4 Simple Steps for Effective Restaurant Accounting

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Taking into consideration the uncertainty of the past year, and the unprecedented changes that the hospitality industry has undergone due to the pandemic, we’ve continuously focused on the detailed specifics of Restaurant Accounting Best Practices to ensure financial success, even during trying times. While detailed specifics are a must-have in your accounting arsenal, it’s equally as important to look back and rely on the basic fundamentals to double-check that your foundation is solid. In this episode of The Tip Share RASI New Business Strategist, Dave Downs, and RASI Client Advisor, Lynn Smith get back to the basics of restaurant accounting and break it down into 4 simple, yet effective steps that will set your restaurant on the path for financial and accounting success!

How to PERFORM Restaurant Accounting Effectively & Consistently:

While every restaurant organization is unique, effective restaurant accounting generally breaks down into the following 4 critical steps:

  1. Define Team Roles & Responsibilities
  2. Task Frequency for Timely & Accurate Financial Statements
  3. Audit for Accountability
  4. Review Restaurant Financial Statements

STEP 1: Clearly define roles & responsibilities within your Team

Much like on a sports team, everyone has a role within the restaurant and must play their part in order for success – It’s imperative that restaurants utilize their entire team and depend on each individual as part of the whole. This begins with clearly defining each team member’s roles and responsibilities; this is a key component to helping your organization move forward.

There are two ends of the spectrum within this step; the Independent Restaurant Owner and Larger Restaurant Groups with multi-units or multi-concepts.

It’s important to take a look at what YOUR restaurant organization looks like and adjust to your own specific needs.

Independent Restaurant Roles & Responsibilities

As an independent restaurant owners, it’s important to remember that you cannot do it all.

Remember those nightmares you used to have about waiting tables, preparing food/drinks, and running all around the restaurant?

It’s critical that you can rely on your team members and their talents to help the business run more smoothly. Many restaurant owners/operators are hesitant to let their staff see their financials and to let them into the backend of your systems to look at the available financial data. This is one of the biggest mistakes people can make…instead you should trust the team you have and hold them accountable while giving them more visibility. The more you can give to your staff, the more they are going to want to continue to work for you; hence why it is so important that roles are clearly defined. You have to understand the role that each person plays, how you can define that role and structure it in a way to where it benefits both the employee and the restaurant.

Another angle to remember is that you have multiple players on your team, and it’s important that while they have their own roles they can still come through with the assist where needed.

Ideally, your bar manager should be savvy enough on kitchen purchasing where they can jump in and get invoices if the kitchen is swamped. It’s a team mentality and approach!

Large Restaurant Group Roles & Responsibilities

Switching gears, let’s focus on defining roles within larger restaurant groups with maybe 8 or 10 restaurants.

How are these roles different? Maybe the management team isn’t doing as much or doesn’t have a hands-on experience that you may see in a smaller restaurant, they may have different levels of oversight. With larger groups, you will still want to delegate, but a lot of times you are going to find there is another level of audits, an extra set of eyes on everything, and essentially act as a coach.

That extra set of eyes might be a director of operations, or it could be a controller; when we bring those people to the team, their role is to hold the other team members accountable for those lower-level tasks that your core team has always been responsible for – they just now have a layer of accountability to catch any mistakes they can in a timely manner.

With 10 units, you want to make sure you’re not going back to each unit trying to make corrections when you are sending out your financials. The coach’s job is to develop their management team so that it runs as smoothly and efficiently as possible…any mistakes occurring can be identified and coached through education to avoid the mistake in the future.

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STEP 2: Timeliness & Accuracy in Restaurant Financials

Why is the clear understanding of roles and responsibilities so important? It empowers you to perform tasks in a timely and accurate manner.

In order to be efficient, you need to know what you should be doing and when you should be doing it. Especially considering the roller-coaster of the last year with additional funds and loans that you may have applied for; timeliness and accuracy are of the utmost importance.

At RASI, our clients typically run on one of two workweeks, either Monday-Sunday or Wednesday-Tuesday.

On a M-S workweek, the expectation is tasks are getting done by Monday. If you complete your tasks on time, that allows you to have a full Profit and Loss Statement by mid-week and you’re able to make those quick business decisions and understand your restaurant financial position on a much more frequent basis.

In addition to timely and accurate submittals…it’s important to remember these 4 simple things:

  1. Pay your people
  2. Pay your vendors
  3. Pay your taxes
  4. Count your inventory

Some of these tasks may need to be done throughout the week. For example, you want to capture your purchases through the week as they happen. RASI offers budgeting tools such as the declining budget, which tracks your spending throughout the week. When you put invoices and purchases in on the day they happen we’re able to actually track and watch spending in real-time. Without an inventory, it’s hard to get accurate reads and track waste and theft.

Another thing that absolutely needs to be tracked is sales. What are your discounts like? Do you know what was what? What did you upsell? What are your cash deposits for the week? What does your bank activity look like?

All of this ties together and are some of the key things to keep up with in order to utilize your information throughout the course of the week in a timely and accurate way so that you avoid any unknowns that hit the P&L at the end of the week.

STEP 3: Audit for Accountability

The 3rd step is the review step.

The most obvious item to review on a regular basis is your restaurant Profit and Loss statement, you should be reviewing your P&L as often as possible.

RASI sends out weekly P&L’s when all necessary information is submitted on time.

Things like your restaurant balance sheet can seem boring and are not something you may think to check regularly but it’s extremely important when auditing the financial health of your restaurant and it’s where things can really start to fall off for many folks.

You can catch mistakes like over-collecting on credit card tips, unintentionally withholding money from staff, as well as review what your gift card liability looks like.

Once these mistakes get out of hand, it can be difficult to get back to balance and keep on the right track.

Reviewing your balance sheet on a period basis can keep you on the path to success!

Now remember, your management team impacts your balance sheet more than you may realize through things like credit card tips payable, house bank (how much money is sitting in your restaurant), and lastly credit card purchases.

It’s important to audit these top 3 items that are in check when reviewing your balance sheet. Auditing allows you to understand the impact of your management team and truly hold them accountable.

STEP 4: Frequent Restaurant Financial Reviews

You want to review your restaurant financial documents that immediately affect your operations on a weekly basis; again these are your P&L, Balance Sheet, you could add Sales and Labor analysis reports to the list as well.

With labor being at the height of concern, you may want to look at that one on a daily basis so you can forecast and schedule appropriately.

With your balance sheet, it can be confusing on exactly when to look at that, RASI recommends looking on a period basis as opposed to a monthly basis because that is how your financials run.

Same with your restaurant cash flow, your cash flow will tell you what you can expect.

There are many reports but it’s about auditing and drilling down, understanding that if there are mistakes being made by your team, we need to learn how to fix them and correct those entries before we close out the period.

Keeping up with regular financial reviews prevents you from needing to go back and attempt to remember those small, yet very important details from a month ago and enabling your business to close out the period in a positive manner.

Bonus: Don’t let your financials spiral out of control…

With the stress of COVID, many operators got off track with financials, understandably so.

Owners were left without staff and found themselves back behind the grill grinding it out to survive. Then the end of the year came around and they had to suddenly close out their year….

Months behind on sales and financials at that point aren’t going to be of much value because they weren’t accurate. It turns into a kind of fight or flight.

The irony of it all is that the restaurant financial statements were probably more valuable in 2020 than they ever will be again.

A big trend we saw at RASI was service charges; many operators added service charges to checks to help mitigate extra costs due to COVID. The issue with this is that service charges are treated completely differently than tips, and a lot of operators lacked that knowledge before making those changes.

Many operators were paying out service charges in cash but it wasn’t getting recorded that way, resulting in an overstated income on their P&L. Service charges have to be paid out on payroll and they have to be paid out and recorded separately than tips.

Trends like this are a big part of why RASI focuses so heavily on education and training, we assist our clients in understanding the federal and state laws and the way that applies to restaurant owners/operators.

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