Today, more than ever, accurate and informative restaurant accounting is crucial. Your business needs to be able to make sound decisions on a daily basis.

To that end, here are the top seven restaurant accounting mistakes to avoid.

1. Not using a four-week accounting period.

We’ve qualified this mistake as the top one because it’s one that’s unique to the hospitality and restaurant industry: If you don’t use a four-week accounting period, your data will be difficult to understand.

Most businesses use a monthly accounting period and end up with 12 periods in a year in which data is compiled and reported on. For restaurants, though, monthly reports can be misleading. Because weekends tend to get more traffic than weekdays, months with extra weekends look great, while months with fewer weekends look worse – regardless of how the business is performing relative to daily expectations. You might think you’ve had a great March, for example, even if your restaurant underperformed every day, simply because there were five Fridays and Saturdays.

The solution is to switch to a four-week period (or to 13 periods per year). This format standardizes data and makes it easier to compare period-to-period – and that means it will be easier for restaurant businesses to generate meaningful insight and make good decisions.

2. Using a cash basis instead of an accrual basis.

Another big mistake in restaurant accounting is to use a cash basis. This approach means recording each transaction when the cash comes in or goes out.

It’s straightforward, but it doesn’t allow good visibility into upcoming income or expenses – and, again, that can impact your ability to make good decisions. Really, the only businesses that should use a cash basis for accounting are very small businesses with no inventory. Clearly, that doesn’t include restaurants.

An accrual basis is a better approach. This involves recording each transaction when a liability is induced or when income is earned. So, if a business orders repairs in a given month, that liability is noted immediately in that month, even if it’s paid thirty days later.

This allows income and expenses to be matched to the time periods in which they actually occur, and also gives visibility into upcoming cash flows.

3. Not monitoring inventory on a weekly basis.

Inventory is the pulse of a restaurant. Reviewing this on a monthly basis simply isn’t enough to ensure that you’re making the right decisions. If you don’t monitor and maintain your inventory each week, you risk missing crucial beats – you could end up overstocked with food that spoils, or understocked and unable to meet customer demand.

Both are bad scenarios.

Additionally, inventory is the key driver in calculating the Cost of Goods Sold (COGS), which is, as we’ve written about elsewhere, one of the key restaurant accounting terms to track. Be consistent in inventory management. Your kitchen staff will thank you.

4. Not doing regular reconciliations.

Another common mistake in restaurant accounting is not doing regular reconciliations for bank and credit card balances.

Reconciliation is, essentially, the act of comparing two record statements against each other to identify, and reconcile, any discrepancies or errors. This is important in any industry, but for restaurants – which process high frequencies of transactions – it’s particularly crucial, because small inaccuracies can add up to big problems.

You should reconcile your bank and credit card balances on at least a monthly basis.

5. Accounting when there are bookkeeping errors.

This mistake is pretty straightforward. If you’re doing accounting with bad data, you’re going to end up with bad accounting.

Bookkeeping errors happen, especially when there are manual steps in bookkeeping processes. It’s incredibly easy to hit the wrong number on a keyboard or to add (or leave out) an extra decimal place. But tiny mistakes can lead to massively wrong conclusions when accounting happens.

There isn’t one easy answer to this issue, but here are a couple of considerations that will help your restaurant business to avoid it:

  • Work with bookkeeping solutions you trust. If your bookkeeper is consistently making mistakes, you may want to consider another solution.
  • Work to remove manual data inputs. The vast majority of bookkeeping error happens via manual processes. Thankfully, there are increasingly ways to automate these activities to reduce errors.

6. Using unoptimized accounting software.

One reason for bookkeeping errors, as we’ve mentioned, is excessive manual data management. Optimized accounting software can help to minimize this issue.

With good accounting software, bookkeepers won’t have to manually enter each transaction into disparate systems. Instead, data will be collected and integrated automatically, reducing error and increasing visibility across different areas of your restaurant business.

We’ve written about the top restaurant accounting software solutions in the past – see the article for the full picture – but one great option is Restaurant365. This solution is built to handle all of the back office needs that restaurants have, from inventory management to labor and scheduling.

The bottom line is that having data well-integrated increases accuracy in the accounting process.

7. Not outsourcing to restaurant accounting experts.

Finally, it’s common for restaurants to make the mistake of working with a general accounting provider – a generic CPA or an outsourced solution that’s not experienced with the needs of the industry.

While general accountants may be good at general accounting, the reality is that the restaurant industry poses unique challenges. Restaurant accounting is different, and providers that understand this – and who have deep experience with it – tend to perform to higher levels of quality.

And, past that, the best restaurant accounting providers are able to add strategic insight to businesses.

Get restaurant accounting help from experts.

At Global Shared Services, we have over a decade of expertise in restaurant accounting. We’ve served restaurant businesses across all 50 states, and that experience has enabled us two major advantages:

We’ve been able to streamline our processes for maximum effectiveness. We deliver services that are priced below the market and perform above the market because our team is built specifically for the restaurant industry.

We have CFO-level expertise. Working with hundreds of businesses throughout the industry has given us the unique ability to pattern-match to your benefit; we understand the industry’s financial benchmarks and can offer guidance on helping your restaurant business to perform well relative to the market.

Want to avoid restaurant accounting mistakes and help your business to thrive? Get in touch with us today to learn more about how we can help.

You should have access to experts.

Founded in 2003, we’ve worked with large corporations and small-to-medium businesses alike. Here’s what we’ve learned: access to expert financial and accounting services is a major factor in a business’ ability to succeed and scale. We believe that it shouldn’t be restricted by location or company size. Our mission is to empower restaurants and technology firms with that access.
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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