The Ultimate Guide for Restaurant Accounting

restaurant accounting | SynergySuite

You’re doomed.

We joke. But, in all seriousness, restaurant accounting can seem very daunting.

Restaurant accounting is not all that dissimilar to accounting in other businesses. Expenses and income need to be recorded, every dollar that moves around within the organization needs to be tracked and accounted for, depreciation or appreciation of your assets (things like kitchen equipment and the building your restaurant is housed in) need to be considered.

In restaurant accounting, this last consideration can be particularly vexing as, unlike the parts that are used to build a car, the food used to make a chicken sandwich does expire and eventually starts to rot even when properly stored.

And let’s not forget payroll and tip handling, the latter being a staple of money exchange in the service industry and an element of restaurant accounting that other firms don’t really need to consider.

Restaurant accounting is one of those elements of the administrative side of business that probably irritates you.

And why not? If you wanted to spend all day poring over receipts, invoices, time cards, spreadsheets and accounting software, you’d have gone to business school to become an accountant. You’re in the business of making food and entertaining customers, not crunching numbers.

Nevertheless, restaurant accounting is a part of your business no matter how much you’d rather not do it. In this guide, we’ll talk about restaurant accounting and ways to make it easier to handle. 

Restaurant Accounting vs. Restaurant Bookkeeping

The terms “accounting” and “bookkeeping” are sometimes used interchangeably. While this isn’t entirely incorrect, the two terms refer to different activities that have a lot of overlap. One way to think of it is that bookkeepers handle the day-to-day functions of recording financial data and accountants use and analyze that data to focus on more “big picture” issues. Accounting for restaurants follows this dynamic just like most other businesses and you’re probably doing elements of both on an informal basis.

We hesitate to use the term “easier” to describe one function compared to the other, but we would say that bookkeeping is probably the more intuitive of the two. Entering debits and credits, adding and subtracting numbers, and making sure ledgers balance is something that anybody with a head for arithmetic and attentiveness to detail can do.

Accounting, which takes that data from a longer period of time and subjects it to quantitative and qualitative analysis looking for patterns and insights that can inform more long-term decision making for the company, requires a different and perhaps more complex skillset. You’re probably doing a lot of bookkeeping already. What about accounting? Well, answering the question of how best to do that for your restaurant is something that we hope to help you do in the following post!

Restaurant Accounting: Should I Do It Myself or Outsource It?

The first question you should ask yourself is whether or not you want to handle restaurant accounting in-house (either doing it yourself or hiring an accountant) or outsource it. There is no right or wrong answer to this question and we’re not trying to sell you on one choice over the other as we have software applications that can help no matter which choice you make. Here are some pros and cons for both.

Outsourcing Your Restaurant Accounting

The Pros of Outsourcing Your Restaurant Accounting

  • A trained professional will handle the job for you.
  • Accountants can be expensive employees. Outsourcing saves you on costs of payroll and benefits.
  • A higher quality of work given an accountant’s specialized training and the ability of accounting firms to stay up to date on best industry practices.
  • You won’t need to provide a workspace or equipment.

The Cons of Outsourcing Your Restaurant Accounting

  • Restaurant accounting has its own unique challenges and requirements. Finding an accountant with that expertise may be challenging.
  • Outsourced accountants aren’t on-site and communication with them may not always be convenient.

Handling Your Restaurant Accounting In-House

The Pros of Handling Your Restaurant Accounting In-House

  • Having an accountant on staff means your restaurant will be their only job.
  • An in-house accountant is more accessible.
  • It can be easier for you to control costs. Fees and rates for outsourced accounts can add up and it may not always be easy to understand exactly what you’re paying for.

The Cons of Handling Your Restaurant Accounting In-House

  • Payroll and benefits. Accountants can cost a lot of money and few will be content to work a job that can’t provide some kind of benefits package.
  • Turnover. If your in-house accountant leaves suddenly, picking up their function can add a tremendous burden to you, and finding a replacement can take weeks or even months.

DIY Restaurant Accounting

Choosing to handle your restaurant accounting personally will combine pros and cons from both the in-house and outsourcing categories.

The Pros of DIY Restaurant Accounting

  • You’ll know exactly what is going on with your money and your business.
  • You’ll have virtually total control over restaurant accounting. 

The Cons of DIY Restaurant Accounting

  • Time. Operating a restaurant is a lot of work. Doing your own restaurant accounting will be a time-consuming task and you may not have a lot of time to spare.
  • Lack of expertise. Restaurant accounting, just like any other type of accounting, is a highly specialized job and even smart informed people may not have the time or inclination to develop all of the skills necessary to do it correctly.
  • DIY restaurant accounting will probably work best if your operation is very small: just you doing business out of a food truck, a food cart, or a small kiosk.

Again, we’re not suggesting that one approach is better than another. When deciding how to handle your restaurant accounting, you’ll need to consider your individual requirements and capabilities and regardless of which way you choose to go, we have tools that can help you.

Know What Data You Need

Data used for restaurant accounting is generated at multiple points in your business. Sales receipts, vendor invoices, bank statements, basically any transaction where cash is exchanged or the promise of cash being exchanged is made. Whether you’re outsourcing restaurant accounting, or doing it in-house, knowing what data you need and where to find it is crucial.

Storing Your Financial Data

As mentioned above, the data you’ll need for proper restaurant accounting will come from multiple locations and will come in digital and paper forms.

We strongly advise you to keep this data organized in a safe and centralized place. Whether this is a folio with invoices and receipts organized by date and/or vendor, in the cloud, or in Excel files and digital images on a hard drive, organize everything and keep it together.

This will make day-to-day bookkeeping, quarterly and annual tax filings easier and, in the event of an audit, will ensure that you know where to find all of the information you need.

If you handle things in-house, this will make the job easier for you and/or your accountant and if you outsource it will be easy to gather up everything you need and hand it over to your outside accounting firm.

Know Your Terms

Whether handling your restaurant accounting in-house or outsourcing it, there are certain terms and documents that you should be familiar with. Here are just a few.

Financial Documents

Balance Sheet

Simply put, your balance sheet shows everything that your restaurant owns and owes in a particular moment in time.

Cash flow statement

Cash flow statements record the movement of cash in and out of a business. This includes both cash generated by a business either through investment or paying customers and cash going out to vendors and creditors.

Income statement

Income statements are very similar to balance sheets but they cover a range of time and allow for comparisons between those ranges of time.

There are many other financial documents that businesses can generate. Many of them are quite obscure and technical. We use these three because they are the primary documents used by lenders and investors, revenuers and accountants (in-house or outside) to analyze the financial health and performance of a company.

As a restaurant owner, you will want to be familiar with the information contained in these documents at any given time whether you’re handling your restaurant accounting personally or not.

Other Terms

There are a lot of accounting terms. An exhaustive list here would be impractical. We assume that as a business owner/operator you are familiar with terms like “revenue”, “expense”, “profit”, “liabilities” and other basic accounting terms.

Other terms like “cost of goods sold” are more technical and can have confusing inclusions or exclusions. For example, “cost of goods sold” or “COGS” is the cost incurred by a firm to produce the goods it sells and includes things like raw materials, freight-in, and storage costs but excludes things like employee salaries and other administrative costs like rent or advertising.

Knowing these terms, or at least having a reliable reference to consult, is important and can help you to better manage your restaurant accounting.   

Final Thoughts

We joked in the beginning about doom. To be sure, restaurant accounting is a lot of work and requires a lot of specialized knowledge.

The purpose of this post was not to provide an exhaustive list of definitions. Also, when it comes to your restaurant or restaurants, there are far too many accounting tips to list them all. That said, we hope we did give you some ideas about how to analyze your own needs and requirements.

Whether you choose to handle your restaurant accounting in-house, either by yourself or an employed accountant or utilize technology for your restaurant accounting, we have tools that can help gather, store and analyze your data.   

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