Restaurant Accounting: Track Your Numbers To Boost Profits (Guide)

You got into the restaurant business to serve great food, create an unforgettable experience, and build something that lasts. But here’s the thing: if you’re not on top of your numbers, it’s almost impossible to do any of that well—or to run effective restaurant marketing campaigns that bring in a steady stream of customers.

Restaurant accounting probably isn’t what gets you leaping out of bed in the morning. But knowing your business means knowing your numbers.. And it doesn’t have to be complicated or time-consuming. 

In fact, once you have the right systems in place, keeping tabs on your restaurant costs and finances can become second nature. And it can actually help you make faster, smarter decisions every single day.

In this guide, I’ll break down what restaurant accounting really means, the numbers you need to watch and how to stay in control without drowning in data. 

What is restaurant accounting? 

Restaurant accounting is the process of managing and tracking your restaurant's financial health. It involves everything from monitoring your income and expenses to preparing financial reports that help you make smart business decisions.

At the end of the day, food and beverage accounting is all about making sure your numbers add up so you can stay profitable and compliant.

Restaurant accounting covers things like:

• Cost of Goods Sold (COGS) analysis: Understanding how much you spend on food and drinks to make sure your menu pricing is where it needs to be.‍
• Labor cost management: Keeping track of how much you’re paying your staff, from wages to tips.‍
• Budgeting and forecasting: Planning ahead by setting financial goals and predicting how your restaurant will perform.‍
• Financial reports: Creating important reports like profit and loss statements, balance sheets, and cash flow reports.‍
• Tax planning and compliance: Making sure you’re setting aside money for taxes and filing everything properly to stay out of trouble.

I can’t stress enough how important it is to clearly understand your finances. With the right accounting practices in place, you can make better business decisions and stay in control of your restaurant’s budget.

Restaurant accounting vs. restaurant bookkeeping

While accounting and bookkeeping are often used interchangeably, they mean different things.

Restaurant accounting is about looking at the big picture. It helps you understand your profits, losses and overall financial health. You’ll use it to make smart decisions about things like budgeting, taxes and long-term growth.

Restaurant bookkeeping, on the other hand, is more focused on the day-to-day task of recording and organizing financial transactions. Bookkeepers track your daily sales, expenses, invoices and receipts to check everything is accounted for.

In simple terms, bookkeeping for restaurants helps you track the daily numbers, while accounting for restaurants helps you understand those numbers.

Why you need to know restaurant accounting 

If you want your restaurant to succeed, you can’t ignore your finances. 

I’ve learned that over the years, staying on top of your numbers is what separates successful restaurants from the ones that struggle.

Here’s why restaurant accounting matters:

• Stay profitable: When you keep track of food and labor costs, you’re in control of your profits. A solid restaurant business plan will guide these decisions, helping you stay focused on your goals.‍
• Make smarter decisions: Having clear financial data means you can make smarter calls. Whether adjusting prices or deciding if it’s time to expand, your numbers should be your guide to making decisions that push your restaurant forward.‍
• Manage cash flow: You can’t predict when the slow months will hit, but if you know your cash flow, you can plan for it. Being aware of my financial situation has always helped me ride out slow periods without panic.‍
• Plan for the future: Accounting isn’t all about today. From upgrading equipment to preparing for unexpected costs, knowing your numbers helps you make solid plans for long-term success.‍
• Avoid costly mistakes: The last thing you want is a surprise tax bill or compliance issues. Staying on top of my finances has kept me from running into these issues, and I’m sure it will help you avoid the same mistakes.

Restaurant accounting might seem like a hassle, but it becomes second nature once you’ve got the right systems in place. And trust me, it’ll give you the clarity and confidence to run your restaurant like a pro.

Key restaurant accounting metrics you should know 

Restaurant cost accounting metrics will help you see how well your business is doing, where it can improve and where to focus your efforts to keep growing.

Here are the most important accounting metrics I suggest you keep an eye on:

Prime cost

Prime cost is one of the most important numbers you need to track in your restaurant. It’s the combination of your cost of goods sold (COGS) and labor costs, and it typically makes up a large chunk of your total sales. 

For most restaurants, prime cost ranges between 55% and 65% of total sales. I’d say the goal is to keep it at 60% or less, especially if you’re running a limited-service restaurant.

Keeping track of prime cost helps you spot areas where you might be spending too much and take action before it starts cutting into your profits.

Of course, different types of restaurants can have different prime costs. For example, fine dining spots may have higher labor costs due to specialized service, while quick-service places work to keep COGS lower to stay profitable.

Here’s how to calculate prime cost:

1. COGS = beginning inventory + purchases - ending inventory
2. Total labor costs = wages + salaries + benefits + payroll taxes
3. Prime cost = COGS + total labor costs
4. Prime cost percentage = prime cost ÷ total sales

Cost of goods sold (COGS)

COGS is the total cost of all the ingredients and products you use to prepare the food and drinks you serve. This includes everything on the plate, plus things like complimentary sauces. 

A healthy COGS typically falls between 30%-35% of your sales—or about half of your restaurant's prime costs.

Now, let’s walk through how to calculate it:

Imagine your restaurant has:

• Beginning inventory: $4,500
• Purchases: $10,000
• Ending inventory: $3,000

To calculate COGS, use this formula:

COGS = $4,500 + $10,000 - $3,000 = $11,500

So, your COGS here would be $11,500, which means that’s the amount you spent on the ingredients used to serve your customers.

Gross profit vs. net profit

Gross profit is your total revenue minus COGS. This is what you make after covering things like your ingredients, but before you account for other operating expenses.

Net profit is what’s left after ALL expenses (rent, utilities, labor, etc.) have been paid. It’s the bottom line that shows how efficient and profitable your operation really is.

In the restaurant business, gross profit margins typically range from 40% to 70%, but net profit margins tend to be much smaller, often around 3% to 5%.

The best way I can explain it is that gross profit helps you gauge product performance, while net profit shows how well you’re managing all your costs.

Chart of accounts

Your chart of accounts is how you organize your restaurant’s financial records. It sorts every transaction, from buying ingredients to paying for equipment repairs. 

I’ve found that having a clear chart of accounts makes it much easier to see where your money is coming from and where it’s going.

Accrual vs. cash accounting

Accrual accounting records revenue and expenses when they’re earned or incurred, not when the cash actually changes hands. 

For example, if a customer eats at your restaurant and gets a bill, you’ll record that sale as soon as they’ve dined, even if they haven’t paid yet

Cash accounting, on the other hand, only records revenue and expenses when the money actually moves. So, with cash accounting, you won’t count that sale until the customer pays.

Depreciation

Depreciation is how you track the loss in value of your restaurant’s assets, like kitchen equipment or furniture, over time. As these items age, they lose value. Instead of recording the full cost all at once, depreciation spreads it out over the time you use the asset.

This helps you see the true cost of running your restaurant and lets you plan for when it’s time to replace or upgrade your equipment.

Core accounting tasks for restaurants 

Running a restaurant means dealing with unique accounting tasks that go beyond regular accounting. These core tasks happen daily, weekly and monthly to keep your finances in check and your business running smoothly.

Let me break it down for you:

• Bookkeeping: Track daily transactions like sales, purchases and expenses to keep everything organized.
• ‍Payroll processing and tip reporting: Make sure wages and tips are tracked accurately and comply with tax rules.‍
• Inventory tracking and costing: Monitor inventory, avoid over-ordering and calculate COGS to maintain proper pricing. Restaurant analytics helps track inventory trends and optimize orders for better profits.
• ‍Reconciling vendor invoices and POS reports: Match up invoices with your POS data to prevent discrepancies and stay on budget.
• ‍Monthly financial reporting: Create profit and loss reports, balance sheets and cash flow statements every month to check your restaurant’s financial health.
• ‍Tip tracking: Track and report tips for proper payroll and tax compliance.

This might seem like a lot. But trust me, managing these details helps you save money, make smarter decisions and avoid unnecessary financial stress.

How to set up your restaurant accounting system  

When it comes to setting up your restaurant accounting system, you have a few options to choose from.

The important thing is having the right tools in place. Trust me, this decision will pay off in the long run.

Here’s how to set up a system that works for you:

1. Choose between DIY, an accountant or accounting software

You have a few options when it comes to managing your restaurant’s accounting. Options include handling it yourself (DIY), hiring an accountant or using accounting software.

• DIY: If you’re just starting out or have a smaller restaurant, doing it yourself might seem like the way to go. I’ve done it before, and it can save you some money. But, keep in mind it takes a lot of time and attention to detail. You’ll need to stay on top of tax laws and financial regulations and keep everything organized.
• ‍Accountant: If you want to focus on running your restaurant and leave the number-crunching to the experts, a restaurant-savvy accountant is a smart move. I can’t tell you how much time and stress I’ve saved by having someone handle cash flow, taxes and financial strategy for me.
• ‍Software: If you don’t want to hire an accountant but still need something more efficient than DIY, accounting software is a great option. These often integrate with the top POS systems and offer real-time insights into your finances. Plus, they automate many repetitive tasks, saving you time and keeping things accurate.

2. What you need to track from day one

I recommend keeping an eye on these tasks to save you from a lot of headaches later on: 

• Sales: Track daily sales to know exactly how much you're earning. This includes food, drinks, events, or delivery services.‍
• Labor: Keep an eye on wages, tips and benefits. Staying on top of labor costs can make all the difference in keeping your restaurant profitable.
• ‍Inventory: Track what you're buying, using, and discarding. Proper inventory management helps you control your food costs and reduce waste, which can eat into your profits.
• ‍Invoices: Record what you owe to suppliers and any outstanding invoices to keep cash flow in check and maintain good relationships.

3. Integrating your POS system with accounting software

Connecting your POS system to your accounting software can help streamline your operation. It reduces the manual work and ensures that your sales, taxes and inventory are accurate.

With everything connected, you get a complete view of your restaurant's finances, making it much easier to manage. Having a streamlined system with best restaurant management software allows you to track daily sales and be fully prepared for tax season.

Avoid these common restaurant accounting mistakes   

Running a restaurant is a balancing act, and keeping track of your finances can slip through the cracks. I’ve made my share of mistakes along the way, but each one taught me something important.

Common mistakes include:

• Mixing personal and business expenses: This can cause a lot of headaches when it comes time to file taxes. Keeping them separate helps you stay organized and ensures you don’t overpay or underreport anything.‍
• Not reconciling your POS system with bank statements: This may seem like a small task, but not doing it regularly can lead to discrepancies in your finances and missing transactions.
• ‍Ignoring daily reporting: When you’re busy, it’s tempting to skip this. But checking your numbers daily helps you spot small issues before they become big problems.‍
• Underestimating payroll taxes: Staying on top of wages, tips and tax compliance is important for your business. Failing to do so can lead to costly mistakes, and I’ve seen many restaurants struggle with payroll issues because they weren’t keeping track properly.

Top restaurant accounting software to consider  

Much like restaurant marketing tools bring in more customers, good accounting software that works with your POS system can be a game-changer.

Here are a few tools that can help you stay on top of your numbers:

• QuickBooks: This versatile software is great for tracking your sales, expenses and payroll. It integrates with your POS system, making it easy to keep all your financial data in one place.‍
• Xero: Xero is another solid option, especially if you want a cloud-based solution. It connects with your bank account and POS system, giving you a real-time view of your finances.
• ‍Restaurant365: If you're looking for something built specifically for the restaurant industry, Restaurant365 could be the way to go. It combines accounting, payroll and inventory management into one platform.‍
• Wave: Wave is an excellent choice for smaller restaurants or those just starting out. It's free and easy to use and helps you track expenses, manage invoicing and generate financial reports.

Each option has its strengths, so choosing the one that works best for your restaurant’s needs is important. Make sure it integrates smoothly with your existing systems and gives you the reports you need to stay on top of your financial game.

Stay on top of your numbers to stay in control 

Understanding your restaurant’s accounting is empowering. When you track your costs and make data-driven decisions, you put yourself in control of your restaurant.

The best part? You don’t need to be a math wizard. You just need the right system to handle the numbers for you.

Ready to streamline your restaurant’s operations and finances? Schedule a free demo of Owner.com today and see how we can help you stay on top of your numbers.

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