Restaurant accounting can be complex. If you want to do it right, follow this eight-step process:
- Find the right restaurant accounting service.
- Implement restaurant accounting software.
- Identify and integrate a suitable POS.
- Create a chart of accounts.
- Track your accounts.
- Monitor financial statements and reporting.
- Prepare for tax season.
- Optimize your restaurant business.
Let’s review each in more detail.
1. Find the right restaurant accounting service.
The first step to effective restaurant accounting is to identify the solution that you’ll use.
You have a few options here. First, you can do the accounting yourself. Unless you have a background in finance and enjoy spending time in spreadsheets, this probably isn’t ideal. (If you do go this route, you’ll need to handle all of the subsequent steps yourself.)
Second, you can hire someone to manage your accounting internally. This is appealing in that it makes your team feel bigger and it may make you feel more in control of your finances – but, most often, it’s simply too expensive to be worth it. Plus, if the person you hire internally leaves your business, you’ll be in a tough spot.
The third option (and, in our view, the best) is to work with an outsourced accounting provider. At Global Shared Services, for example, we provide franchise restaurant owners with affordable accounting services that are priced below the market and perform above it. (If you do decide to outsource, your restaurant accounting service will likely help you navigate the subsequent steps.)
Once you choose who will be doing your accounting, it’s time to move onto the how.
2. Implement restaurant accounting software.
If you choose an outsourced restaurant accounting provider, they’ll be able to offer guidance on your accounting software. Most accounting providers can be flexible with tools if you already have systems in place, but if you’re starting from scratch, they’ll likely have recommendations.
With that said, in general, some of your best options are:
This is an industry standard no matter what industry you’re in; while it’s not designed specifically for restaurants, it can be adapted to work well.
This is a competitor to QuickBooks that may be slightly more cost-efficient, depending on your needs.
This is more than an accounting tool; it’s a comprehensive back-office software that’s designed specifically for the restaurant industry. It’s often our tool of choice (although we can work with any solution). Learn more about Restaurant365 here.
If you’re interested in learning more about these tools, we’ve reviewed the top accounting software solutions in more detail here.
3. Identify and integrate a suitable point-of-sale (POS) system.
Ideally, this step should actually be done in parallel with the selection of restaurant accounting software. Your POS system will pass customer purchase data directly to your accounting software, so it’s important that the two systems are easily integrable.
A few of the most common POS systems include:
This system uses iPads and mobile receipt printers to track customer purchases.
Square rose to prominence thanks to its mobile-compatible devices; their restaurant offering is iPad-based.
Upserve works on Android and iOS; restaurant owners can lease or buy hardware to get it set up.
Toast is Android-based and can be used at tables or on-the-go.
Thankfully, most POS systems integrate pretty easily with the industry-standard restaurant accounting systems; however, as you get set up, you’ll want to make sure that things work smoothly and that the framework you create has the capacity to scale.
Again, it can be helpful to have an outsourced accounting service working with you to ensure you set things up in a way that will be smooth and dependable.
4. Create a chart of accounts.
Once you have the means of capturing accounting data, you’ll want to create a chart of accounts.
“A chart of accounts,” notes Investopedia, “is an index of all the financial accounts in the general ledger of a company. In short, it is an organizational tool that provides a digestible breakdown of all the financial transactions that a company conducted during a specific accounting period, broken down into subcategories.”
At a high level, a restaurant business’s accounts will include:
Then (as explained by Investopedia), each category will be broken down into relevant subcategories. For example, Labor Costs would be a subcategory of Expenses.
As data comes in and transactions are correctly categorized, you’ll be able to enter into the next step.
5. Track your accounts.
Based on the classic accounting equation (Assets = Liabilities + Equity), every transaction your restaurant makes will result in a change to the balance of at least two accounts. For example, a purchase of inventory might be recorded in Assets and Expenses.
Bookkeeping is the process of recording your transactions, and it will facilitate the tracking of your accounts over time.
As transactions are made, data will accumulate, and your restaurant business will be able to have visibility on your present financial picture while planning for the future.
6. Monitor financial statements and reporting.
While tracking transactions and managing your chart of accounts is necessary day-in, day-out, financial statements give you clarity on your finances at a bigger-picture level. These are snapshots of important data, usually taken at the end of accounting periods, that offer perspective over a given interval of time.
Financial statements to review include:
Your balance sheet will show what your company owes and what it owns at a fixed point in time.
Your income statement will show how much money your company made and how much money your company spent over a given interval.
Cash Flow Statement
Your cash flow statement will show how money was exchanged between your company and external entities over a period of time.
Statement of Shareholders’ Equity
Your statement of shareholders’ equity will show changes in the interests of your company’s shareholders over time.
These documents will be helpful as you move onto our two final steps.
7. Prepare for tax season.
Preparing your restaurant business for tax season is a topic that’s worthy of its own article. For now, a few quick tips:
Organize all of your files. If you’re working with an outsourced accounting firm, they’ll have things in order for you. If you aren’t, you’ll need to ensure that your receipts are organized by date and category. The more documentation you have, generally, the better.
Maximize your deductions. Deductions are expenses you can claim against the amount you owe; the more deductions you make, the less you’ll owe in taxes. Possible deductions include costs of goods sold (COGS), marketing costs, software costs, employer taxes, and a whole lot more. Working with a good accountant can ensure you do this correctly.
Work with a professional. As you may be able to tell, this is a common theme; a professional accounting service simply makes the process of filing taxes much more seamless.
(Note: None of this is meant to be taken as legal advice.)
8. Optimize your restaurant business.
Taxes are the not-fun part of restaurant accounting. The better part is using your financial data to optimize your restaurant business.
At the end of the day, that’s one of the primary purposes in accounting: to enable you to have the clarity you need to make better decisions.
Restaurant accounting will provide you with information to optimize your inventory costs, your labor costs, your specials, and more. It’ll allow you to accurately budget and set clear financial goals for your business.
Over time, better restaurant accounting will allow your restaurant to scale.
Need help with your restaurant accounting?
Follow the eight-step process outlined above, and your restaurant business will have a solid financial foundation.
If you’re ready to take the first step and work with an outsourced accounting provider, get in touch with us.
At Global Shared Services, we offer restaurant accounting services to business owners like you. We’ve done franchise accounting for major brands in all 50 states, and we’ve helped independent restaurant businesses to grow with accounting they can trust.
Let’s take your restaurant business to the next level, starting with a free consultation.
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With GSS, we meet our franchisor requirements on time and with accuracy. The local CPA could not handle our volume. We are so happy to have made the change. GSS knows our business and our franchisor requirements.Multi-unit fast sandwich Owner