Restaurant Bookkeeping Made Easy: Guide for New Restaurant Owners

New restaurant owners often struggle with the daunting task of bookkeeping and have to figure things out on the fly. However, accurate record-keeping is crucial for informed business decisions that will lead your new venture to success.

Our guide simplifies restaurant bookkeeping with valuable instructions, practical tips, and essential information. You'll learn accounting lingo, priority bookkeeping tasks, useful reports, and more.

These insights allow you to easily maximize your bookkeeping processes and make more informed business decisions. Let's dive in and streamline your restaurant's finances!

Financial metrics simplify your restaurant's accounting data and provide useful benchmarks for assessing business performance. Tracking metrics over time, such as sales and costs, can provide insight to refine and improve the business. Restaurant owners commonly use the following benchmarks and key performance indicators (KPIs) to evaluate their financial performance.

1. Cost of Goods Sold (COGS) and Prime Costs

COGS includes food and beverage costs directly involved in preparing the food. Prime costs refer to COGS plus labor costs for employees directly involved in preparing the goods you sell. Industry averages suggest that your prime costs should be approximately 60% or less of total sales.

• Example of COGS: COGS = (Opening food inventory + Purchases – Closing inventory) + other direct costs, where Other direct costs include costs for straws, napkins, and other direct costs involved in food and beverage service. Each item in the equation pertains to the same period, such as the past 30 days.

• Example of Prime costs: Prime Costs = Direct labor costs + Direct materials costs

2. Food and Beverage Costs

This number includes the cost of food and beverages, including alcohol, and should generally not exceed 35% of your total sales. Divide the total of your food and beverage costs by your sales for the same time period to find your food cost percentage.

This metric differs from COGS because it excludes the costs of paper goods and all other COGS that are not specifically food, spices, or beverages.

Example: Food & Beverage (FB) Costs = Opening FB inventory + Purchase – Closing FB inventory for the same period

3. Sales per Seat

Also known as RevPASH (revenue per available seat hour), sales per seat indicates how much revenue your restaurant generates during a certain time period, like a breakfast shift. Divide your sales by the available seats during the same time frame to calculate this KPI. A higher number indicates better performance.

Example: RevPASH = Total revenue / Available seat hours = Average revenue per seat hour

4. Inventory Turnover Ratio

This KPI is calculated by dividing your COGS by your average food inventory for the same time frame. A higher numerical answer suggests you are selling or turning over your inventory quickly and efficiently. A lower number might lead you to change ordering quantities and time frames or reconsider slow-selling menu items, for example. Compare how this restaurant bookkeeping metric changes over time as you make adjustments.

• Example: Inventory Turnover Ratio = COGS/Average inventory, where average inventory is calculated by adding opening and closing values and then dividing by 2

5. Menu Item Profitability

Knowing the profit margin on each menu item you serve can help you make informed decisions about managing food costs, restructuring menu offerings, running special deals, and more. Calculate by subtracting the food costs from the meal price and dividing the answer by the meal price to find the percent margin. Example: Eggs and toast-$7.95 - food costs $1.20 = $6.75 profit. Then, the profit of $6.75/$7.95 sales = 85% profit margin. Not bad!

6. Break-even Point

This KPI indicates when your restaurant makes just enough revenue to cover all its costs. Calculate it by dividing fixed costs (rent and other costs you pay even if you have no customers) by one minus the variable costs (those that vary with sales) divided by total generated revenue to get the dollar amount of sales you'll need to break even.

• Example: Sales Break-even Point = Fixed costs / (1-(Variable costs / Sales))

7. Gross Profit

Subtract your COGS from your total sales revenue to get your restaurant's gross profit. This number shows the profit your venture generates before considering operating expenses such as rent and utilities.

• Example: Gross Profit = Sales - COGS

8. Net Profit

Net profit represents the final amount of money left after paying every expense. Calculate it by subtracting all expenses, including COGS, operating expenses, loan interest, and taxes, from revenue.

• Example: Net profit = Gross profit – Operating expenses – Interest and Taxes

These restaurant bookkeeping reports provide helpful information and business insights that help you run your operations more effectively.

1) Profit and Loss Statement:

The profit and loss or income statement shows the restaurant's revenue, expenses, and profits over a specific period. It contains details about total revenue earned, the cost of goods sold, gross profit margin, and operating expenses.

By comparing the revenue to the expenses, restaurant owners can view their profitability for a given period and identify areas where they can cut costs or increase revenue to enhance future profits.

EXAMPLE: Profit and Loss Statement for Bonnie's Eatery

Profit & Loss Statement
	Daily Avg ($)	Month ($)
Sales	$818.60	$24,558.00
Cost of Goods (COGS)	$348.80	$10,464.00
Gross Profit	$469.80	$14,094.00
Operating Expenses	$300.00	$9,000.00
Net Profit	$169.80	$5,094.00

2) End-of-Day Sales Report:

This report summarizes all your daily transactions. This includes total sales, the number of customer transactions, and the average transaction size.

Comparing reports over time can help identify a restaurant's peak sales hours. It can also help identify trends in typical customer behavior. These insights can be used to adjust staffing levels, pricing strategies, and food inventory. The goal is to optimize sales and profits.

EXAMPLE: End-of-Day Sales Report for Bonnie's Eatery

End-of-Day Sales Report
Item	Qty Sold	Unit Price ($)	Total Sales ($)
Breakfast burrito	25.00	8.99	224.75
Cheeseburger	20.00	9.99	199.80
Caesar Salad	15.00	7.99	119.85
Soft drinks	50.00	2.49	124.50
Desserts	30.00	4.99	149.70
Total Sales			$818.60

3) Controllable Cost Report (prime costs):

The controllable or prime costs report includes costs the owner can control, such as food inventory costs, and reveals high-cost or low-profit menu items. It includes the cost of food and labor used to create the meals and beverages sold.

Owners can adjust prices based on meal pricing or portion sizes by identifying items with high ingredient costs to improve profitability and reduce waste.

Example: Controllable (Prime) Costs Report for Bonnie's Eatery

	Amount ($)	% of Total
Cost of Ingredients	$125.00	20%
Labor Costs	$300.00	48%
Operating Expenses	$200.00	32%
Total Controllable Costs	$625.00	100%
Gross Profit	$818.60
Controllable Margin %	76.3%

4) Chart of Accounts:

The chart of accounts serves as the backbone of the restaurant bookkeeping system, where each account is defined and numbered. It includes all revenue, expense, and equity accounts the company will use to collect data for the profit and loss, balance sheet, and cash flow statements.

You cannot generate reports with helpful detail if you only use a few accounts to record your restaurant's transactions. For example, instead of having one sales revenue account called "Food sales," you can track more detail using revenue accounts such as the following:

• 4000 Food sales
• 4110 Food sales: Breakfast
• 4120 Food sales: Lunch
• 4130 Food sales: Dinner
• 4140 Food sales: Desserts
• 4150 Food sales: Comps
• 4160 Food sales: Discounts

5) Cash flow statement

The cash flow statement displays the movement of cash into and out of the business during a specific period, helping identify where cash is tied up, such as when buying too much inventory.

It shows all sources of cash, such as the amount of cash the restaurant generates from its normal business operations. It also shows all uses of cash, including operational expenses, financing expenses, and capital spent to purchase new equipment.

Example: Cash Flow Statement for Bonnie's Eatery

Cash Flow Statement (Sources & Uses of Cash)
Sources of Cash	Amount ($)	Uses of Cash	Amount ($)
Sales	$24,558.00	COGS	$10,464.00
Operating Activities	-	Operating Expenses	$9,000.00
Total Sources	$24,558.00	Total Uses	$19,464.00
Net Cash Flow	$5,094.00

6) Balance sheet

When the report is generated, the balance sheet gives a snapshot of the restaurant's financial position regarding assets, liabilities, and equity. It helps determine the restaurant's financial health, make investment decisions, and provide information on the company's financial viability to existing or potential lenders.

Example: Balance sheet for Bonnie's Eatery

Balance Sheet (Assets = Liabilities + Owner's Equity)
ASSETS:				LIABILITIES:
Current Assets				Current Liabilities
	Cash	$5,094.00			Accounts Payable		$950.00
	Inventory	1,000.00			Accrued Expenses		500
Total Current Assets		6,094.00		Total Current Liabilities			1,450.00
				Long-term Liabilities
Fixed Assets					Equipment loans		4,644.00
	Equipment	10,000.00		Total Liabilities			6,094.00
				Owner's Equity			10,000.00
Total Assets		$16,094.00		Total Liabilities & Owner's Equity			$16,094.00

As a new restaurant owner, don't pressure yourself to become an accounting whiz. Learn these three important processes first; the rest will fall into place over time. Mastering the following processes helps you keep accurate financial records, get your staff paid accurately and on time, and ensure you know what bills the business owes and when they're due.

Account Reconciliation

This process verifies whether your restaurant's financial records match your bank statements. Perform this process monthly to spot errors, discrepancies, or fraudulent activities.

Mastering account reconciliations involves getting to know your accounting software, regularly reviewing financial statements, and keeping accurate records of all the restaurant's transactions.

Accounts Payable

Tracking money owed to suppliers, vendors, and other creditors helps you plan your cash flow needs based on when the bills are due. By mastering accounts payable, you can ensure bills get paid on time while preventing late fees or disgruntled suppliers.

Leverage your restaurant bookkeeping technology to keep detailed records of all outstanding invoices and payment due dates. Create a regular process, such as biweekly or monthly, for processing and approving payments and generating and mailing checks.

Payroll

This process entails paying employees the correct amounts owed on time. It involves calculating employee hours worked, the amount of payroll taxes to withhold, and processing the payments to generate paychecks or direct-deposit payments to employees.

You must keep track of payroll expenses, stay current on changing labor laws, regulations, and tax rates, and develop an efficient payroll system.

Using the right technology can make all the difference for a busy restaurant owner. The following point of sale (POS) system features can streamline the overall accounting process. The system also processes daily transactions into useful reports, offering insights into your sales, inventory, labor, and payroll data to help you make better decisions to optimize your restaurant's operations and profits.

Reporting & Analytics

This feature allows restaurant owners to gain useful business insights by analyzing sales, labor, and inventory data. The reports can help highlight important trends and changes while providing information that helps improve the restaurant's profitability and overall business operations.

Integrated Payroll Capabilities

Automate paying employees, stay compliant with tax rates and payroll laws and track your labor costs over time.

Integrated Inventory Capabilities

Keep tabs on stock levels and inventory costs in real time, which can help you order more accurately. Prevent overstocking food items that do not sell very quickly, and see which items run out so that you can adjust order quantities if needed.

Integrating Your POS System With Your Restaurant Management Software

Integrating these two pieces of technology can save time and effort when tracking important business transaction data. It can also reduce errors by reducing human data entry and streamlining the management and tracking of sales, expenses, and inventory.

Daily Sales Journal

This simple but vital process involves your POS software recording each sale you make for the day. It helps you keep track of your daily revenue and reconcile cash drawers at the end of each day. It ensures that all sales are accurately accounted for and helps prevent errors or discrepancies in the accounting records.

Use a POS System to Your Advantage

Now that you’ve read about some POS system advantages in depth, here’s a recap with a look at some additional ways a POS system can add value and save time in your daily operations:

• Streamline operations and save time with automated processes.
• Minimize order errors and improve accuracy for customer satisfaction.
• Enhance customer service with faster order processing and special request handling.
• Efficiently manage inventory, reducing wastage, and preventing stockouts.
• Access real-time reports and analytics for data-driven decision-making.
• Simplify employee management tasks like scheduling and performance monitoring.
• Securely process various payment methods for convenient transactions.
• Integrate with other systems for seamless data sharing and operational efficiency.

As a new restaurant owner, you might feel it will take significant time to learn the important things you need to know about accounting for your business.

Fortunately, these 10 expert-approved restaurant bookkeeping tips can help you sift through all the extraneous knowledge and cut right to the most essential accounting tips to help you climb up the learning curve as fast as possible so that you are freed up to run your restaurant!

1. Review Your Financial Reports

Regularly review financial reports, comparing results from one period to the next, and note insights such as seasonal business trends. Identify issues that could become larger problems later, such as increased expenses or a sales slowdown. Look at expenses as a percent of total sales and compare them against previous periods to gauge financial performance. For example, on average, restaurant food costs account for 28%–35% of revenue, depending on the food your establishment serves.

"Reviewing your financial reports is essential to understanding the financial health of your business. It allows you to make informed decisions and identify areas for improvement." - Susan Ward, Small Business Expert at The Balance

2. Track Your Prime Costs

Track your prime costs as a percentage of your sales and compare the monthly changes. Prime costs consist of the cost of goods and the labor costs of your hourly and salaried staff, which are not included in your cost of goods sold. COGS includes food, beverages, and other costs directly related to producing the menu items you sell. COGS also includes direct labor or the staff producing the meals you sell.

*"Tracking your prime costs, such as food and labor costs, is crucial to managing your expenses and maximizing profits." *- Mark Wickersham, Chartered Accountant and Author of "Effective Pricing for Accountants"

3. Correct Errors the Moment They Arise

Correct accounting errors immediately and regularly review accounts to ensure accuracy. Otherwise, one error can easily snowball into a trail of several errors that can take hours of work to unravel. Your financial reports are only as good as the data in the restaurant bookkeeping system.

*"Correcting errors as soon as they arise is important to maintain accurate financial records and prevent larger issues down the line." *- Bonnie Lee, Enrolled Agent and Founder of Taxpertise

4. Account for Required Tips as Restaurant Income

Required tips paid by customers are considered income by the Internal Revenue Service (IRS) because the customer did not choose the amount. Classify required tips as restaurant income on the income statement and as a liability on the balance sheet, subject to tax withholding.

*"Accounting for required tips as restaurant income is necessary to comply with tax laws and avoid penalties." *- Barbara Weltman, Small Business Expert and Author of "J.K. Lasser's Small Business Taxes"

5. Claim Your Tax Credit on Employee Tips

Report employee tips to withhold proper taxes and claim your employer's tax credit of 7.65% on total reported tips, which covers the employer's portion of payroll taxes.

"Claiming your tax credit on employee tips can save you money on your taxes and benefit your employees." - Stephen Fishman, Tax Expert and Author of "Deduct It!"

6. Use the Right Accounting Software & POS System

A POS system that fits your restaurant's specific needs can streamline your operations, saving you time, money, and potential headaches. Integrate your POS and accounting software systems to automate data collection and reporting to track your sales, inventory, expenses, and other important operational data.

"Using the right accounting software and POS system can streamline your bookkeeping processes and improve accuracy." - Nellie Akalp, CEO of CorpNet.com

7. Audit Your POS Buttons

Audit POS buttons, as they are prone to error, and take extra care to ensure the accuracy of the entered food costs and that you update sales tax to avoid unexpected bills at tax time. Keep collected sales tax revenue in a separate account to ensure you have the funds available for the lump-sum tax payment when due.

*"Auditing your POS buttons can help prevent errors and ensure that all transactions are properly recorded." *- Michael Kessler, CPA and Founder of Kessler Tax & Accounting

8. Streamline A/P

Automate accounts payable, to the extent you can, to prevent missed or late payments and streamline the work to reduce manual data entry. Produce aging reports regularly to track payments due and cash needs.

"Streamlining your accounts payable process can save you time and money, and improve vendor relationships." - Ken Boyd, Accounting Expert and Author of "Cost Accounting for Dummies"

9. Hire an Outside Bookkeeper

Consider hiring a part-time bookkeeper to help with routine accounting tasks such as bank reconciliations, payroll, accounts payable (A/P), and accounts receivable (A/R). They can free you up to focus on running your restaurant.

An outside bookkeeper can also help with other financial tasks such as reviewing and improving the accuracy of your financial records, creating and monitoring a budget, running weekly financial reports and reviewing cash flow activity to catch unusual items or increasing expenses over time.

"Hiring an outside bookkeeper can provide expertise and free up your time to focus on running your business." - Carol Topp, CPA and Author of "Business Tips and Taxes for Writers"

10. Consider Outsourcing Payroll

Outsource payroll to save time, and stay updated with payroll tax changes and filing requirements. A third-party payroll provider can issue payments to employees using direct deposit, and they will also ensure that your payroll data is accurate.

"Outsourcing payroll can save you time and reduce the risk of errors and penalties." - Gene Marks, Small Business Expert and Columnist for The Washington Post.

• Monitor Cost of Goods Sold (COGS) and Prime Costs to ensure they are approximately 60% and 35% of total sales, respectively.

• Calculate and review Menu Item Profitability to make informed decisions about managing food costs and running special deals.

• Generate and analyze profit and loss statements to assess restaurant profitability.

• Use an end-of-day sales report to adjust staffing levels, pricing strategies, and food inventory for optimized sales and profits.

• Review the Controllable Cost Report to identify high-cost or low-profit menu items and make adjustments to improve profitability and reduce waste.

• Perform monthly account reconciliations to spot errors, discrepancies, or fraudulent activities.

• Keep track of all bills due to plan cash flow needs based on payment due dates.

• Manage payroll properly by calculating employee hours worked, withholding payroll taxes, and processing payments to generate paychecks or direct-deposit payments.

• Keep records of payroll expenses, stay updated on changing labor laws, regulations, and tax rates, and have an efficient payroll system in place.

• Regularly review financial reports and compare results from one period to the next.