And importantly, it provides significant ratios analysis that tells you how the company is doing. While the hospitality sector reopens across North America, owners and operators face a whole new set of challenges. Download our free playbook and learn how to build a more resilient business post-pandemic. Great food, brilliant customer service and all-round stellar dining experiences are probably why you got into restaurants in the first place. Outsourcing your bookkeeping is more affordable than you would think.
“Cost of goods sold” refers to the products you buy that make up your product. And in the restaurant business, it’s no secret that, in order to make food, you’ll have to buy ingredients. If you’re opening a franchise restaurant business, such as Pizza Hut or TGI Friday’s, you’ll source your food directly from suppliers as instructed by the home office. But if you’re striking out on your own, you’ll be responsible for buying ingredients, possibly every day.
Your gross profit is the difference in value between the selling price of a dish and the cost of the ingredients and materials used to make a dish (your COGS). When you calculate break-even point in units, you’re learning how many pizzas, coffees, fixed price meals you’ll need to sell to achieve that same goal. Getting your financials right can actually help your business deliver on that very passion that motivates you in the first place.
Besides your productivity slowing down if you start to become mentally exhausted, you could also start making mistakes. Instead, you’ll need to contact the company for custom pricing based on your specific needs. It’s important to stay on top of your Accounts Payable, so you know exactly what money is owed to suppliers and vendors.
Create a Profit and Loss Statement
Put simply, prime costs is the sum of your restaurant’s costs to sell its food, drinks and products—your COGS as mentioned above—plus the labor costs of your salaried and casual staff. Industry averages suggest your prime costs should be between 55% and 60%. For DIY bookkeepers, this means careful record-keeping and keeping a close eye on your tax obligations. Will your wait staff work for tips, or will you add gratuities to every bill? And if you hire full-time wait staff, you may also need to furnish benefits. Many restaurants rely on part-time or seasonal employees to avoid this expense.
Prime costs account for all the costs required to produce and distribute your product. For every dollar that comes in, your prime cost is the amount of that dollar that goes to people (your staff) and product (your menu items). Account reconciliation proves that you’ve accounted for all transactions – and that the amount of cash in your checking account is actually correct. Note that modern accounting software can automate account reconciliation. Food cost is the ratio of a restaurant’s cost of ingredients (food inventory) and the revenue those ingredients create when you sell menu items. The key to quickly calculating your prime cost in QuickBooks is having your chart of accounts set up properly.
Chances are you’ve noticed this already if you’ve ordered a bottle of wine. The same bottle that costs $15 in your local liquor store could cost $30 or $45 when you’re out. Record a separate daily sales entry for each day (not monthly or weekly). With this method, you are mimicking how the cash and credit card deposits hit the restaurant’s bank. Most restaurants accept credit cards and settle the batch on a daily basis.
That’s because there are liability issues and high penalty fees on the line for mistakes made in payroll. Underestimating your weekly income could make it look like your business is losing money when it’s not. Alternatively, overestimating your income could cause overspending because you weren’t working with an accurate budget.
It’s made specifically for the restaurant industry and has specific features beneficial to restaurant owners. Automating financial processes can make life easier for the busy restaurateur. An automated accounting system can help you track invoices, manage payments and reconcile financial data quickly and easily. Reconciliation is the process of comparing different sets of financial data to make sure they match up. For example, you might need to reconcile your bank statements and credit card bills with the financial reports generated by your POS system.
Controllable cost report
The next step is to set up your chart of accounts, which is used to organize the money flowing in and out of your restaurant. The chart of accounts records high-level transactions such as assets, expenses, liabilities, revenue, equity, and cost of goods sold. This is further reduced to business-specific categories such as sales, inventory, and marketing. Since your POS logs revenue coming in and much of the money going out of your restaurant (credit card refund, food cost, labor), you can use it to analyze sales and costs. You should always reconcile accounts payable before putting your invoices into your accounting software. To do this, you can use a process known as the “Three Way Match.” First, look at your restaurant’s purchase order, then your receiving order, and finally, the vendor invoice.
The daily sales report is your quintessential end-of-day report that measures costs, sales, and future sales. Revenue (sales, tax, tips, and credit card fees) are reconciled against settlement (accounts receivable, cash and credit card deposits, discounts and coupons, gift certificates redeemed). The result is either cash over or short – but in an ideal world, you’re at zero.
By keeping tabs on your CoGS ratio, you can take action to reduce and contain your inventory costs. Your balance sheet also shows your equity, so your net worth; it’s what’s left over at the end of the day when assets are subtracted from liabilities. This could mean reducing operating costs or finding ways to generate more income to cover debts. You and your accountant will work on certain bookkeeping and accounting tasks together. You’ll also want to know enough about accounting to monitor financial KPIs that will help you make business decisions on the fly. Bookkeepers are more task-based and manage accounts payable, payroll, and posting journal entries.
When the staff receives these payments, they’re considered wages and are subject to withholding. The more you can monitor the financial health of your restaurant, the better. MarketMan can level up your operational workflow by seamlessly integrating your bookkeeping, POS and inventory management solutions.
This will make it much easier to keep track of financial information at tax time. Once you know your costs, set aside a budget for each expense so you can easily monitor how much money is being spent on what. Payroll processing can be time-consuming and complex, with many payroll liabilities. You can also find specialised hospitality POS systems with features designed to streamline restaurant operations.
Cost of Goods Sold (COGS)
In the heat of a busy service, it’s easy to think, “I’ll remember later.” But more often than not, you won’t. When it comes to electronic fund transfers (EFT), accuracy is crucial to avoid payment failures and potential financial losses. Irina has a degree in Linguistics, 15 years of teaching experience and 3 years of experience in managing a team of 15 in a small business. Irina believes that a good structure and logic as well as in-depth research should be the attributes of every blog post.
- Utilizing one of the many restaurant accounting software options available will allow your business to better streamline its finances.
- Then you want subaccounts under each of those with the level of detail you desire.
- That’s because there are liability issues and high penalty fees on the line for mistakes made in payroll.
- Here are some important ratios to study when you review the financial statements for your restaurant.
- The program’s features are easy to use, including integration with payroll services, a mobile app, and real-time reporting.
Your breakeven point shows how much revenue you need to earn to pay for your expenses. Also known as “sales per seat” or “average ticket” or “average spend per head. You can use this metric to understand breakfast, lunch, and dinner time averages, and track trends over time. Use this restaurant invoice template to create invoices with ease, saving you time and helping you get paid faster. With everyone that goes into keeping your books up to speed, it might make sense to hire a qualified and accredited finance professional to help you. A controllable cost report gives you an idea of where the company spends its money, which potentially affects how much it will earn or if money is being lost.
Restaurants should be looking at sales vs. cost of goods sold ratios as well as labor ratios. Another ratio many restaurants should consider is the prime cost, which aims to keep the cost of food + beverage + labor at roughly 60% to 65% of your total sales. We chose DAVO as our best accounting software for paying sales tax for restaurants. It’s a niche product designed to seamlessly calculate and pay your sales tax on time and in full while taking advantage of applicable discounts.
Our focus is your convenience – order online from your laptop, desktop, or smartphone 24 hours a day, 7 days a week. Our fast shipping, low prices, and outstanding customer service make WebstaurantStore the best choice to meet all of your professional and food service supply needs. We hope that by using these guidelines you can clarify your bookkeeping strategy and focus on sales and other things that contribute to the growth of your business.