Have you ever thought about hiring a bookkeeper or accountant to help with your restaurant finances? If you have, then you are in the right spot.
Simple bookkeeping is an easy skill to learn. Most restaurants, bars, and cafe owners believe that they can do it themselves.
Yes, they can do it themselves, there is no disputing that. The question is, will it be done to the highest standards, performed efficiently, and provide valuable business information that leads to actionable next steps. Usually, that is where the restaurant owners fall short, they usually keep the accounting records themselves and they are prone to errors.
Accounting and bookkeeping errors that equate to large expenses both from a tax and business standpoint. These errors could be simple, like understating revenue. These errors could be complex like overstating expenses and overpaying vendors.
Restaurant owners often do not even realize these errors, mismanagement that can prove to be really expensive, errors that can mess with their restaurant’s future valuation (yes historical financials are always reviewed before a transaction), and errors that can result in the wrong strategic moves.
Additionally, and most importantly, many restaurant owners lose valuable time on this, their precious time, especially because it can be outsourced for much cheaper than the restaurant owners’ net hourly rate.
With this post, we want to prove that our claims above are no exaggeration. We start by listing some mistakes that are commonly made but not often realized by restaurant and bar owners. Then we highlight some more reasons you need to spend money on a restaurant accountant or bookkeeper.
Finally, we list some of the things an accountant can do for you, so when you do spend money on those services you know how to get the most of it.
Table of Contents
Learning From Mistakes
Restaurant Accounting Is Different Than Most Businesses
Restaurants are complex manufacturers, in the sense that they are the only business where the production and retailing happens in the same facility within minutes of each other.
As a result, the business has multiple transactions, are in many cases cash-heavy, have numerous suppliers to deal with, and so on. Having a structured accounting system in place, therefore, becomes essential.
For instance, cash flows in a restaurant have a different nature. The cash flows from customers, cash flows to partners/suppliers, cash flows to employees, and so on. While one flow may be cash-heavy and daily in nature, the other cash flow could be weekly/monthly on a credit basis and require the mailing of checks.
Having a professional structure set in place that accounts for each one of these items properly in an accounting software helps to avoid confusion, errors, and delays. Most importantly it allows the business owner to better manage the business. Having an accountant to monitor this, or a professional bookkeeper to track these help maintain the structure.
There Are Minor Things That Are Easy to Overlook
The simple difference between cash and accrual-based accounting can have dramatic effects on how you understand and manage your business.
Under the accrual accounting system, if an oven was repaired in the month of July, but the bill for this service was paid in September, the expense would still be recorded in July. Even though the cash left in September, it would be a simple cash flow adjustment, not an income statement related item.
Under the cash-based system, the expense would be recorded in September. Now, although the cash-based system is not technically wrong, the accrual system (when you record in July, or when the actual expense/income occurred) is preferred.
Why do you ask?
Because it gives an accurate portrayal of the business’s performance and helps you make better decisions. The accrual system gives a more realistic idea of the business and also provides a much better long-term picture that the cash-based system fails to give. The downside is that it takes much more time, assessment (as you need to determine the accrued expenses), adjustments to the accounting records and is initially tough to implement.
So it is easy for restaurant owners to overlook these things, keep cash-based books and not understand the necessity for accrual-based accounting.
Fixing Mistakes Are More Expensive Than Avoiding Them in the First Place
As already highlighted, having a structured record-keeping system is very important in the restaurant business.
Lacking a quality and robust system of checks and balances can result in items taxes paid, incorrect financials, correction fees by CPAs, IRS audits, valuation errors, and much more.
What helps avoid these errors?
Tasks like the reconciliation of your bank and credit card accounts at the end of every month. With a million things to do that are more pressing many business owners skip the monthly reconciliations. It is extremely normal to have accounting errors a few times in the month, that is the whole premise of reconciliations, the concept of checks and balances.
Without regular reconciliation or the operating account, credit card accounts, and all balance sheet items for that matter, the errors remain. The results could lead to a lack of funds, overpayment of vendors, delay in addressing problems, miscalculation of things like cost of goods sold, and so on. These mistakes, if not caught on time, could be much more expensive than hiring professional help that can keep you on an error-free track.
A systematic restaurant accounting process is needed to keep a finger on the pulse of your restaurant’s health.
Cash Management Systems Are Key for Restaurants
It is no secret that cash on hand is the most valuable asset, as it is necessary for restaurants to pay bills, buy food and beverage inputs, pay staff, and cover the other hundreds of costs necessary to operate a restaurant.
Simply put, calculating cash flow is rather simple, inflows minus outflows. But in practice, these flows are of much higher complexities and the need for smart strategies to maintain a healthy balance between the inflow and outflow.
For example, different vendors have different terms, cash deposits need to be tracked, credit card receivables need to be tracked, uncleared checks need to be reissued, and much more. Not properly reconciling cash deposits, can result in thousands of dollars being unaccounted for and missing.
Having an individual or team manage these items on a daily or weekly basis ensure they are properly set up, tracked and cash on hand levels remain optimal.
It Makes Sense to Hire an Accountant
You have already learned by now that restaurant finances have some unique elements that need to be mastered in order to have a strong bookkeeping and financial recordkeeping. We summarized these main points for quick reference. Here are some more benefits to outsourcing.
You focus on your core competency: Your restaurant already has a myriad of things that need your attention. You need to touch tables, put out fires in the kitchen, hire a new chef or cook, order this week liquor and so much more. Accounting and bookkeeping demand a lot of your time and it is advisable to not lose valuable time in the nitty-gritty of financial transactions.
High-quality records: If you have plans for expansion, selling, introducing growth avenues, raising funds, or simply running your business to the best of your ability, your records need to be in place and accurate. Improper books and records can lead to paying higher taxes due to claiming more income for your business. On the flip side, improper books and records related to extra expenditures can result in an audit and hefty fines. A professional can help you with insights and tips on perfecting these records. In our valuation article, we learn about the multitude of factors and their sensitivity to our business, and professional advice on such topics can be proven really beneficial.
Financial Coach: Having an expert go through your finances gives your business an extra set of eyes and a fresh perspective. Things like cost-cutting, correctly pricing your food and beverage menu, optimizing payment terms with suppliers, and many more can help take your business to the next level. The accountants usually have in-industry and cross-industry knowledge that can be injected in your business and help you take profits to the next level.
Setting Financial Goals and benchmarks: Often, when starting a new business or even taking over an existing one, we are at a loss as to what to do. A bookkeeper or accountant with industry-specific expertise can help us wade through the chaos. An example would be setting realistic goals for our prime cost (food and labor), understanding what realistic sales goals are based on square footage or your local industry, realistic current ratio, target staffing levels, reasonable cash on hand levels, improvements to tax reporting and expense management, and much more. A qualified accountant can help you set goals for your business.
Make the Best of the Money You Spent on the New Hire
Broadly speaking, these are some of the avenues where the hired accountant can help you with:
- General bookkeeping
- Financing options
- Financial analysis
- Business modeling
- Prime cost analysis
- Cash flow
- Overhead analysis
- Budgets and forecasts
- Recording sales
- Handling accounts payable
- Bank Reconciliations
- Credit Card Reconciliations
- Financial reporting
- Tip reporting
Further, we speak about some of these avenues to understand further what they are and the role of your accountant in the same.
Reporting and Administrative Work (Admin Work)
Restaurants need to have a bunch of records for items like daily sales, weekly inventories, accounts payable, weekly flash reports and more to monitor the financial health of the business. These important reports come from various locations and often need to be manipulated or processed.
Each of these reports serves different purposes. Your daily sales report helps you know how much revenue you received in a single day. Your weekly flash report helps you track weekly business performance. Payroll needs to be processed and filed. Sales tax needs to be tracked and reported.
The reporting and administrative tasks if done properly are no small feat.
Your accountant or bookkeeper will help decide what a proper rhythm for these administrative tasks is and set up a process to create and maintain the essential ones.
Bookkeeping is a process is easy to implement, but the initial start and setting-up could require an expert touch in order to have an error-free process.
Account reconciliation is one important avenue under bookkeeping. All the reports that you create, you check them with your bank statements or other transaction sheets to make sure that your records are not missing anything. This step is useful to be aware of incorrect debit/credits, any cash variance, or any unrecorded loss.
Then we have account payable keeping wherein you handle invoices from your partners such as vendors, suppliers, groceries, etc. This is especially necessary for restaurants as you deal with large purchases on a daily or weekly basis and probably pay for these purchases on a monthly or quarterly basis. Keeping account payables accurate also helps maintain good relations with your partners.
Payroll is another item that falls under bookkeeping, which again, given the complexity of permanent/ temporary/ hourly staff structure in the restaurant business is a bit complicated and with the tips component can be time-consuming.
Mistakes on this could either cost your staff or you and ultimately your business.
KPIs (aka Key Performance Indicators)
As a businessman or woman, you probably already are obsessed with key performance indicators (KPIs). Setting up some KPIs for your accounting side of the business is also something the accountant could help you with.
Prime costs (how much of your revenue goes to your product and staff), COGS ratio, break-even point, profit margin – these are some of the basic ones you are already probably aware of.
Your accountant can help you define more that are specific to your business and help you track progress.
Realization That We Do Need to Hire an Accountant
You would not trust a waitress with creating the Friday night food specials, a task reserved for the head chef.
Similarly, you should not trust an inexperienced accountant or bookkeeper to properly manage the financials of a growing restaurant, bar, or cafe. However, hiring one does not necessarily have to be expensive as you can choose to be flexible. You could outsource it to a large or boutique accounting firm, or hire a full/part-time independent contractor.
Be aware of the qualifications of your hire. When you search for professionals online, you will notice that for example a qualified restaurant CPA or CFO can range from $200 to $500 an hour, while a bookkeeper with restaurant experience can range from $25 to $105. And the price difference is reflected in their qualification and services.
A CPA has the qualifications to provide in-depth operational or tax consulting, whereas, bookkeepers mostly limit to task-based roles and manage your accounting records, payables, and sales recording.
Depending on your need, budget, experience, scale and other personal factors, you have the luxury to choose from a multitude of options out there. And even though you shell out some good bucks to hire professional help for accounting, you will see that even with the fees, it is less expensive than the mistakes you could be making.
It is always good to have some fresh new insights from an external perspective into the business. So we conclude here with the hope that this read convinces you that accounting services stand as a supporting pillar and can pave out different growth opportunities for a business, and it is worth it to invest your time and money hiring one.