If You Own a Restaurant Here Are Five Accounting Tips That We Highly Recommend

Although your restaurant may be experiencing some success, reviewing your financial statements should not be an end-of-year task just for your CPA and tax purposes.

The reality is that your restaurant might be profitable yet still losing money due to waste, mismanagement, honest errors, or fraudulent activities. And if your restaurant isn't profitable, your financial statement should help you understand why.

As a restaurant owner, we suggest reviewing your financials monthly, and we have put together a few tips to assist you along the way.

Check your balance sheet

If your income statement is inaccurate, your balance sheet can help give you an indication of the situation. You'll want to look for things like negative numbers and have a basic understanding of changes in balances from month to month. If your bookkeeper or accountant made a mistake, doesn't close out the month properly, or if something dishonest were occurring, the balance sheet is a great way to potentially identify the problem.

Confirm that your bank account is reconciled

If your bank account isn't reconciled prior to reviewing your financials, it means that your financials aren't complete and truly accurate. We also recommend that at the end of each month you view your bank statement along with your income statement.

Although your bank statement will differ from your GAAP-compliant financials, it can be extremely helpful if you have a good understanding of how your cash flow works in comparison to your income statement.

Make sure your POS menu items are categorized correctly

Your Point of Sales system is probably the most important piece of software in your restaurant. It records every dollar coming in and out, and each of those dollars must be categorized correctly if you want to have good information about your restaurant's performance.

Failure to confirm that all of the data in your POS is categorized correctly will result in incorrect financial statements. This will include incorrect data related to sales, cost of goods sold, incorrect percentages, the potential to pay incorrect tax amounts, and more.

Understand the drawbacks of basic accounting software

When reviewing your income statement at the end of each month, the biggest drawback of basic accounting software is its limited ability to help identify problems or areas of potential improvement. You can view your bottom line, but there are limited indications that a problem might exist.

Because the restaurant industry is unique, your basic accounting software like QuickBooks and Xero will be missing key features that provide critical information to your restaurant. We're specifically talking about your prime cost for food and labor, which can account for 55% to 70% of your total revenue. Other drawbacks will include things like handling tips, tracking changes in ingredient costs, costing out recipes, understanding your breakeven point, inventory management, using various accounting periods, customer support from people who know your industry, and more.

To address this issue, you may purchase third-party programs that can sync to your basic accounting software; however, we recommend that you purchase accounting software that's truly built for the restaurant industry like CooksTime or Restaurant365. These two accounting programs tend to offer things like more automation, more advanced third-party connections, and deeper insight into your business needs.

Use alternate accounting periods

If your accounting software is capable of generating your financials using various accounting periods, we recommend using them however we highly recommend a 13-month calendar for analyzing data along with your regular calendar for things like reporting taxes.

A 13-month calendar divides the year into 13 months of 28 days each month. This helps you to review each month on an even playing field because each month will have exactly four weeks.

A 4-4-5 calendar is also an option; however, it's better suited for quarterly reviews. It breaks down each quarter into 13 even weeks and gives a more consistent view of sales and other data across different years.

The calendar month is very uneven and changes from year to year. Attempting to compare prior month activity to current month activity can be less accurate. Also, trying to compare the current period to the same period last year can be less accurate as well. Calendar years are best used for tax purposes and reporting to investors, banks, and other outside interested parties.

Conclusion

By implementing these restaurant accounting tips, restaurant owners can gain a clearer understanding of their financial health, identify areas of improvement, and make informed decisions that contribute to long-term success. Regular financial reviews are not just a task for accountants; it is a vital practice for effective restaurant management.