As a front and back-office, an all-rounder who feels at home putting out fires both figuratively and literally, managing your restaurant’s accounting may very well be at the bottom of your to-do list. However, knowing your numbers is key to the dream of running a successful (and profitable) restaurant.
In this restaurant accounting guide, we’ll break down the basics you need to get going so that the idea of restaurant accounting doesn’t leave you feeling defeated.
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Why restaurant accounting is important
Unfortunately, many restaurants rarely make it off the starting block. Some due to bad timing, bad luck or recession, but others due to errors that were made early-on which led to a spiral of increasing costs and reducing profit.
This is why having a handle of your restaurant’s accounting is important from day one. Each accounting entry, as unimportant as it may seem, plays a crucial role in helping you to spot issues, increase profit and prevent loss.
Secondly, accounting in a restaurant isn't a "nice to have" like marketing or HR may be. From business owners, to HMRC, there are plenty of third-party observers and stakeholders who need an accurate record of accounts to see how things are (or aren't) performing.
Then you have the crossover between restaurant accounting and restaurant management. Without knowing your numbers it's difficult to make good business decisions. Good restaurant accounting is made up of many micro pieces of data - how much stock you have, how many products you're wasting, what the true cost of menu items are - all of which help you to refine margins and prevent loss.
Do you need to hire a bookkeeper for your restaurant’s accounting?
The short answer is 'NO'.
While bookkeepers and accountants have expertise that restaurant management teams don't, much of the value of outsourcing bookkeeping is time-saving - i.e. time saved gathering all the right data for accurate accounting for restaurant income and expenses.
However, with the right technology and tools at your fingertips, all of that complexity-outsourcing can be simplified and brought back in-house.
Instead of paying a bookkeeper to juggle endless spreadsheets, the right software for restaurant accounting can end spreadsheet dependency completely, slashing the time it takes to keep your restaurant books in order.
If you still like the reassurance of having a bookkeeper on-hand, you can leverage their support in a lighter lower-investment way, for example just to check over your figures.
Beginner’s guide to managing your restaurant’s accounting
Now you've established both the importance of restaurant accounting, you can likely do it yourself using the right accounting software. Here's the process you can use to get started:
1. Determine the information you need
The first step in good restaurant accounting lies in gathering the right information.
Determining what you need starts with determining how your restaurant runs and what different processes make up the day-to-day management. For example, ordering stock to create recipes. Creating menu items that are profitable (and sellable!). Staff rotas, energy usage and waste management. These can often be grouped into a few key accounting areas:
Sales is one obvious area of restaurant accounting, helping you to see the revenue your restaurant is generating. However, many restaurant owners get hyper-focused on sales, without considering how all of the other elements of accounting affect the end profit margin. That’s why it’s key to have an eye on your sales, but also to take this figure with a pinch of salt, until it’s compared and contrasted against the other figures available (expenses, overheads, stock orders and so on).
Overheads and expenses
Do you have a clear picture of how much you typically spend on staffing and other overheads such as electricity, rent and water? These are often the “invisible” overheads as they don’t have physical products attributed to them and you don’t see them “coming in and out”. That said, without knowing your expenses and overheads it can be really difficult to help your restaurant to perform effectively.
In any restaurant setting, it’s essential that not only is your menu attractive to potential patrons, but also that it’s profitable. Without knowing the exact cost of goods that goes into each dish and menu item, and what to sell it for, it can be difficult to nudge profit margins in the right direction.
Inventory control is essential to restaurant accounting. Knowing what you have coming in, how that makes up your menu items, and how often you sell the end products, all gives you an accurate picture of how much money you’re making.
Looking for a stock management solution? Do you struggle with keeping an eye on your stock?
Book a free demo and fire away all your questions you may have. We'll simply show you how easy it is to switch from the archaic pen & paper and excel spreadsheets to a new modern way of managing your stock at your restaurant!
2. Know your basic restaurant accounting formulas
With any process for restaurant accounting, whether you’re using software or manual processes, these key accounting formulas are needed to help you get a clear picture of your profitability.
Kitchen Cost of Goods Sold (COGS)
Calculating kitchen cost of goods sold (COGS) is calculated by adding the beginning inventory to the purchases that are sellable during a given period, then subtracting the ending inventory.
Cost of Labour
Depending on the type of restaurant you manage, the percentage of restaurant sales spent on labour is usually between 20-40%.
Net Sales = gross sales - (subtracted from) customer discounts - customer refunds.
Calculating net sales shows you how customer refunds and discounts affect your sales revenue.
Profit and Loss
Net income is calculated by Gross Revenue – Operating Expenses.
You calculate your profit and loss by dividing your net income by your gross sales and multiplying that by 100.
Your gross profit tells you how much money your restaurant has made in sales after the cost of the items needed to make those sales has been deducted. You work out gross profit by deducting the cost of goods sold from the sales.
Your gross revenue is the total of sales before you deduct any expenses. Gross revenue is also sometimes referred to as turnover or sales turnover.
Your net profit is the final stage of restaurant accounting. This is where you take your gross profit figure and deduct all of the other overheads your restaurant encounters.
3. Create a process for logging information
With a clearer picture of which metrics you need to see regularly to manage, the next step is creating a process for logging this information. Given your workload, could you spare time in your day to keep track of your accounting efforts by making entries daily? Would it make better sense to visit the books every week rather? Who would be involved in this process? Are there managers who may need training, or who will take over if you’re not available?
To track everything, you’ll need both a proper process in place, and a system that stores information. One that details what happens at each stage of the accounting cycle.
Today, most restaurants know that adopting software makes this process easier. Not only is it cloud-based, and therefore more secure and sustainable than paper-based options, but it also allows you to work faster and move from one month to the next without manual processes. Which leads us onto…
4. Software for restaurant accounting
Gone are the days when cash books and ledgers were the only way to keep track of your accounting. Thank goodness for that! With so many software options available there’s no reason why you shouldn’t capitalise on what’s available to you so that your job is quick and error-free. When looking for good accounting software to use, keep an eye out for how it integrates with the other software you use. For example, your POS system should sync to your accounting software. If you’re on the fence about which POS system will meet your needs, check out the best POS systems for UK restaurants.
In the meantime, here are some options for restaurant accounting software to consider:
Excel spreadsheet or Google spreadsheet
Excel has been around for years and by now, most people know how to use it. What’s even more of an advantage is how your POS system can export to Excel. As an accounting tool, it works well at:
- Performing calculations
- Storing data
- Data analysis
- Generating reports
That said, spreadsheets have their downsides too, some of which are:
- Spreadsheets aren’t easy to learn
- Visualising the data in Excel can be difficult
- Spreadsheets are error-prone
Xero is easy-to-install accounting software that syncs with your POS to provide you with an all-in-one solution. Should you choose to use it, you can enjoy:
- An easy-to-navigate interface
- Time-saving capabilities
- Quick financial reporting
- A software that is constantly looking for ways to improve
Though easy to install, previous Xero users have complained that:
- The software isn’t easy to learn
- The requisition/purchase/inventory side is extremely basic (luckily, you also have growyze!)
- Without a debtor’s chasing function, you would need to manually chase debtors
Quickbooks has assisted many businesses with their accounting over the years and they remain a restaurant business go-to. Quickbooks also integrates well with restaurant POS systems, eliminating time delays that come with manual entries. They stand out for their:
- All the basics you need to get started
Like anything with an upside, Quickbooks has its downsides too. These include:
- Limitations in the number of products you can list for inventory among other limitations in the basic Quickbooks version
- The need to upgrade to get access to standard features
5. The importance of stock management and control for accurate restaurant accounting
One element to consider is that as well as a strong accounting system, how you control your stock is also extremely important to giving you an accurate picture of your profit and loss.
Failure to keep on top of this will result in mismanagement of stock, losses and an inaccurate overview of the business. Fraud and waste will be the order of the day, running your precious business to the ground. Having a robust stock management system means you’ll always be on top of your inventory, can easily spot issues, and this will allow you to only order what’s needed, helping to reduce loss and widen your profit margin.
Summary of tips for managing your restaurant’s accounting
As unexciting as accounting can be, it’s an indispensable aspect of proficiently managing your restaurant. That helps you keep on top of the business insights that could make or break your business. The key here is to not overthink it.
With the right information, processes and tools, accounting is as vital to your restaurant as customer service and creating customer experiences. Equipped with which metrics to look out for, the basic calculations needed to manage your restaurant's accounting, and the importance of using the right accounting software, you’ll master how to do bookkeeping for your restaurant.
Simplify how you manage your restaurant with growyze
With accounting for restaurant tips in hand, it's time to make your life even easier. growyze is a stock management software that integrates with your POS and provides key overviews such as COGS analysis and gross profit reporting making your admin and accounting easier to manage.
Book a demo and try growyze for 30 days free to experience it for yourself!