Bookkeeping 101 For Restaurateurs

by Dhiren Bhatia / May 20, 2019

When it comes to running your restaurant, there are plenty of things to manage and monitor, from the food to the staff to the space. But it doesn’t matter how good your food is, how crowded your restaurant is, or how beautiful your dining room is if you don’t have enough cash to keep your doors open.

Bookkeeping is probably not one of the things that attracted you to restaurant ownership. But without diligent bookkeeping, you put your entire operation at risk.

It can be overwhelming to think about tracking all of the important financial aspects of your restaurant’s operations. But you don’t have to spend hours crunching numbers each day to get info that will yield powerful insights into how to improve your restaurant.

Bookkeeping vs. Accounting

First, let’s clarify the difference between the terms “bookkeeping” and “accounting.” Although the two terms are often used interchangeably, bookkeeping technically refers to keeping organized records of each relevant financial transaction related to your business. Accounting is taking a big-picture look at all of those transactions and applying the data to get insights into your business.

As you probably already know, bookkeeping for small restaurants is much easier than it used to be. We’re long past the days of pen-and-paper ledgers. But we’re also now past the days when transaction data lived on individual cash registers, waiting to be reconciled with the rest of the data that can give the big picture of restaurant health.

With the right kind of the web-connected point of sale software, all transactions are tracked automatically and bookkeeping essentially handles itself. These POS systems can track more than purchases. They also track the costs and counts of your inventory and the individual ingredients required for each item on your menu.

Cloud-based POS systems take functionality even further by integrating seamlessly with cloud-based accounting software. In many cases, these programs bring the insights you need with just a few clicks.

Related: 5 Mistakes Restaurateurs Make When Choosing a POS System

One of the most confusing parts of learning accounting and bookkeeping is understanding all of the technical accounting terms that professionals use to describe your finances.

But you don’t have to understand all of the lingo right away.

Let’s start by identifying some of the metrics that will provide the biggest and most important insights for your business.

Knowing What it Takes to Stay Profitable

Making sure you have enough money to pay your bills should always be a top priority. The easiest way to do that is to figure out ahead of time how much money your restaurant needs to bring in on a given day, week or month in order to cover its expenses.

In accounting, the point at which you’re making enough money to cover those expenses before profits are called your breakeven point.

To figure it out, you’ll need to add up all of your expenses, then figure out how much revenue you’ll need to bring in to cover them.

Then, at the end of each business day, you can take a look at the daily sales report and get a sense of whether you’re on track or not.

Of course, you want to do more than just break even. You also need to maintain a healthy profit margin. For that, you need to look past revenue and keep a close eye on what you’re spending.

Keeping Costs in Check

There are many costs that go into restaurant operations, but the most dangerous ones are the ones that fluctuate. So-called “overhead costs” like rent and energy are worth watching, too, and can make it really hard to stay profitable for the long term. However, at least you can count on overhead costs to stay relatively consistent and plan for them accordingly.

The biggest variable costs in the restaurant business, of course, are food and labor. By assessing and adjusting these costs, you can make big improvements in profitability. Food and labor are also often the areas where accounting errors are more likely, so it pays to monitor them more closely.

The term “cost of goods sold” (CoGS) is used in accounting to refer to the costs of producing the food and drink served to your customers in a given time period.

You can calculate it by adding together the cost of your existing inventory and the cost of any inventory purchases during that period, then subtracting the cost of the inventory you have left at the end of the specified time period.

Knowing your CoGS is a good first step, but the figure doesn’t lend a ton of insights into profitability on its own.

Most restaurateurs combine CoGS with the labor costs over the same time period, the total of which is referred to as “prime cost.” By monitoring how the prime cost compares to the total sales for the same period, you can get a better sense of how effectively you’re spending your money.

In general, a restaurant’s prime cost tends to be about 60% of sales, with the rest going to things like overhead costs, operating costs, or cash reserves.

However, this number can vary depending on your restaurant’s type and goals.

Other Helpful Financial Indicators

In order to get the data you need to calculate CoGS, prime cost, breakeven points, and other profitability measures, you’ll need to keep careful records of your money as it’s spent and as it’s received.

Again, the right POS software makes most of this very easy. Any software program with a flexible reporting system will get you quick access to these KPIs. You can limit data to various time periods and isolate factors to get even more insights.

For example, if the prime cost starts to take up a bigger percentage of total sales than you’d like, there are plenty of options for how to troubleshoot the issue.

For example, you may choose to look at the following:

  • the cost of food compared to the revenue it’s bringing in (food cost ratio), or the beverage cost ratio

  • the profitability of each type of meal on your menu

  • the average revenue per ticket or per table

  • the dates or times your restaurant is regularly overstaffed (tighter scheduling could save on labor costs)

A good point of sale program that was designed for restaurants, such as Lightspeed Restaurant or Touchbistro, can help you find these insights easily.

Choosing Expert Partners

Finally, it’s worth noting that although you can’t opt out of your accounting and finances completely, you can certainly outsource a lot of it.

There are many professionals who specialize in bookkeeping who would love to help you out. They are available as freelancers, part-timers, and agencies to provide any level of service you need.

In general, it’s a smart move to outsource any type of work that you don’t want to focus on personally — or that someone else can do more quickly and efficiently. After all, anything that distracts you from running your business comes with a high cost.

Similarly, if you’re still searching for the perfect point of sale system — one that can handle all the bookkeeping features we mentioned in this article — that’s also a big and complicated job, too. And just like bookkeeping, there are professionals available to help with the task so that it doesn’t distract from your other work.

Contact us at Cloudscape Technologies to learn more about how our expert staff makes it painless to choose and onboard with the best cloud-based software on the market. We love working with restaurant owners and have systems and processes designed specifically for the industry.

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Tags: Restaurant tips
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