Restaurant Accounting Made Simple in 2024

Restaurant Accounting Made Simple in 2024

Marcus Mak

January 2, 2024

1/2/24

Jan 2, 2024

1/2/24

14 min read

Image of a restaurant waiter and a calculator
Image of a restaurant waiter and a calculator
Image of a restaurant waiter and a calculator
Image of a restaurant waiter and a calculator

Finances are a crucial part of any business, and restaurants are no different. But with tight margins and seasonal market shifts, the hospitality industry has unique factors to consider, making it particularly tricky to keep a restaurant profitable.

About 60% of restaurants fail within their first year of operations, and 80% do within the first five years.

So, what does it take to beat these odds? The key ingredient is restaurant accounting.

But what is restaurant accounting, and how does it differ from the number-crunching found in other industries? We’ll answer these questions and more in this comprehensive guide, as well as help you choose the right restaurant accounting software for your business.

What is restaurant accounting?

Restaurant accounting is the systematic process of recording, analyzing, and interpreting a restaurant’s financial transactions. It considers the following costs:

  • Assets like kitchen equipment, point-of-sale hardware, and furniture

  • Handling costs

  • Revenues

  • Accounts payable (money owed by the restaurant to suppliers)

  • Accounts receivable (money owed to the restaurant)

However, restaurant accounting isn’t just about balancing the books — it’s about understanding and managing all of a restaurant’s financial dynamics to drive business success.

What industry-specific considerations exist for restaurant accounting?

Although restaurant accounting is similar to standard accounting in some ways, there are also industry-specific factors every restaurant needs to manage well.

High-stakes inventory management

Restaurants deal with perishable goods, making effective inventory management essential. Inventory management includes monitoring stock levels, controlling waste, and calculating the cost of goods sold (COGS) for food and beverages.

Understanding food costs is important for pricing menu items profitably. According to the National Restaurant Association, commercial kitchens typically waste 4 to 10% of the food they buy before it even reaches the customer’s plate.

Lark revolutionizes inventory management with real-time inventory tracking that’s accessible from anywhere. With automated low-stock notifications and quick re-ordering, you’ll never run out of crucial ingredients again.

High daily volume of cash and credit transactions

A high volume of daily cash and credit transactions makes having a reliable system for tracking all expenses and income crucial for restaurants. Meticulously recording daily sales, supplier payments, payroll, and tips helps ensure accurate revenue reporting and prevent fraud.

Menu sales mix analysis

Understanding which menu items are most profitable is key. This involves analyzing sales data to determine the popularity and profitability of each item, which can, in turn, inform menu design and pricing strategies.


Analyzing sales data to determine popular items


Complex labor cost management

The restaurant industry is labor-intensive, with changing shifts and, often, a mix of part-time and full-time staff. Managing payroll and understanding labor costs compared to sales are essential aspects of effective restaurant accounting.

What kinds of benefits can you get from restaurant accounting?

If you’re opening a restaurant or looking to boost your current place’s earnings, getting a handle on restaurant accounting is essential.

Here’s why it matters so much:

Improved cash flow management

Tracking each financial transaction through restaurant accounting provides a clear view of how much cash is coming in and going out. This level of detail also helps optimize budgets, reduce unnecessary expenses, and improve overall profitability.

Ensures regulatory compliance

Like any other industry, the hospitality field must adhere to financial regulations. Restaurant accounting helps restaurant owners stay on top of industry-specific regulations around payroll processing and tax reporting.

For example, some regions have strict laws governing minimum wage, overtime pay, and how tips are accounted for when it comes to employee compensation. Restaurant accounting systems can track these details to help ensure each employee is paid according to the legal requirements. This not only protects the restaurant from legal issues but also contributes to a fair and transparent work environment.

Helps manage business seasonality

The cyclical nature of the restaurant industry demands flexibility and foresight, which is where restaurant accounting shines. Analyzing past financial trends allows for strategic planning around staffing, inventory, and marketing, especially during peak and off-peak seasons. This forward-thinking planning allows for steady operations and profitability throughout the year.

What’s the difference between restaurant bookkeeping and restaurant accounting?

While the terms “bookkeeping” and “accounting” are often used interchangeably, they aren’t the same. We’ll break down their differences below to help you understand how to apply them to your business.

Restaurant bookkeeping: The foundation

Bookkeeping is largely transactional and administrative. It provides the data needed for accounting but doesn’t involve interpreting that data.

In a restaurant setting, bookkeeping involves recording daily financial transactions in an organized way. Think of it as the groundwork for your restaurant’s financial system.

Examples of bookkeeping include the following:

  • Recording sales: Meticulously documenting every sale, whether cash or credit.

  • Managing invoices and bills: Keeping track of money owed to suppliers and money coming from customers.

  • Reconciling bank statements: Ensuring the restaurant’s records match its bank statements.

  • Tracking payroll data: Documenting employee hours and wages.

Restaurant accounting: The analytical step forward

Accounting involves managing financial accounts but it also involves interpreting, classifying, analyzing, reporting, and summarizing financial data. It uses the information taken from bookkeeping for analytical, strategic, and planning purposes.

When it comes to subjectivity, accounting wins over bookkeeping. Accounting requires a higher level of expertise to analyze financial data and provide insights for decision-making.


Four examples of accounting


Examples of accounting include the following:

  • Preparing financial statements: Creating balance sheets, as well as income and cash flow statements.

  • Budgeting and financial planning: Using financial data to plan for future expenses, investments, and growth strategies.

  • Tax preparation and planning: Ensuring compliance with tax laws and strategizing for tax liabilities.

  • Performance analysis: Evaluating the restaurant’s financial health through food cost percentages and labor cost ratios.

Accurate bookkeeping is the first step, as accounting analyses and reports won’t be reliable without it. As such, restaurant owners often start with bookkeeping before moving on to more complex accounting tasks to strategically manage their finances as their business grows.

Should you hire an in-house accountant or use outside accounting services?

Deciding between in-house and outsourced accounting services depends on your restaurant’s specific operational needs, financial complexity, and strategic goals.

Consider the following to help you make this decision:

Restaurant size and number of locations

Small to medium-sized restaurants

Smaller restaurants may not have the financial means to hire an in-house accountant. The responsibility falls onto the owner or manager, although this isn't their area of expertise. It’s more effective for smaller businesses to hire an experienced outsourced accountant when needed instead of a full-time in-house accountant.

Large restaurants

Large restaurants with greater revenue benefit more from having an in-house accountant. With more financial aspects to consider, and possibly more than one location, an in-house accountant can get to know the ins and outs of the restaurant. Outsourcing could be beneficial for specialized tasks like tax planning or audits, but it may not be enough for the day-to-day finances of a large restaurant.

Number of employees

  • Few employees: Smaller restaurants with only a few employees may find outsourced accounting to be more manageable and cost-effective.

  • Many employees: For restaurants with more staff, payroll, and human resources management complexities might call for an in-house accountant who can provide more direct management.

Profitability

  • Less profitable restaurants: Outsourcing can be a way for restaurants with tighter margins to save on costs since it offers professional services without the commitment to a full-time salary.

  • Highly profitable restaurants: More profitable operations might benefit from an in-house accountant who can focus on optimizing financial strategies to increase profitability.


Consider profitability when determining whether to hire an accounting specialist


Other considerations

  • Expertise and specialization: Outsourced firms stay current on the latest tax laws and accounting practices and often offer a wider range of expertise. However, an in-house accountant gains a more in-depth understanding of the specific restaurant’s operations.

  • Control and communication: An in-house accountant can lead to better control over financial data and more direct communication. Outsourcing, on the other hand, can cause communication delays.

  • Scalability: As a restaurant grows, its accounting needs may change. Outsourced services can be adjusted as needed, while an in-house accountant’s role may need to evolve.

  • Confidentiality and security: In-house accountants help ensure that sensitive financial information stays within the company. Outsourcing requires careful selection of firms to handle confidential data securely.

  • Cost considerations: The cost of hiring a full-time employee includes not just a salary but also benefits, training, and office space. Outsourcing transforms these fixed costs into variable costs, which can be more budget-friendly.

Smaller, single-location restaurants might lean toward outsourcing for cost efficiency. Larger, multi-location or highly profitable restaurants could benefit from the dedicated attention of an in-house accountant.

However, with the right software, even a smaller restaurant with a limited team can handle accounting in-house successfully. Ultimately, the decision should be aligned with your restaurant’s unique requirements and long-term objectives.

Should you use the cash accounting or accrual accounting method?

Choosing the right accounting method, either cash or accrual, is essential for your restaurant’s financial success. Here’s what these two methods involve and how to choose the best option for your restaurant:

Cash accounting method

In cash accounting, revenues and expenses are recorded only when cash is received or paid. It’s similar to a simple cash register — you record what comes in and goes out as it happens.

Pros:

  • Simplicity: Cash accounting is straightforward, making it suitable for smaller restaurants with limited accounting resources.

  • Immediate cash flow visibility: Cash accounting provides a clear picture of how much cash is on hand at any given moment.

  • Tax benefits for small restaurants: With cash accounting, you pay taxes only on the money you’ve‌ received.

Cons:

  • Short-term focus: Cash accounting may not accurately reflect long-term financial health since it doesn’t account for pending bills or future income.

  • Limited growth insight: For growing restaurants, cash accounting might oversimplify financials and obscure the bigger picture.

  • Inadequate for multiple locations and large workforce: Cash accounting doesn’t provide the detailed money tracking required by bigger restaurants with many employees and several locations.

Accrual accounting method

Accrual accounting records revenues and expenses when they are earned or incurred, regardless of when the cash transaction occurs.

Pros:

  • Comprehensive financial picture: Accrual accounting provides a more accurate picture of the restaurant’s long-term financial health, incorporating receivables and payables.

  • Better for growth: Accrual accounting is suitable for larger restaurants or chains that need a detailed understanding of their financial standing to make informed decisions.

  • Facilitates better planning: Accrual accounting allows for more effective budgeting and financial planning, as it recognizes revenue and expenses as they occur.

Cons:

  • Complexity: Revenue accounting requires more sophisticated accounting knowledge and is more time-consuming than cash accounting.

  • Can obscure cash flow: While revenue accounting shows the restaurant’s overall financial health, it doesn’t indicate how much cash is available at a given moment.

Which method is best?

Sometimes, legal or financial requirements will dictate the choice between cash and accrual accounting. If your restaurant generates more than $1 million per year in revenue, you should be using accrual accounting.


Tip for opting for accrual accounting


The key is to align your accounting methods with your business’s scale, complexity, and long-term financial goals. While cash accounting offers simplicity and immediacy, accrual accounting provides depth and foresight. It’s also necessary once your restaurant reaches a certain level of revenue.

Which restaurant accounting software should you use?

You’ll want to have the right accounting software to keep track of the numbers. A good system will help you streamline your accounting processes and minimize errors.

Let’s look at some key features your software should include to help you choose the right one.

A unified workspace for restaurant management

An all-in-one work hub brings together all your management tools and resources, making it easier to oversee all aspects of your business. Lark steps in here with its unified platform and access point.

By digitizing your restaurant operations with Lark’s mobile-friendly features and automated processes, you can:

  • Accurately track inventory with a real-time inventory dashboard.

  • Use automated workflows to order ingredients, equipment, and other restaurant essentials in no time.

  • Send employee schedules and track attendance instantly from your phone.

  • Visualize sales and operational data for deeper insights.

  • Approve budgets, purchases, and reimbursements quickly and efficiently.

  • Receive updates on cash flow balance and inventory.

Whether you’re coordinating ‌floor staff or checking inventory levels, Lark bridges the gap between your storefront and HQ, giving you more efficiency and control over your restaurant.

A customizable food and beverage portal

Each restaurant has a unique rhythm and style, and your software should adapt to your business’s needs. Customization is key to making your management software work for you — not the other way around.

Lark understands this, offering versatile customization features to help you run your business. An extensive library of templates and blocks, coupled with a flexible Custom Workplace builder, means you can tailor your workplace to meet your restaurant’s unique requirements.

For example, the End Of Day Cash Register Report Template is an indispensable tool, no matter the size of your restaurant. It’s already set up for you to record your total sales, refunds, cash and non-cash payments, and cash register total for each day.

Or track your monthly income and expenses accurately and efficiently with Lark’s Small Business Budget Template. Input your projected and actual income to give yourself a clear overview of your financial situation and make informed budget decisions.

Comprehensive communication tools

Clear and quick communication is essential in the fast-paced restaurant world.

Lark offers a range of comprehensive communication tools, including Messenger, Meetings, and Rooms. With them, you’ll be equipped to keep your team in sync, whether they’re in the kitchen, at the front desk, or managing reservations. It’s all about making sure everyone’s on the same page so you can keep your costs low and service level high.

Integrated productivity tools

Juggling reservations, staff schedules, and daily specials can be overwhelming. But integrated productivity tools give you an extra pair of hands.


The icons of some of Lark’s integrations


Lark brings you tools like Docs, Calendar, Email, and Wiki. This integration helps streamline your administrative tasks, leaving you more time to focus on creating amazing culinary experiences for your guests.

Restaurant accounting FAQs

How do you keep accounting records for a small restaurant?

User-friendly software is the key ingredient to small restaurant accounting.

A specialized tool like Lark offers an efficient way to help you manage your restaurant’s finances, from tracking inventory to analyzing revenue. Simplifying your accounting practices with software allows you to focus more on serving great food and less on crunching the numbers.

How do you do accounting for a new restaurant?

Start by setting up a clear, detailed accounting system. Choose the right accounting software for your restaurant’s needs.

Develop a budget for your restaurant, and use accounting data to track your performance against this budget. Establish a routine for tracking daily sales, expenses, and inventory purchases.

How do you record paper goods in restaurant accounting?

In restaurant accounting, paper goods, such as napkins, disposable utensils, and packaging, are typically categorized as non-food inventory expenses. To record them, track their purchase as an expense under the “inventory” or “supplies” category in your accounting system. Then, regularly adjust your inventory records to reflect the usage of these items.

Monitor the usage rate of your restaurant’s paper goods to control costs and manage your inventory effectively. Periodically conduct inventory counts of paper goods, and adjust your accounting records accordingly to ensure they match the actual on-hand inventory.

How often are accounting reports generated for a restaurant?

Generate profit-and-loss statements each month to provide a clear view of your restaurant’s financial health. But this can vary depending on the business’s specific needs and size.

Weekly reports are beneficial for tracking sales, expenses, and cash flow, helping you make timely operational decisions. Inventory reports should also be generated regularly — at least monthly — depending on the turnover rate. Yearly reports are essential for overall financial analysis, tax preparation, and strategic planning.

Improve your restaurant’s bottom line with Lark

Whether you’re keeping records for a small establishment or starting fresh with a new restaurant, choosing the ideal accounting software can revolutionize your business approach. Lark’s innovative platform allows you to streamline your accounting processes and gain essential insights for strategic financial decision-making.

Ready to take a step toward mastering your restaurant’s finances? Sign up for Lark’s free trial or schedule a customized demo today.

Keep reading

Keep reading

Pay less to get more today

No more redundant tools. Save time and costs.