Five Essential Accounting Tips Every Restaurant Owner Should Know

Even if your restaurant is currently doing well, examining your financial statements shouldn't be reserved solely for your CPA at the end of the year for tax purposes.

The truth is, your restaurant could be profitable but still losing money because of waste, mismanagement, honest mistakes, or fraudulent actions. If your restaurant isn't making a profit or if it's not maximizing its profit potential, your financial statements coupled with your budget should help you identify the reasons why.

Here are five accounting tips that we highly recommend:

Check your balance sheet

If your income statement contains errors, your balance sheet can provide insights into the situation. You should check for negative figures and have a fundamental understanding of how balances change from month to month. If your bookkeeper or accountant made an error, failed to close out the month correctly, or if any dishonest activity is occurring, the balance sheet can be an effective tool for detecting the issue.

Confirm that your bank account is reconciled

If your bank account hasn't been reconciled before you review your financials, it indicates that your financials aren't fully complete or accurate. We also suggest that at the end of each month, you examine your bank statement alongside your income statement.

Even though your bank statement will vary from your GAAP-compliant financials, having a solid grasp of how your cash flow compares to your income statement can be very beneficial.

Make sure your POS menu items are categorized correctly

The Point of Sale system is likely the most crucial software in your restaurant. It tracks every dollar received, and each dollar must be accurately categorized to provide reliable insights into your restaurant's performance.

Not ensuring that all data in your POS is correctly categorized will lead to inaccurate financial statements. This could result in incorrect sales figures, cost of goods sold, erroneous percentages, the risk of paying incorrect tax amounts, and other issues.

Understand the drawbacks of basic accounting software

When you review your income statement at the end of each month, a major limitation of basic accounting software is its restricted ability to identify issues or areas for improvement. While you can see your bottom line, there are few signs that a problem may exist.

Due to the unique nature of the restaurant industry, basic accounting software like QuickBooks and Xero lacks essential features that provide crucial information for your restaurant. This specifically includes things like your prime cost for food and labor, which can comprise 55% to 75% of your total revenue. Other limitations include handling tips, tracking ingredient cost changes, costing recipes, understanding your breakeven point, using various accounting periods, and customer support from industry experts, among others.

To address this, you might consider purchasing third-party programs that can sync with your basic accounting software. However, we recommend investing in accounting software specifically designed for the restaurant industry, such as CooksTime or Restaurant365. These programs typically offer more automation, advanced third-party connections, and deeper insights 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. 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 applying these restaurant accounting strategies, restaurant owners can achieve a better grasp of their financial status, pinpoint areas needing enhancement, and make well-informed decisions that support long-term success. Conducting regular financial reviews is essential for effective restaurant management and is not solely the responsibility of accountants.