Restaurant Bookkeeping: Comprehensive Guide to Master Bookkeeping

Restaurant Bookkeeping: Comprehensive Guide to Master Bookkeeping
7shifts Staff

By 7shifts Staff

Bookkeeping is one of the most essential aspects of any restaurant business. After all, a small, honest mistake can accumulate over time and turn into bigger operational problems—17% of restaurants even fail in their first year due to mismanagement of finances. 

Regardless of how complex bookkeeping can look like in the beginning, understanding the basics is not an impossible task. Here is an in-depth restaurant bookkeeping guide to help you navigate this essential business process.

5 easy steps to simplify bookkeeping in the restaurant industry

To stay on top of your competition and maximize your earnings, here are five easy steps to help you simplify your restaurant accounting process:

1. Record your sales daily

One of the first steps you should take in your restaurant bookkeeping process is recording your sales daily, ensuring your accounting records are up to date. 

Waiting too long can make it challenging to find where those mistakes are because they’ve already been piled under numerous transactions. 

Create separate line items to make recording and monitoring these transactions easier.

For instance, you can record your food and beverage sales separately. You should also segregate your cash sales and those made using credit cards. Regardless of whether you separate these transactions in your sales record or not, your total daily sales should still be balanced. 

On a similar note, when searching for a modern cloud-based POS system to keep track of your sales, look for one that can be integrated into other restaurant software. Some of the best POS systems you can try include Toast, TouchBistro, and Square. 

2. Be mindful of your accounts payable

The only thing a vendor hates more than a buyer who doesn’t pay on time is one who doesn’t have sufficient funds in their account when they make their payments. So, when recording your accounts payable, ensure each entry is itemized. 

Keep the original receipts so that if you encounter any problems down the road, you have supporting evidence to go back to. These receipts can protect you if the vendor says you haven’t settled your accounts payable yet. 

They speed up your vouching process and help clear up any inconsistencies that could arise during the auditing process. 

It would also help to utilize the accrual basis of accounting, which means recording revenue when it’s earned and expenses when they’re incurred. 

As Raffi Yousefian, CPA and CEO of The Fork CPAs, puts it: “Without accrual-basis accounting, tracking unpaid bills or accounts payable is also not possible. [This] provides the most accurate insight into the performance of a restaurant.”

3. Manage payroll on time

Simplifying your restaurant’s bookkeeping process means efficiently managing the daunting task of settling salary payments, especially if you’re running huge operations and managing many employees.

This includes accounting not only for the regular hours your employees put in but also overtime and holiday hours. 

Fortunately, restaurant payroll software can automate the process so that your employees can get paid accurately and timely, avoiding further issues and legal obligations. 

The best thing is that you don’t need restaurant bookkeepers to use this software—it’s easy to understand and navigate. Even those new to bookkeeping can use it! 

4. Reconcile your accounts

“Reconciling” is an accounting term that means comparing two sets of records to ensure that they match. 

Put simply, any account with a statement containing a beginning and ending balance can be and should be reconciled. This ensures your financial reports are accurate and everything is accounted for. 

This is one of your core restaurant management responsibilities, especially because you handle lots of inventory in and out of your kitchen daily, including the ingredients you use to prepare your menu.

One way to reconcile your accounts is by comparing your physical inventory with your inventory records. It would be ideal to have two of your staff members take the inventory separately so they can compare the data they have afterward. 

Doing so would also help you catch errors or discrepancies, such as if any fruits got spoiled in storage and had to be thrown away.

5. Monitor the Cost of Goods Sold 

The restaurant industry is known for having very tight profit margins, so it is of the utmost importance that you prepare and analyze your financial transactions regularly. In fact, in 2023, the average restaurant profit margin fell between 3 to 5%

Because of this, you should always compare sales vs. COGS (Cost of Goods Sold) and labor ratios. Doing so helps measure how efficiently your restaurant is using its inventory. 

For instance, a COGS comparison could help you decide whether to keep the direct cost of your production or look at what aspects you can cut back on to increase your profit margin. 

Your aim is to keep your labor + food + beverage expenses at approximately 60% to 65% of the total sales. 

Essential accounting and bookkeeping reports for restaurant owners and managers

While financial reporting is essential to your restaurant business, you should pay closer attention to specific reports. These financial reports include:

Balance sheet

From tracking your assets and liabilities to monitoring your total equity, knowing how to prepare and read a balance sheet helps you understand your business’s worth better. To start, it is important to note that there are two kinds of assets: current and noncurrent. 

Your current assets are those that can be easily converted to cash within 12 months. This includes your cash, accounts receivables (sales you made to your customers on credit that can be paid in the short term), and your inventory.

On the other hand, non-current assets (also referred to as long-term assets) are those that cannot be readily converted to cash. This includes things like your restaurant building and the land it stands on.

To get your total equity, subtract your liabilities from your assets. Your goal should be to work towards having a positive owner’s equity.

One way to do this is to reduce your manufacturing costs. This means choosing lower-cost materials or finding alternatives that won’t compromise the quality of your food. Study carefully which aspect of your restaurant business incurs unnecessary costs and remove them completely. 

If that isn’t possible, then go for alternatives.

For instance, opting for plain takeout packaging and simply attaching a sticker with your business logo on it could be more cost-efficient than customizing your takeout plastics. 

Profit and loss statement

Your profit and loss statement shows an overview of your restaurant’s costs and revenue. To be more specific, it outlines the details of your revenue, food, and labor costs, as well as your operating expenses. 

Your P&L Statement monitors your business’s cash flow to ensure you can cover your restaurant’s day-to-day operations. 

Toast once stressed how an itemized breakdown of transactions could help calculate essential restaurant metrics like net profit or loss. 

According to them, “When calculating, it’s helpful to further break down costs and expenses to get a more granular understanding of what is or isn’t working for your restaurant.”

We applied this principle when we worked with Chatime, and we dealt with their “spreadsheet mountain” problem.

Every location they had has its own version of generating projections and forecasts, including labor costs and productivity.

After reviewing their profit and loss statements, Chatime instructed their franchisee (Liberty Village) to track their weekly labor versus sales and sales per labor hour using 7shifts.

The results were extraordinary—after gaining live access to their labor and sales numbers, they were able to schedule employee shifts smarter. Within four months, they were able to reduce their labor costs from 37% to 24%.

Cash flow statement

The cash flow statement can help you track your business’s cash inflow and outflow. One important aspect of this financial report is that it can help you make informed cash flow forecasts so you can better prepare for the ups and downs your restaurant business might face in the future.

This can assist you in deciding whether to pursue the expansion you are planning. It can also help you plan for “off periods” by ensuring that the cash you have can see your business through, especially during challenging times.

In fact, approximately 47% of restaurant owners say they would repair or update their equipment if only they had any extra money on hand. This shows how important it is to track the inflow and outflow of cash into your restaurant so you can make informed cash flow projections.

Chart of accounts

The chart of accounts segregates the money you receive and spend into even bigger categories: revenue, assets, liabilities, cost of goods sold, and equity. Having a properly structured chart of accounts will help you track your finances accurately. 

This report is also essential in complying with tax laws. 

Take note that the more specific and detailed your chart of accounts is, the more you can gain actionable insights regarding your restaurant’s Key Performance Indicators (KPIs).

Take, for instance, the table turnover rate or how often customers occupy your tables in a set period. It is important that you measure this so you can figure out whether you should add more tables or expand your space.

Some of the considerations you should have should include your customers being able to enjoy their dining experience and new parties not having to wait around for too long just to get a table.

Identifying and reducing controllable costs in the restaurant business

Knowing how to calculate controllable costs, such as labor, food, and the cost of materials purchased, is essential to ensuring that your restaurant business is not losing money but actually making profits. 

Here’s how you can do it:

Cost of goods sold (COGS)

The Cost of Goods Sold refers to the costs directly associated with preparing and serving the items on your restaurant menu.

This includes the ingredients you use, labor, and other expenses that can be directly attributed to the production of food and beverages. 

Restaurants usually—and should—keep the cost of their food to approximately 33% of their total sales. Beverages are additional expenses, and booze is a great way to increase your profit margin. 

While this is an important metric that can help you assess your restaurant’s profitability, remember that it only includes selected business costs.

Utilities, rent, taxes, and your marketing budget, for instance, aren’t included in computing the COGS, so you shouldn’t use this solely to measure your restaurant business’ financial standing. 

Labor costs

Labor costs usually depend on your restaurant’s policy. Will your staff work for tips, or will you add gratuities to every bill? Will you have their uniforms produced for them, or will you give them a clothing allowance?

A good restaurant scheduling software can help you monitor these labor costs. It can even eliminate early clock-ins, helping you save money instead of paying for unbudgeted labor hours. You can also enable photo clock-ins or geo-fencing to ensure that your employees are present when their shifts have already begun.

In line with this, we analyzed restaurant data concerning staffing, including the types of shifts scheduled and time-clocking data from approximately 13,000 restaurants in North America and Canada.

The labor shortage caused business owners and shift managers to pick up the slack, as the number of their scheduled shifts increased by 127% and 121%, respectively.

Regardless of your decision, you will still have to pay your full-time wait staff benefits. Many restaurants opt to hire part-time employees to avoid this expense. 

Occupancy and equipment costs

Occupancy and equipment costs are usually the 2nd largest expenditure in a restaurant business, right after payroll. 

Unfortunately, some restaurants underestimate these fees or forget to consider all the factors contributing to the costs of occupying and maintaining their commercial space. These costs include property tax (if you own the building) and even the insurance you pay for your building and equipment. If not, your lease payments should be reflected here. 

Since these are huge payments, be careful about accounting for these costs. 

Forgetting to include lease payments in your book of accounts could cause your business a lot of trouble—you might not even know that you’re already bleeding money.

Selling, general, and administration costs

These costs are expenses that do not directly contribute to your business’s production and sales but support it as a whole. This includes things like your restaurant’s digital signage, printing out the menu and window decals, and even marketing your restaurant business online.

For instance, marketing and advertising are essential to your business, especially if you want to reach a wider market. 

But although essential, these costs aren’t directly related to producing the food and beverages on your menu.

Should you make an effort to reduce these costs? No. Rather, it is more important to set aside a fixed budget for marketing and other administrative expenses every month. 

Should I outsource restaurant bookkeeping or do it myself?

It depends on your preference, but ultimately, the rule is to leverage your strengths and outsource your weaknesses. But that doesn’t mean you should be totally ignorant about the tasks you outsource. 

While you may choose to outsource the accounting aspect of your business, you should still be knowledgeable of the basics.

This is so that when your restaurant bookkeeper shares the reports they generated with you, you know where to look, what to do, and if needed, improve the areas that need improving.

Streamline your restaurant’s accounting and bookkeeping processes with 7shifts

While no one can overnight master the basics of restaurant bookkeeping, remembering these essential steps will always guarantee the accuracy of your financial reports and that they are up-to-date. 7shifts can help you do all of these using only one tool. 

The best thing is that it can be integrated with many other software (including bookkeeping and accounting tools), so you can ensure the efficiency and accuracy of transferring data and all other essential information from your old software.

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7shifts Staff
7shifts Staff

7shifts team of writers and experts in the hospitality industry.