The winning recipe for restaurant accounting

Running a restaurant is hard work. Staffing, quality control, making sure you have the right supplies, health and safety regulations, customers—and their changing preferences are all part of the job.  

In addition to the unique demands of the restaurant business, there’s the business part that must be addressed to be successful. That includes detailed and accurate bookkeeping and accounting, allowing you to better control prime costs, comply with tax requirements, and make data-driven decisions to ensure the health of the business.  

A restaurant’s unique accounting challenges 

Restaurants face many distinctive accounting challenges that will affect profitability and margins, including: 

• Calculating the cost of goods sold—all the ingredients used in preparing dishes must be tracked. Variances in prices and portion size can affect the calculation, as well as consistency in following the recipe.  
• Inventory management—perishable and non-perishable inventory must be tracked carefully to avoid waste, spoilage, and theft.  
• Menu engineering—this involves determining the profitability of each menu item and identifying best-sellers. It requires detailed analysis of ingredient costs, preparation time, and selling prices. For some restaurants, such as quick-serve franchises, this is less of an ongoing issue as the franchisor is dictating the menu, but for many others menu engineering is a steady challenge.  

• Payroll—managing employee wages and overtime pay can be complicated, especially in restaurants with a large and diverse workforce. In addition, restaurants must accurately report and distribute tips and gratuities. 
• Tax—complying with tax requirements can be challenging, especially for restaurants with multiple locations that might be in different taxing jurisdictions. These tax laws and regulations relate to sales tax, payroll tax, and income tax.  
• Credit card or mobile payment processing fees—credit card transactions and mobile payments generally incur processing fees. These fees need to be factored into the overall accounting and pricing strategy. 
• Split checks and group payments—handling split checks and payments in group settings can be challenging, and errors can lead to discrepancies in the accounting records, as well as affecting tip and gratuity distribution. 
• Third-party delivery services—accounting for the commissions, fees, and settlements from these off-premises services can be complex. 

• Accounting for discounts and promotions—tracking and accounting for discounts, coupons, and promotional offers accurately is crucial to understand their impact on revenue and profitability. 
• Lease and rental expenses—as many restaurants lease or rent their operating spaces, properly accounting for lease expenses and rental agreements is essential. 
• Asset depreciation—investments in equipment and furnishings depreciate over time. Calculating and accounting for depreciation accurately is necessary for financial reporting. 
• Cash flow management—restaurants often face fluctuations in cash flow, especially during seasonal variations. Ensuring sufficient funds for daily operations, payroll, and supplier payments is crucial. 

Restaurants outgrow bookkeeping software 

Faced with these challenges, it’s no surprise that many restauranteurs quickly outgrow the limitations of simple bookkeeping software, including QuickBooks. There are too many moving parts, especially for operators with multiple locations.  

Many choose to replace these bookkeeping packages with best-of-breed solutions. These solutions combine cloud-native accounting with inventory management, point-of-sale, tax, and payroll offering more advanced and comprehensive features for specialized tasks. Whereas bookkeeping software or alternative single solutions can lack functionality and specific features found in specialized software. 

Integrating best-of-breed solutions gives your business a customizable technology stack, choosing the best fit for each individual requirement. This approach provides more flexibility and scalability. With reporting and metrics based on the standards set by the National Restaurant Association, it becomes dramatically easier to track key performance indicators that include: 

• Prime cost ratio 
• Cost of goods sold ratio 
• Food cost ratio 
• Revenue per available seating hour 
• Revenue per diner 
• Average check size 
• Staff labor cost ratio 
• Management labor cost ratio 
• Inventory loss ratio 

In addition to the metrics that matter for data-drive decision making, best-of-breed technology stacks enable automation for areas that include: 

• Daily sales reports 
• Accounts payable 
• Payroll processing 
• Consolidations 
• Reconciliation 

What restaurants need in their tech stack 

When selecting a best-of-breed technology stack, you should consider several key characteristics to ensure the chosen solutions meet specific needs and requirements. Here are 8 important characteristics to look at: 

1. Functionality and features 

Assess the functionality and features offered by each technology solution. Make sure they align with the restaurant’s specific needs, from online ordering to POS integrations. 

2. Integration 

Check how well the different technology solutions can integrate with each other. Seamless integration is vital to ensure data flows smoothly between systems, reducing manual work, and potential errors. Application Programming Interfaces (APIs) simplify integration between different software applications and systems, allowing them to communicate and interact with each other to exchange data and improve functionality. Look for tech solutions using open APIs.  

3. Scalability  

Consider the scalability of the technology stack. Will the solutions be able to accommodate your growth and changing needs over time? Scalability is important to avoid outgrowing the chosen software quickly. 

4. Mobile compatibility  

Given the increasing use of mobile devices, having mobile compatibility for both staff and customers can enhance efficiency and customer experience. 

5. Security and compliance  

Security is critical for handling sensitive customer data and financial transactions. Ensure that the technology stack meets industry security standards and compliance requirements, such as the Payment Card Industry Data Security Standard (PCI DSS). 

6. Customer support and training  

Look for technology providers that offer excellent customer support and training resources. A responsive support team and comprehensive training can help restaurant staff make the most of its technology. 

7. Analytics and reporting  

The technology stack should provide robust analytics and reporting capabilities. Access to data-driven insights can help optimize operations, track performance, and identify areas for improvement. Reports and metrics based on National Restaurant Association standards make it easier to measure business execution.  

8. Vendor longevity and reputation 

Consider the stability and longevity of the technology providers. Opting for well-established companies with a track record of success can reduce the risk of sudden discontinuation or lack of support. 

Final thoughts 

Having the right tools in place makes it easier to navigate the complexity of the restaurant business.  

Choosing the right software that monitors key metrics will help you make better real-time decisions that improve your operations and profitability.  

Using these advanced tools and metrics combined will help you transition your business into a market leader, rather than just another competitor, in what’s become a challenging time for the restaurant industry.