Most people with a flair for the culinary arts aspire to establish their own restaurant or cafe someday. Their underlying motivation is the joy of sharing their flavorful creations with the world and making a living off their passion. What they don’t often realize is that running a restaurant isn’t just about cooking up a delectable meal – it is a business at the end of the day and requires efficient management and a strong financial foundation.
And every business needs to have strong bookkeeping and accounting processes in place to establish, maintain, and sustain its growth. The restaurant business is susceptible to changing trends, seasons, consumer preferences, and even many indirectly related factors such as wars or natural calamities (causing disruptions in ingredient supply chains). Thus, stringent bookkeeping practices are essential for any restaurant to keep the bell ringing while the food satisfies the customers’ taste buds.
Bookkeeping Challenges for Restaurant Business
The restaurant business, unlike other retail businesses, has unique features that make bookkeeping and accounting for restaurants and eateries tricky. Accessibility, high seasonality variations, delivery logistics, volatile food prices, and high labour costs are just some of the challenges a restaurant must deal with. It also has to consider the following factors:
- Perishable raw materials – Food is perishable, and inefficient management of perishable inventory can lead to wastage, thus mounting losses and profit leaks.
- High cash transactions – Even with cashless transactions becoming the norm, restaurants have to deal with cash transactions frequently and daily. High volumes of daily cash transactions make bookkeeping and reconciliation difficult. Add to that tracking takeouts, dine-ins, and delivery orders, and you have a bookkeeping nightmare on your plate.
- High labour costs – High staff turnover makes managing payroll, wages, tips, and employee benefits quite strenuous. Unlike other businesses, restaurants are typically open seven days a week, with an increased workload on weekends. Monitoring and keeping track of it all is no easy task and requires daily, weekly, and monthly reconciliations.
- Volatile customer preferences and trends – Economic, international, cultural, and social changes impact the restaurant business. For instance, the rising popularity of K-dramas and K-pop has led to a sudden spike in the demand for Korean food. Weekends, holidays, festivals, and other factors also lead to sudden spikes or dips in demand, which must be managed smartly to keep the ovens warm.
The volatile seasonality of both food preferences and ingredients, and high staff turnover, make restaurant profit margins slim. Even the slightest error in recording, tracking, or pricing can snowball into significant losses, negative cash flows, and ultimately, the shutdown of the restaurant. Thus, carefully recording every penny that comes in or goes out of the business is of utmost importance in the restaurant business.
How Bookkeeping Works for Restaurants
While the basics of running a restaurant effectively are the same as any other business, some specific traits are unique to the industry. Understanding these unique traits and their corresponding financial requirements is essential for accurate bookkeeping.
Recording Revenue
A restaurant generates revenue through its food and beverage (including alcohol) sales, be it in-dining, catering for big parties, or at-home delivery of food. Apart from the food prices being subject to volatile ingredient prices, restaurants also offer discounts or promotional deals to attract more customers. Add to this the fact that there are multiple modes of payment available to the customers – while some pay in cash, others use credit cards or digital payments, and still, big groups often pitch in by splitting the check. Even tips for the staff have to be taken into consideration.
These different methods are subject to different commissions, third-party fees, and usage fees, making bookkeeping and accounting complicated. Erroneous entries of POS transactions or forgetting to include tips or sales tax in the sales can lead to improper and misleading revenue figures.
Reporting and Tracking Expenses
Restaurants usually have higher operating costs than most other businesses. To begin with, paying for proper licenses, permits, and insurance is a costly affair. Even fixed costs, such as rent and utility costs, are much higher. Constantly fluctuating food costs, piling food wastage, and high labor costs make accounting for restaurants quite difficult. All these expenses take a toll on profitability.
It takes in-depth knowledge of the hospitality industry, particularly restaurants, to understand that key performance indicators (KPIs) such as Prime Cost (staffing + food/beverage costs as a percentage of sales) need to stay under 60%. This requires regular, thorough, and transparent reviewing of the restaurant costs and KPIs, including food cost percentage, cash burn rate, break-even point, table turnover rate, and gross profit margin.
Reporting and Reconciliation Frequency
Long working hours, combined with holiday and weekend rushes, make it imperative for restaurants to maintain daily accounts and make weekly, if not daily, reporting and reconciliations the norm. Not only does this help stay on top of the complicated numbers, but it also aids in forecasting and budgeting for a labour-intensive business that is sensitive to macroeconomic and seasonal disruptions. Only an expert bookkeeper well-versed in the industry can keep up with such a workload.
Inventory Management and Audits
Inventory in the restaurant business is different. A bookkeeper must record perishable and non-perishable goods separately. Even in perishable items, some ingredients have a longer shelf life, such as alcohol and dry goods, which need to be accurately reported to ensure an accurate cost of goods sold. Inventories require regular audits, conducted weekly and monthly, to minimize food loss and waste.
Payroll Management
Restaurants run on two things – their food quality and their staff. Employees work in shifts and get tips from customers. This makes scheduling and reporting a nightmare. While employee tips are not treated as business income, they have to be reported in the books of accounts. Moreover, managing employee wages and salaries, paying overtime when required, and ensuring compliance with industry and tax regulations require expert knowledge and experience.
How Outsourcing Accounting and Bookkeeping Can Help
Perhaps the biggest challenge for a restaurant owner in terms of bookkeeping is that most are chefs or new entrepreneurs and not businesspeople. While cooking up a delectable meal is right up their alley, managing and running the business side of things might not be their cup of tea. For this, they have to rely on experts who not only know how to handle the financial side but also understand the food side and the challenges presented by constantly changing culinary preferences.
A professional bookkeeper can help you record and categorize transactions correctly, conduct weekly reconciliation, process invoices, pay vendors, manage payroll and incoming payments, track KPIs and budgets to give you a clear view of your restaurant’s finances and take informed decisions.
Outsourcing your bookkeeping needs to an industry-specific bookkeeper can help you report transactions accurately in a cost-effective manner.
Contact MW&CO in Woodstock to Help You with Your Accounting and Bookkeeping Needs
Talk to a professional accounting team and bookkeeper to help you set up a bookkeeping system, integrate accounting software with your POS system, and organize your daily finances. At MW&CO, our accountants and bookkeepers can provide services such as payroll, recording transactions, and reconciliation. To learn more about how MW&CO can provide you with the best accounting and bookkeeping expertise, contact us online or by telephone at 519-539-6109 or toll-free at 1-877-539-6109.