taxes. Detailed accounting records will make all of your tax planning much easier.
  • Preparing daily sales reports: Daily sales reports can be used to track business performance month-over-month or year-over-year, helping you determine how many people to have on staff, set sales goals, and make key business development decisions.
  • Setting prices that help turn a profit: The better you can track your costs and losses, the better equipped you will be to set competitive pricing that helps you turn a profit.

Above and beyond the success of your business, keeping up your bookkeeping and having accurate accounting is required by the IRS. If you fail to do so, you may be faced with an audit, expenses, and even the potential seizure of your business if taxes aren’t being paid correctly.

Do You Need a Restaurant Accountant?

As a small business owner, you may be used to handling the high-level responsibilities of your restaurant or bar yourself. However, without a financial background or a thorough knowledge of accounting practices, it can be exceptionally difficult to keep your books up-to-date and your financial activity correctly accounted for.

When you first open your restaurant, your expenses and revenue may be fairly simple. However, even in the early stages, money mismanagement can have serious consequences—including restaurant failure due to running out of money.

As your business grows, so will the complexity of your accounting systems—and usually, that happens pretty quickly. To prevent you from falling behind on your financial responsibilities, it may be in your best interest to bring someone on to handle your bookkeeping and accounting for you. After all, your restaurant’s success should be your top priority.

While a restaurant might not seem like the most likely place to need an accountant, you might be surprised how much of an asset they can be to your team. If you are even slightly unsure of whether your accounting is being done correctly, it’s time to work with a professional. While you can use accounting software or hiring individual bookkeepers and accountants, you could use FinancePal instead, which simplifies all aspects of your business finances in one, easy-to-use solution.

What Can FinancePal Do for You?

With FinancePal, you get more than just a single accountant or bookkeeper—you get a team of financial experts and access to the latest technology to ensure that your restaurant’s accounting and finances are in top order. In addition to our accounting and bookkeeping services, we also provide payroll help and tax preparation. With FinancePal, you get the whole package.

Here are some of the benefits of working with FinancePal:

  • Catch-up bookkeeping to get your books up-to-date
  • Well-maintained financial records
  • Weekly financial statements
  • A dedicated financial team that knows your business in and out (and is based in the U.S.)
  • Access to modern accounting solutions with a user-friendly interface
  • Secure data storage
  • Help with bill pay
  • Compliance with the IRS
  • Flexible pricing customized to the needs of your restaurant business
  • Comprehensive financial services
  • Advising from experienced professionals who have an in-depth understanding of the restaurant industry

Working with us means saying goodbye to the challenges of managing your restaurant’s accounting and less time huddled in your office crunching numbers. With our help, you’ll be able to spend more time focusing on refining your menu, perfecting new drink recipes, driving customer satisfaction initiatives, and other activities that grow your business.

Take Your Restaurant Operations to the Next Level

Now that you have a better understanding of the basics of restaurant accounting and what makes this industry’s financials unique, you can take steps toward ensuring your business’s accounting is in order.

If you’re like many other restaurant owners who have their hands full with creating a culinary experience unlike any other, it can be hard to manage finances. Let FinancePal help make your dream a reality by handling your accounting and financial responsibilities for you. By taking it off your plate, you can focus on making your restaurant the talk of the town.

Contact us today to get started with your customized restaurant accounting services.

About the Author

Jacob Dayan, Esq.

Jacob Dayan is a true Chicagoan, born and raised in the Windy City. After starting his career as a financial analyst in New York City, Jacob returned to Chicago and co-founded FinancePal in 2015. He graduated Magna Cum Laude from Mitchell Hamline School of Law, and is a licensed attorney in Illinois.

Jacob has crafted articles covering a variety of tax and finance topics, including resolution strategy, financial planning, and more. He has been featured in an array of publications, including Accounting Web, Yahoo, and Business2Community.

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About the Author

Nick Charveron, EA

Nick Charveron is a licensed tax practitioner, Co-Founder & Partner of Community Tax, LLC. His Enrolled Agent designation is the highest tax credential offered by the U.S Department of Treasury, providing unrestricted practice rights before the IRS.

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