While many restaurant operators are aware of some basic accounting principles, their core responsibility is to provide amazing food and service, not code invoices and format financial statements. Working with an established bookkeeper can allow a restaurant operator to focus on their core role while safeguarding and increasing the profitability of their business.
Restaurant bookkeeping is fundamental to not only the success of a restaurant but its very existence too. Knowing where income originates and outgoings occur can keep the business running smoothly and allow owners to focus on providing the meals they always dreamed of. This guide will look at the basics of bookkeeping for restaurants, bookkeeping terms and reports to be aware of, and how restaurant accounting software can ease this necessary burden.
What Is Bookkeeping?
Bookkeeping is the ongoing recording of a business’s financial transactions and involves tasks like documenting sales and expenses, processing payroll, and maintaining financial records. For restaurant operators, as for all business leaders, bookkeeping helps monitor the business’s performance and overall health by recording all the financial ins and outs.
As the name suggests, bookkeeping used to be done primarily in physical journals and ledgers, with teams spending hours or days ensuring that every cent was accounted for in individual books. Of course, it’s still possible to manually manage finances today, but accounting software saves critical time and effort. Accounting software automates many bookkeeping tasks—for example, matching transactions in bank statements with those in the business’s internal records—and uses all data to generate financial reports and forecasts about where the business is heading.
What Is Restaurant Bookkeeping?
Just like businesses in other sectors, restaurants must record, organize, and maintain their financial records via bookkeeping. While in other sectors it’s possible—and sometimes preferable—to analyze financial transactions on a monthly or quarterly basis, the restaurant industry is so fast-moving that daily or weekly versions of some bookkeeping reports are useful.
Particularities to bookkeeping in the restaurant industry include loyalty programs that work on a point-based system or promise a free meal after a certain number of purchases add complexity to restaurant bookkeeping. Customers earn and claim their rewards at different times, and various accounting standards contain distinct rules about how to account for loyalty program activities—for example, International Financial Reporting Standards (IFRS) detail how to book reward-related discounts as components of a sales transaction, not as marketing expenses.
Restaurant bookkeeping also tends to require logging the results of ad hoc decisions. For example, if business is particularly quiet one day, restaurant managers might decide on the spot to reduce staff numbers for a shift, which affects the books at the end of the day.
Variances in trade also make restaurant bookkeeping complex. Holidays such as Christmas and peak seasons such as summer can spike business and incur more transactions and thus more work for bookkeepers. Late changes to long-planned events, for example due to unexpected bad weather, can stall transactions altogether.
Manually recording all this information isn’t practical, even for a dedicated bookkeeper, which is why restaurant accounting software is vital. It allows restaurant owners to concentrate on what they do best: providing diners an experience to remember.
Key Takeaways
- The accuracy of restaurant financial statements is paramount, and therefore so is the accuracy of restaurant bookkeeping.
- Restaurant accounting software makes bookkeeping faster and more accurate, in part by automatically logging all financial transactions in one system.
- Integrating restaurant bookkeeping systems with other business systems facilitates automation and yields more useful reports across the business.
- It often makes sense to hire or outsource a bookkeeper and outsource payroll to keep the accountant, tax office, and staff happy while positioning the restaurant for a healthy, long future.
Restaurant Bookkeeping Explained
Restaurant bookkeeping concerns many recordable transactions, the most notable of which comprise prime costs, or the total direct costs of rendering a restaurant’s service. These usually include the cost of food and drink from wholesalers and payment to chefs, servers, and bar staff. Beyond prime costs, there are property rental or mortgage payments; the price of equipping the kitchen; purchasing furniture; marketing costs; repayments on loans and credit cards; maintaining and buying fuel for delivery vehicles; and more. Restaurants primarily recoup those expenses via diners paying for meals and drinks.
These day-to-day transactions must be logged accurately, because they form the basis of financial statements and financial reports that guide business strategy and profitability. If the financial data isn’t accurate, the reports won’t be either. Restaurant bookkeeping may sound intimidating, but employing a bookkeeper and/or the appropriate restaurant accounting software can lighten the load.
7 Steps to Restaurant Bookkeeping
Bookkeeping is to accounting what foundations are to a building—without the former, the latter will fall down. A restaurant bookkeeper focuses on properly recording financial transactions and keeping those records organized, then the accountant summarizes and reports on these records.
Generally speaking, there are seven steps to restaurant bookkeeping.
1. Record daily restaurant sales
As mentioned, food and drink sales are, well, the restaurant’s bread and butter in terms of revenue. Recording these is simple using a modern point-of-sale (POS) system that logs every purchase made by guests. Recording sales per category can provide insights such as how much of a payment went towards food, alcoholic drinks, nonalcoholic drinks, and tips, as these may each have separate taxes associated with them. It also helps restaurants analyze how many customers pay by cash versus card—if the latter is more prominent, owners may want to replace a cash register with a couple of extra mobile card readers that allow diners to settle the bills at their tables, for instance.
2. Account for inventory
Restaurant bookkeepers must account for inventory that often includes not only food and beverage but also kitchen equipment, cutlery, linen, and more. Restaurants often don’t obtain the full value of this inventory: For example, ingredients can unexpectedly spoil before they’re consumed, and linen can get soiled beyond repair. Restaurant bookkeepers must consider this as they determine the value of inventory on-hand. Restaurant inventory management typically involves staff performing physical inventory counts more often than in other industries—and when they do, bookkeepers must reconcile these counts to the inventory value on their books.
3. Handle accounts payable
A restaurant won’t last long if it doesn’t pay its vendors. Also known as accounts payable (AP), these are the bills that restaurants pay to food wholesalers, wine merchants, cleaning companies, launderers—any organization providing goods or services. Some may send electronic invoices to the restaurant’s email inbox; others could have setups that allow them to connect directly to the restaurant’s accounting software; and some may mail paper invoices or hand them over when making deliveries. Paper invoices can be digitized with restaurant accounting software that allows teams to import data by taking photos. Teams must ensure that any scanned numbers are correct and that purchase orders (POs) match the invoices as part of the AP process.
Unlike sales, which should be checked daily, accounts payable can be checked once or twice a week and paid weekly. Restaurant teams may set up automated payments for regular orders, which keeps suppliers happy by ensuring prompt payment.
4. Manage payroll
Many restaurants hand over their payroll liabilities to specialist third-party firms, which not only ensure staff are paid but also keep track of legal obligations, such as taxes, medical care, tip reporting, garnishments and other factors that could be costly to business owners if reported incorrectly. Whether in-house or outsourced, managing payroll requires accurate tracking of hours worked, how wages vary between roles and shifts, and variable pay such as tips. This includes tracking overtime hours and calculating overtime pay according to local laws and company rules. Automating the process can cut down on potential errors. When integrated with POS and accounting systems, payroll software automatically ensures that staff rosters are up to date—including any late changes or no-shows—and that tips are recorded accurately.
Tax withholdings are an essential part of managing payroll, and they often come with extra complexity in the restaurant industry. Restaurants tend to employ a mix of hourly and salaried workers, some of which are seasonal, and hourly workers often make both a wage and tips—the latter of which can go underreported. Each of these factors involves tax withholding rules that bookkeepers must consider when managing payroll and preparing taxes.
5. Log expenses
Restaurant bookkeepers must track all expenses, including cost of goods sold (COGS), labor costs, rent, and more. They must record details of every transaction, logging each under the correct expense account—such as kitchen supplies or table linens—in the chart of accounts. Accounting software can help with this, as well as break expenses down into the granular detail required to track exactly where investments are going and whether they provide value.
6. Reconcile all accounts
This is where regularly checking bookkeeping entries becomes worthwhile. Every month, restaurant owners and managers must reconcile their books with their accounts—that is, make sure the money that they said was paid in and out has actually been paid in and out. This includes reconciling their records with their bank statements, payroll liabilities, loans, credit cards, any other lines of credit, and more to ensure every invoice has been paid, all deposits have been correctly recorded, and any cash variances.
Without booking restaurant sales and accounts payable on a daily and weekly basis, this could require hours of going through the numbers on a granular level. And that assumes all the information is still available. If a paper invoice didn’t get logged and was subsequently mislaid, for example, it could result in a huge waste of time and effort during the account reconciliation process. Restaurant bookkeepers can benefit from continuous accounting, which involves transaction matching in real time, often with the help of an ERP system. This helps them find and fix errors before they cause issues, as well as complete the period-end close faster.
7. Produce and analyze financial reports
In the restaurant industry, profit margins can be tight—generally in the single-figure percentages—so making the operation as slick as possible could mean the difference between success and struggle. Savvy restaurant owners should analyze data collected during the bookkeeping process to make those marginal gains. The raw numbers may not mean much, but as described earlier, financial reporting turns them into actionable insights that show owners how their business is progressing and offer inspiration for improvements. Noticing a quieter period each week? A special offer could bring in more customers. Found a golden goose that keeps laying eggs? Nurture it with extra staff, equipment, or space.
5 Restaurant Bookkeeping Reports
Bookkeeping reports distill the numbers into usable figures that inform action. These reports support a restaurant team in both ensuring the books are balanced and planning for the future based on financial insights.
1. Daily sales report
The end-of-day sales report is among the best friends of a restaurant owner, not least because it can be modified to show owners precisely what they need to know. The report can be fairly basic—for example, it might just show how many units of a particular dish have been sold and how much for. But even a simple report like this has value, as it can help leadership determine how much inventory has been used each day and how much they need to replenish. Or if they notice a particular dish constantly sells out, it could be an opportunity to buy ingredients in greater bulk, thus getting a lower per-unit cost via economies of scale and selling more of the dish.
The daily sales report is ideally configured to also include information such as beverage sales, methods of payment, tips, discounts applied, and the service time of each sale. The more data that restaurant owners input, the more insights they get. Especially if the restaurant’s POS is integrated with its accounting software, the daily sales report helps work out tax payments, payroll liabilities, transaction payments for credit card vendors, and more.
The report also helps with reconciliation. Teams should check it daily at the end of service to ensure everything is accurate, rather than requiring an accountant to, for example, dig through months later to discover that a $100 bottle of wine was accidentally sold for $10.
2. Balance sheet
A restaurant balance sheet summarizes the assets a restaurant owns, the liabilities it owes, and how much equity is left for the owner and investors from the difference.
Assets can be current or fixed, such as cash from customers and kitchen equipment, respectively. Liabilities are both current and long-term—staff wages and deferred tax payments, for instance. Once liabilities are subtracted from assets, equity is left. Equity can include—among other items—retained earnings to be invested back into the business, take-home profit for the owner, or shares to stockholders.
From these figures, business owners can work out the restaurant’s underlying financial health at a given point in time. This can help them and third-party investors decide whether putting money into the business would likely herald greater reward than risk.
3. Profit and loss statement
A profit and loss (P&L) statement, also known as an income statement, does pretty much what the name suggests: It informs a business owner whether their restaurant is making a profit—and if so, how much—over a certain period of time.
As with other reports, it can be as basic or as detailed as desired, but the same rule applies: more information in, more insights out. At the base level, the P&L statement should include money earned from sales (i.e., revenue), as well as expenses like COGS and staff wages. To determine the gross profit of a restaurant, subtract COGS from net sales. For the net profit (i.e., net income or simply profit), use this formula:
Net Income = Total revenue – Total expenses
The P&L statement can help restaurant leaders identify ways to improve net profit, or the bottom line, by building revenue or cutting costs. It’s usually generated monthly, quarterly, and annually. However, restaurants may choose to create and compare weekly P&Ls for a more accurate idea of the most profitable and costly parts of their fast-changing businesses and better-informed plans for the future.
4. Cash flow statement
Cash flow describes the movement of money into and out of a business. The cash flow statement is split into sections that describe operating, investing, and financing activities over a set period of time. In the operating section, a restaurant includes cash inflows and outflows such as dinnertime sales and bartender wages; the investing section includes activities like purchasing a new oven; and the financing section covers off events such as loan repayment.
Breaking down the figures this way allows the business owner and any potential investors to examine which areas of the business generate and cost money. For instance, it would explain that a large cash outflow one month was due to making a significant investment in new restaurant decor. The cash flow statement also shows restaurant leaders how much money is on hand for shorter-term spending and gives them an idea of their liquidity, or ability to convert assets to cash if needed. These factors make the cash flow statement important to potential investors, too.
5. Actual vs. theoretical variance report
Running a restaurant comes with many controllable costs, or those that business leaders can easily influence. Of these, food costs have some of the strongest influence on the bottom line. So, a critical way to boost profitability is to ensure that ingredients are used efficiently. This is where the actual versus theoretical variance report comes in.
This report helps restaurant leaders understand how much of each ingredient they’re using versus how much they should be using based on the restaurant’s recipes, in terms of both cost and quantity. For example, an operator might notice on their income statement that their COGS is above budget. They could pull an actual versus theoretical variance report to determine which ingredients are contributing to that overage, then implement procedures to better control that ingredient’s use. Perhaps the variance for pizza sauce is high—the operator might implement protocols to carefully measure portions going onto each dish. Or maybe the restaurant’s actual costs for liquor are higher than they should be—an operator might investigate to find out that staff frequently give out free drinks, then run more frequent inventories to learn more and fix the issue.
3 Bookkeeping Processes for Restaurants
So, we’ve looked at some of the ingredients for restaurant bookkeeping and what the business owner expects to get out of this discipline. Overall, these ingredients and outcomes tie into three core bookkeeping processes for restaurants.
1. Paying vendors (accounts payable)
Unless a restaurant produces all its own ingredients, it works with vendors—and with vendors come invoices. Restaurant teams must verify that the goods or services on the invoice were indeed received. This should be done on delivery and involve three-way matching, or comparing the invoice with its corresponding PO and delivery receipt to confirm that key details—including the quoted order amount and the number of items ordered—match.
It’s easier if both parties use accounting software to eliminate manual checking. Benefits of AP automation also include avoiding vendor fees for late payments and strengthening relationships with vendors. This can make vendors more willing to show favor in future dealings—for instance if the restaurant places a huge order at short notice for a last-minute event.
2. Reconciling accounts
During the reconciliation step of bookkeeping described earlier, restaurants must not only reconcile bank accounts but also account for tips that servers receive. Establishing a standardized way of recording tips is ideal for both front of house and back office. While different cultures have varying attitudes toward tipping servers and bar staff, these tips carry financial implications for the business just the same—not least when it comes to tax collection. There could be local, regional, and national laws to consider, and they could vary depending on whether waitstaff collect their own tips or pool and share them at the end of service.
Using integrated POS and accounting systems can help establishments stay compliant. These systems automatically separate the tip portion of a payment from the amount that goes to the restaurant. They ensure that tax liabilities are met and internal policies can be carried out—for example, sharing tips between servers. They can also adjust payroll to account for tips per regional legal requirements.
3. Running payroll
As mentioned, engaging a third-party specialist to look after payroll liabilities saves time and effort. It also helps avoid the harmful effects of getting payroll wrong, which include unhappy staff and fines from state and local governments.
A restaurant might outsource the calculations of payroll taxes and deductions along with the distribution of paychecks. However, they’re still responsible for ensuring that they and their payroll service are working with accurate data. Their restaurant accounting software must keep records of hours worked—not just scheduled, in case of overtime or absences—the standard hourly rates of each staff member, the amount of diner payments that constitute tips, and how tips should be distributed.
6 Restaurant Bookkeeping Tips and Best Practices
These bookkeeping best practices can help a owners track critical restaurant KPIs and find those marginal gains that help their business flourish in a competitive industry.
1. Prioritize accuracy
As mentioned, the accuracy of a restaurant’s financial statements is paramount, especially for businesses that are legally required to submit them to local authorities or the federal government. Thus, accurate bookkeeping is also essential. Besides, accurate bookkeeping simply makes an accountant’s job easier when preparing financial statements and taxes—and if the accountant is outsourced, they won’t need to be hired for as long, saving the business money. Also, the more accurate the bookkeeping data, the sharper the insights restaurant leadership will glean from financial reports as they plan for the future.
2. Hire or outsource a bookkeeper
Hiring a bookkeeper often proves a game-changing choice for restaurant owners, as it often means they can get some sleep rather than spending all night crunching numbers after dinner service. Many restaurant owners opt to outsource bookkeeping, or at least the payroll element as described above.
3. Use the right restaurant accounting software
As mentioned, restaurant accounting software automates much of the bookkeeping process. Accounting software that integrates with other systems, such as the restaurant’s payroll system, further boosts bookkeeping speed and accuracy. A cloud-based system ensures that all the restaurant’s financial data is in one place, accessible from anywhere.
4. Keep an eye on prime costs
Whether a restaurant team buys from source or from a distributor, food costs can fluctuate frequently based on agricultural conditions, transportation issues, inflationary pressures, and more. Thorough bookkeeping can help restaurants manage prime costs by providing an accurate record of purchases and data with which to calculate COGS.
5. Use the financial reports produced
The financial reports produced from bookkeeping information won’t be much use if they’re not reviewed and acted upon. For example, the daily sales report may routinely show that certain entrees’ sales are plummeting—is it time to lose them from the menu? When a business owner employs a third-party bookkeeper and/or accountant, it’s easy for them to think that financials are taken care of, not something they need to think about. But since financial reports can provide useful insights to grow their business, the savvy owner makes full use of them.
6. Ask for help
The restaurant industry can appear competitive, but plenty of a restaurant operator’s peers should be willing to share learnings from their careers, including bookkeeping best practices. Maybe a friend in the industry can share their mistakes, or the chef can offer feedback on the payroll process, or front-of-house staff could recommend a POS system they’ve had positive experiences with. And of course, longtime bookkeepers and accountants who have seen restaurants come and go can advise on how to ensure success.
Choosing the Right Software for Bookkeeping and Accounting
Automating restaurant bookkeeping protects the business’s financial and overall health. It reduces manual inputs—which waste time and can harm accuracy—and offers certainty about numbers before they are translated into reports. It also allows restaurant owners to concentrate on the reason they got into the business in the first place.
Implementing restaurant accounting software could be one of the most important decisions anyone running an eatery makes. Adopting this software while the business is young lays a solid foundation for accounting and financial management, meaning the restaurant’s potential isn’t undermined by poor decision-making in its early days.
When selecting accounting software, restaurants must look for many of the same functionalities that other businesses do, such as accounts payable and receivable, payroll, tax planning, and integration with POS systems. The ideal restaurant accounting system also integrates with software for inventory tracking, staff scheduling, menu pricing, and more, which leads to smarter business decisions. For example, imagine that the system recognizes that a particular ingredient is growing more expensive. It alerts the owner to this issue, factoring in current stock levels. If the owner chooses to continue spending on the ingredient and wants to cut staffing costs to compensate, they can trim staff hours directly in the system.
The cost of restaurant accounting software varies, with many software-as-a-service vendors offering functionalities that teams can add on as the restaurant grows. The team decides which functionality they require at any given time, often with guidance from a technology consultant.
Keep Your Books in Order with NetSuite
Restaurants can use NetSuite cloud accounting software to automate bookkeeping and broader accounting processes. The software integrates with leading POS systems to track daily sales, then automates processes including accounts payable and account reconciliation to boost cash flow and save bookkeepers time. As a cloud-based system, NetSuite makes data and insights available both within the restaurant and from home or an office.
NetSuite cloud accounting software is part of NetSuite ERP, which also handles inventory management, HR, and other core business functions. NetSuite provides restaurants with customizable, restaurant-specific reporting and KPIs as soon as it’s up and running, and both restaurant operators and accounting staff—whether in-house or outsourced—work from the same data. This creates a common idea of what success looks like and ensures progress is visible to all parties.
NetSuite’s comprehensive financial management modules provide insight into cash on hand, seamless banking integration, and real-time budgeting insights. While working through bookkeeping and associated accounting processes, restaurant owners can tap into NetSuite’s decades of experience with growing businesses to ensure they’re kept firmly on a path to growth.
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Restaurant Bookkeeping FAQs
What is the role of a bookkeeper in a restaurant?
A bookkeeper records, organizes, and maintains the restaurant’s financial records, providing management with accurate financial data to use when making decisions that affect the business’s overall health. The transactions that bookkeepers oversee and organize include payments received from customers, payments made to vendors, and taxes paid to the relevant authorities. A restaurant’s bookkeeper may also monitor payroll to ensure that employees are paid what they’re owed and the tax office receives its correct cut.
What accounting method do restaurants use?
In choosing between cash-basis and accrual-basis accounting, smaller restaurant operations tend to opt for the former, and larger operations may use both methods. Cash accounting involves recording revenue when customer payments are received and expenses when suppliers are paid, making it easier to gauge a restaurant’s cash position at any point in time. Accrual-basis accounting, on the other hand, involves recognizing revenue when it’s earned and expenses when they’re incurred, without regard to when the cash changes hands. This method provides a more accurate picture of the restaurant’s overall financial—and publicly-traded restaurant companies are required to use this method under Generally Accepted Accounting Principles (GAAP).
What transactions should not appear in the restaurant's accounting records?
Only financial transactions directly related to the restaurant should appear in its accounting records. For example, if a restaurant owner uses their own cash to purchase a vehicle that is used for restaurant deliveries, they should log that on the books. However, if they buy a new car for personal use, they shouldn’t add that to the accounting records, as it isn’t an asset of the restaurant.
Similarly, if the owner has multiple businesses, then only transactions directly related to the individual restaurant or chain of restaurants should be included in accounting records.
How do you account for inventory in a restaurant?
Most restaurants maintain inventory counts—mainly consumable inventory, such as food and beverage ingredients—they purchase and for how much, then track when that inventory is consumed and how much remains. Software helps to automate this process. Note that some smaller restaurants often expense all inventory received; this process works for consistent purchasing but will not work if the restaurant is spending inventory capital unwisely.
Staff should check consumable inventory either before or after each service to ensure consistency in the numbers. Most restaurants use the First In, First Out (FIFO) inventory costing method, which involves selling their first-expiring inventory. FIFO inventory ensures that the cost of product being used each week is reflected on the financials. For example, using FIFO inventory, the restaurant bookkeeper knows that the steak used in the restaurant today is being “costed” at the current cost to purchase that steak, not the cost from a week prior. This helps restaurants make decisions to maintain their margins amid fluctuating prices.
