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Top Restaurant Accounting Tips By Experts In The Industry

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Tessa ZuluagaAuthor

Did you know that as a restaurant operator you need at least weekly access to food and labor cost reports, regular insight into cash balance and payables, and daily reconciliations between sales and deposits? That’s a lot to keep up with, and the unfortunate reality is that most operators can’t afford a full-time bookkeeper to track all these items. So how are other members of the industry keeping up?

In this article, we outline top restaurant accounting tips that restaurant industry experts have shared with us. We’ll walk you through these best tips/practices and explain how you can incorporate them into your daily accounting processes. 

Ready? Let’s dive in. 

Top restaurant accounting tips 

1. If you fall behind on sales tax, take action quickly

“In addition to everything else that’s going on in this busy industry, you are expected to accurately calculate and collect sales tax from each transaction, hold on to those funds for the state until your taxes are due, and then pay and file multiple times a year. It’s no wonder that it can often end up at the bottom of your endless task list because it takes time and energy, but doesn’t directly benefit your bottom line. However, neglecting sales tax can lead to penalties, interest charges, and even a lien on your business. Set up your POS with a sales tax automation app that can completely handle your sales tax - from setting the correct funds aside daily, to automatically filing and paying on time. By automating your sales tax you can eliminate the risk of misspending sales tax funds or missing payment deadlines. 

If you do fall behind, take steps to get back on track as soon as possible. Sales tax debt is a personal liability that doesn't disappear with bankruptcy, so tackle it head-on and seek support if necessary.”

- Beth Raymond, Director, Tax & Compliance, DAVO by Avalara

Sales taxes can be tricky. Thankfully in this day and age, restaurateurs have a multitude of automation technology available to them, including sales tax automation. A sales tax automation app uses sales data from your POS handheld to automate the entire sales tax process from end to end. The app gathers daily transactional sales data from your device – this includes all transactions – cash, credit, debit, refunds, gift cards, and 3rd party apps. 

At the end of every day, sales tax associated with these transactions is totaled and a debit request is issued to your bank account to transfer funds to a secure tax holding account for safekeeping until it is time to file and pay. This part of the automation process is crucial because the funds – often thousands of dollars that really belong to the State – will not be mistaken for income. 

For more information, check out this article on How to Save Time and Sanity with Sales Tax Automation

2. Accounting departments can help

“Managing costs is a daily struggle in the restaurant industry. Constantly watching changing prices in products, services, and labor is a full-time job. Working with a solid Accounting department that consistently communicates and reports these changes is key to running a profitable restaurant.”

- Rachel Dick, Controller in Residence at MarginEdge

From small business owners to multi-location operators, your goals in the restaurant industry define the level of financial data you need and the amount of time you should spend on your own bookkeeping and accounting. 

The restaurant accounting requirements for a restaurateur trying to grow and scale rapidly will drastically differ from those of a restaurateur trying to maintain the status quo and run as lean as possible. Consider the many accounting responsibilities and roles that can be necessary to ensure you’re compliant and operating optimally. There are multiple options for addressing these responsibilities. For more information on accounting departments, check out this article that outlines your different accountant options. 

3. Consider an automated accounting platform 

“When it comes to accounting, the results are just as, if not more, important than the process. With an integrated, automated accounting platform accounting teams can provide operational teams with reliable insights, like sales growth percentage and Prime Cost analyses, that can be used to meaningfully improve the business. Knowing your sales growth percentage is critical to ensuring sales keep pace with the continuously rising costs required to operate a restaurant. For newer restaurants, week-over-week sales growth percentage will give you a sense of your customer base growth. For more established restaurants, year-over-year sales growth percentage lets you know if you are remaining competitive in the marketplace, and you can break sales growth percent down into traffic versus ticket to understand if your gains (or challenges) are coming from your customer counts or increased prices.

Prime costs are your food and labor costs, which are the most controllable costs in a restaurant. You have to properly manage your prime costs if your business is going to be profitable, and measuring your prime costs as a percentage of sales is the best way to ensure that you consistently manage these costs. Taking regular inventory counts is the best way to ensure that your food costs are accurate because it removes any effect caused by the timing of deliveries. Using an inventory management solution can help streamline the process. When evaluating your labor costs, looking just at hourly wages is not enough. You must evaluate full personnel costs, including wages, salaries, taxes, and benefits. Knowing when your food and labor costs start to increase due to inflation is critical to understanding when you may need to consider menu price increases.”

- Jennifer Simmons, Director, Marketing at Restaurant365

With so much stacked against the industry, restaurants have to seize all the advantages they can to achieve and sustain their profitability. It's more important than ever for operators to take control of costs — this starts with your restaurant's prime cost. Check out this article to learn why prime costs are critical financial and operational metrics, how to calculate and track them, and why operators should always be trying to reduce them.

4. Extract details from restaurant invoicing 

“In order to align your gross profits correctly, the more detail you can extract from an invoice and input into your accounting system, the more you can create appropriate metrics to see where your profitability can stand on different service items or different areas of your menu. For example, say you receive an accounts payable item from your kitchen and you notice that one sandwich is more frequently purchased than another - you may be able to adjust the order from your kitchen to a) optimize your inventory, b) better support your customers and c) reduce food waste (both from a gross profit POV and environment POV).”

- Dave Emmerman, Head of Enterprise, US at Xero

Invoice processing automation is a foundational tool for restaurant operators. It allows them to win back time, save on bookkeeping, and unlock actionable costing insights. Some invoice systems rely on human analysis to do the digitizing/processing. Other systems can process faster and without human error using intelligent software and ocular character recognition (OCR). This is essentially a machine vision system that turns invoice information into data, that fuels accounting and reporting systems.

xtraCHEF by Toast can relieve you of tedious data entry so that you and your team can focus on the day-to-day tasks required to deliver exceptional, profitable experiences. xtraCHEF by Toast turns invoice details into costing insights so that you can make more informed decisions for your restaurant’s profitability. For more information check out this article on invoicing automation

5. Configure your POS system correctly when using 3rd party apps

“If your POS isn't configured for 3rd party delivery apps, you risk recording revenue multiple times. Input 3rd party orders received at your restaurant directly into the POS - this establishes an official record of all sales, whether they originate from your restaurant or third-party apps.

Determine which party is responsible for collecting and remitting sales tax from 3rd party orders so that you can set up your POS correctly. Review any contracts with third-party delivery services to determine who is responsible for handling sales tax filing and remittance. You can also consult this state-specific chart outlining the responsibilities of major national delivery apps. In several states, the delivery services are now responsible for collecting and remitting sales tax on transactions. Failing to configure your POS system properly could result in double-paying sales tax on these orders. Furthermore, be aware that many third-party delivery apps may not cover local sales taxes, potentially leaving you responsible for filing and payment.”

- Avery Smith, Senior Tax Analyst, DAVO by Avalara

Integrating your third-party delivery platforms with your restaurant POS system can reduce staff stress, streamline your online ordering process, and increase accuracy in the kitchen. By choosing a POS platform like Toast that directly integrates with third-party apps, you can ditch the tablets and streamline your operations. If done correctly, you won’t record revenue multiple times and instead have the opportunity to save on labor and operational costs. 

For more information on third-party integrations check out this article. 

Mastering restaurant accounting

Managing restaurant finances can be chaotic. With the insights shared by industry experts in this article, you've gained tips to keep your restaurant's financial health in check. By implementing these practices, you're paving the way for informed decisions that can shape the future of your restaurant business.

Regularly monitoring cash balances and prime costs might seem daunting, but with the right approach, it becomes second nature. The key is to stay organized and leverage the technical tools (like xtraCHEF by Toast) available to you. Next up: check out this article on common restaurant accounting mistakes to avoid

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DISCLAIMER: This information is provided for general informational purposes only, and publication does not constitute an endorsement. Toast does not warrant the accuracy or completeness of any information, text, graphics, links, or other items contained within this content. Toast does not guarantee you will achieve any specific results if you follow any advice herein. It may be advisable for you to consult with a professional such as a lawyer, accountant, or business advisor for advice specific to your situation.