Restaurant Bookkeeping 101: A Guide for Small Business Owners

Introduction

This guide will walk you through the basics of restaurant bookkeeping, explain why it’s so important, and provide step-by-step instructions on how to manage your financials. Whether you choose to handle it yourself or hire a professional, understanding the fundamentals of bookkeeping will help you make informed financial decisions and ensure your restaurant remains financially healthy.

The Basics of Restaurant Bookkeeping

What is Bookkeeping?
Bookkeeping is the process of recording and organizing your financial transactions. It includes tracking your restaurant’s income and expenses, ensuring accuracy, and maintaining financial records for tax purposes. It’s an ongoing task that keeps your business’s financial operations running smoothly.

As a restaurant owner, you’ll need to manage a range of financial documents to ensure everything is in order. The key financial statements to focus on include:

• Income Statement (Profit & Loss Statement): This shows your restaurant’s revenue and expenses over a specific period, usually monthly or yearly. It helps you understand your profitability.
• Balance Sheet: A snapshot of your restaurant’s financial position at a given point in time. It includes assets (what you own), liabilities (what you owe), and owner’s equity (your investment in the business).
• Cash Flow Statement: This document tracks the flow of cash in and out of your business. It’s vital to ensure that you have enough cash on hand to cover day-to-day expenses and avoid running into cash shortages.

Why Bookkeeping Is Essential for Restaurants

1. Keeping Track of Expenses
Restaurants have a wide variety of expenses, including food costs, rent, utilities, labor, and more. Effective bookkeeping helps you categorize and track these expenses, which can be useful for budgeting and cost management.

2. Managing Cash Flow
Cash flow is the lifeblood of any restaurant. Without proper tracking, you may find yourself short on cash to cover bills or payroll, even if your restaurant is profitable. Bookkeeping ensures that you understand your cash inflows and outflows, helping you plan for the future.

3. Tax Compliance and Deductions
The IRS has specific rules regarding tax deductions for restaurants, such as deductions for food costs, employee wages, and even business-related travel. Accurate bookkeeping ensures that you don’t miss out on these opportunities and remain compliant with tax laws.

4. Monitoring Profitability
If you don’t know how much money your restaurant is making (or losing), you can’t make informed business decisions. Bookkeeping allows you to keep an eye on profit margins, track trends in sales and expenses, and make necessary adjustments to improve your bottom line.

Key Areas of Bookkeeping in a Restaurant

Understanding the key areas of restaurant bookkeeping will help you structure your financial records in a way that makes sense for your business.

Revenue
Tracking daily sales is essential for knowing how much money is coming in. You should separate revenue from different sources: food, beverages, catering, takeout, etc. This breakdown will help you see where your money is coming from and how to maximize your revenue streams.

Cost of Goods Sold (COGS)
COGS refers to the direct costs of producing the food and beverages you sell. This includes the cost of ingredients, beverages, and packaging. By tracking COGS, you can calculate your profit margins and adjust your menu pricing accordingly.

Labor Costs
Labor is often one of the highest expenses for a restaurant. Keeping track of wages, overtime, employee benefits, and taxes is critical to ensure you’re staying within budget and complying with employment laws.

Operating Expenses
These include rent, utilities, insurance, and other costs associated with running the business. Tracking operating expenses ensures you’re not overspending and can help you identify areas where you can cut costs.

Inventory Management
Inventory is a key part of restaurant bookkeeping. Regularly tracking inventory levels (food, beverages, supplies) helps ensure you don’t run out of critical items, while also preventing overstocking and wastage.

Payroll
Payroll includes tracking hours worked, calculating wages, deducting taxes, and distributing paychecks. It’s important to stay on top of payroll to avoid errors that could lead to employee dissatisfaction or compliance issues.

Software Tools for Restaurant Bookkeeping

Managing your bookkeeping manually can be time-consuming and error prone. Fortunately, there are a variety of software tools available to streamline the process.

• QuickBooks: One of the most popular accounting software options for small businesses, QuickBooks offers a range of features to help you track income and expenses, generate reports, and handle payroll.
• Xero: Xero is a cloud-based accounting platform that offers easy integration with POS systems and other business tools. It’s ideal for restaurants that need real-time tracking of their finances.
• Specialized Restaurant Software: Tools like Toast, Square for Restaurants, and Touch Bistro are designed specifically for restaurants. These platforms offer features like real-time sales tracking, inventory management, and labor cost tracking.

When choosing software, consider your restaurant’s size, the complexity of your financials, and your comfort with technology. Look for platforms that integrate with your POS system to reduce manual data entry.

How to Do Restaurant Bookkeeping Yourself

If you decide to handle your restaurant’s bookkeeping in-house, here are some steps to follow:

1. Set Up a Chart of Accounts: Create categories to track your restaurant’s financial transactions, such as revenue, COGS, labor, and operating expenses.
2. Record Daily Sales and Expenses: Track sales at the end of each day and enter expenses as they occur. The more often you update your records, the easier it will be to stay on top of your financials.
3. Reconcile Bank Accounts: At least once a month, reconcile your bank statements with your records to ensure everything matches up. This helps you spot errors and discrepancies.
4. Track Tips and Gratuities: If your staff receives tips, you’ll need to track them separately for tax purposes. Make sure you’re complying with tax laws around tip reporting.
5. Regularly Review Financial Reports: Generate profit and loss statements and balance sheets regularly to ensure you understand the health of your business. This will also help you spot potential issues early on.

When to Hire a Professional Bookkeeper or Accountant

While managing your own bookkeeping is feasible, there are times when it may make more sense to hire a professional. Signs that it might be time to bring in help include:

• Lack of time to keep up with bookkeeping tasks
• Difficulty understanding financial reports
• Rapid growth of your restaurant
• Complex tax situations or audits
• Desire to focus on growing your business rather than managing finances

When hiring a bookkeeper or accountant, look for someone with experience working with restaurants. They should be familiar with industry-specific financials and tax laws. While outsourcing bookkeeping can be costly, it may save you money in the long run by ensuring accuracy and tax compliance.

Restaurant Bookkeeping Tips for Success

• Stay Consistent: Bookkeeping is a regular task. Stay consistent with updating your records daily or weekly to avoid a backlog of work.
• Separate Finances: Keep your personal and business finances separate. This simplifies bookkeeping and ensures you’re only tracking your restaurant’s financials.
• Monitor Cash Flow: Always keep an eye on cash flow, especially in the early days of your restaurant. If cash flow is tight, make adjustments as needed to avoid running into financial trouble.
• Prepare for Taxes: Don’t wait until tax season to think about taxes. Track deductible expenses throughout the year to reduce your tax burden.
• Audit Financials Regularly: Regularly auditing your financials can help you catch errors and prevent fraud.

Conclusion

Good bookkeeping is essential to the success of any restaurant. Whether you choose to do it yourself or hire a professional, understanding the fundamentals will help you stay on top of your finances and ensure your business remains profitable. Regular tracking of your revenue, expenses, and taxes will give you the insights you need to make informed business decisions and grow your restaurant with confidence.

By following these steps and best practices, you’ll be well on your way to managing your restaurant’s financial health and ensuring long-term success. If you’re looking for a great professional to take care of your businesses bookkeeping. Look no further then Thank Heavens Bookkeeping