Restaurants that have adopted good accounting practices are more profitable because they know the challenges of the food service industry and have implemented accounting systems to manage those specific areas. In my experience in handling the bookkeeping function for a few restaurants, I have found that the business is more profitable when these six accounting best practices are implemented.
(1.) Record the sales and receipts daily – Sound financial tracking begins with the accurate recording of sales for each day so restaurant operators can easily view trends in business over time. Ideally, the restaurant’s point of sale (POS) system will integrate with the accounting system (refer to best practice #6). In cases where the restaurant runs two separate systems, a report must be generated from the POS that summarizes the sales for the day. Restaurants should ensure they record the activity in the accounting system from the POS report. The daily entry identifies the sales by major profit line and receipts for the individual methods of payment accepted to allow for reconciliation of the deposits.
(2.) Track detailed costs for purchases – Profitable restaurants closely track their food & beverage costs. Restaurants should enter food and beverage purchases into their accounting system the day they are delivered. Some restaurant operators are automating this task using apps like Orderly.
(3.) Monitor food and labor costs weekly – Controlling food and labor costs are critical tasks for a restaurant owner since they run up to 68% of total sales. The restaurant’s food and labor costs tend to vary with the type of food service operation, but operators must always remember these costs are controllable. Fast food restaurants can often keep labor costs as low as 25% of sales. A high-end restaurant generally has higher labor costs that are closer to 35% of sales. Food and beverage costs vary according to the mix of sales and restaurant style and range from 25% to 38%. Restaurants have an opportunity to impact food costs by implementing more effective purchasing processes and menu pricing. Restaurants also can influence their labor costs by implementing better scheduling methods and hiring practices.
(4.) Take inventory regularly (ideally weekly) – Since the food and beverage costs for a restaurant are such a large expenditure, they must be tracked closely and the information must be used! The inventory provides insight into how to run a more effective purchasing process since a higher inventory will result in higher food costs. Too much food sitting on the shelves or in the cooler results in waste and ties up critical cash. From my experience, most restaurants aim for no more than seven days of food inventory. One other point to consider is that the beginning and ending inventories are used to calculate an accurate food and beverage cost for the time period.
(5.) Review the financial statements frequently – Restaurant operators must receive timely information about the business’s financial performance so they can quickly identify problem areas and take action. Operators must be reviewing the income statement to determine if the business is making a profit and if the operating costs for the time period are on target. The balance sheet is often overlooked when it’s really a necessity since it shows if there is a cash crunch and the restaurant’s ability to pay off any debts.
(6.) Integrate the accounting system with the point of sale system – A good accounting system will categorize and track expenses and sales, while also integrating the point of sale, payroll and inventory systems. An integrated solution, such as QuickBooks Point of Sale powered by Revel Systems, automatically synchronizes each day to update data. By implementing this type of system, restaurants can save time and eliminate the manual data entry processes.
I know the key factors that can directly impact the success of a restaurant and encourage you to contact me if you need help in implementing these best practices.