In order to keep up with the competition, restaurant owners should be familiar with the five key sections in the cart of accounts that will be discussed in this blog.

Since restaurant owners are finally hitting their stride after a harsh two years of stunted growth, new restaurants and family-owned food spots are opening up regularly. This is happening especially among housewives who have found food sales to be a highly accessible and lucrative avenue for income. Taking a glance at the numbers, 93% of respondents in a survey by Forbes report optimism for their financial future.

With this many new and returning people in the industry, our experts at EA figured that we should help them get started with their accounting. The EA publication titled “Restaurant Accounting: A Complete Guide to Mastering Financial Management” is a great introduction to restaurant accounting as a whole, and should be a good jumping-off point for diving into more complex matters like the chart of accounts, which is our subject of discussion today.

We will be discussing the restaurant chart of accounts and its five key sections that everyone must know about for effective restaurant operation.

What is a Restaurant Chart of Accounts?

The chart of accounts is basically where you document all of your business’s financial transactions and activities. Expenses, earnings, and the like are all recorded in the restaurant chart of accounts. The chart of accounts serves as proof that business is being done sincerely and there are no inconsistencies in the numbers, with every penny going in and out of the business accounted for.

Generally, a restaurant chart of accounts would show the business’ raw material costs, labor wages, venue rent, amenities, marketing, and advertising expenses, and of course, the business’s revenue and profit. These categories will further be divided into subcategories depending on the size, location, operational capacity, and other such factors.

The careful organization of the chart of accounts not only ensures accurate financial records but also helps restaurant owners and managers make informed decisions. By categorizing expenses and revenues clearly, the chart allows them to see where the business is doing well and where it may need improvement. This insight enables them to adjust strategies to boost profits, streamline operations, and use resources more efficiently. Keeping the chart up-to-date also makes financial analysis and reporting simpler, giving stakeholders a clear view of the restaurant’s performance and progress toward financial goals. Ultimately, the chart of accounts plays a crucial role in maintaining transparency, accountability, and effective planning in the restaurant industry.

Why is a Restaurant Chart of Accounts Important?

A restaurant chart of accounts serves as the foundation for all accounting activities within your establishment. While some small businesses might opt for a simpler approach of just tracking income and expenses, investing in a comprehensive restaurant chart of accounts offers numerous long-term benefits. With this framework in place, you gain clear visibility into where your money is being spent, allowing you to assess your restaurant’s financial health and performance accurately.

Moreover, maintaining a proper restaurant chart of accounts ensures compliance with regulations. In the event of government inquiries regarding your business’s legitimacy, you can confidently present detailed financial statements supported by your chart of accounts, providing a transparent overview of your activities.

Plus, having a proper restaurant chart of accounts means that you are always in the clear when it comes to regulations. Should the government inquire about your business’ legitimacy, you can demonstrably represent all of your activities through your financial statements, which require a chart of accounts.

Furthermore, if expansion is on the horizon, having well-organized financials readily available for inspection becomes crucial for securing external funding. Investors and lenders will appreciate the transparency and professionalism demonstrated through a robust chart of accounts, instilling confidence in your growth ventures.

The point is that properly managing your restaurant’s accounting with a restaurant chart of accounts is an invaluable asset, and can only do you good.

Whereas, if you neglect your accounting and your chart of accounts looks like a hodgepodge of financial data, then you may be in serious hot water with the authorities and from a business perspective.

Ultimately, effective management of your restaurant’s accounting through a well-structured chart of accounts is an invaluable asset. Neglecting this aspect of your business could lead to serious repercussions, both legally and from a business perspective. By prioritizing proper accounting practices, you not only safeguard your business’s integrity but also pave the way for sustainable growth and success in the competitive restaurant industry.

The Benefits of a Restaurant Chart of Accounts

Accuracy and Management Efficiency

The most significant advantage of implementing a proper chart of accounts lies in the enhanced ease and efficiency it brings to financial management. Unlike the cumbersome task of recording income, expenses, and other financial data in a disorganized Excel sheet, a restaurant chart of accounts neatly organizes all this information into categorized sections. This structured approach enables restaurant owners to gain clear insights into their financial transactions, allowing for better tracking of expenditures and a deeper understanding of the business’s overall performance. Additionally, having a well-structured chart of accounts helps mitigate the risk of financial confusion resulting from erroneous bookkeeping, ensuring greater accuracy and reliability in financial reporting.

Improved Financial Analysis

By utilizing a proper chart of accounts, restaurant owners can generate accurate financial statements that serve as valuable tools for analyzing the restaurant’s financial health and performance. This ability to conduct thorough financial analysis is crucial for making informed decisions and driving business growth. Identifying areas where costs can be reduced or revenue streams optimized becomes more accessible, enabling restaurant owners to allocate resources effectively and maximize profitability. Ultimately, leveraging financial analysis facilitated by a comprehensive chart of accounts empowers restaurant owners to navigate challenges and seize opportunities, setting the stage for sustained success and growth in a competitive industry landscape.

5 Sections Every Restaurant Chart of Accounts Needs

The Assets Section

The assets section is by far the most important part of the restaurant’s chart of accounts. It represents all of the assets owned by the company, whether they be material or intellectual. This includes all of your material inventory, your restaurant furniture, computers, refrigerators, and stoves among other appliances, etc.

All of these are your business’ assets and are represented in the assets section of your restaurant’s chart of accounts. Of course, any cash and bank balances are also noted in the assets section. This section is so important because this is where your business’ value is derived from. Your restaurant’s worth is defined by the assets in your possession.

The Liabilities Section

Arguably just as important as the assets section is the liabilities section. Liabilities are any costs that the business owes. These include any credit card debt on business credit cards, bank loans for business ventures, any invoices yet to be paid, unpaid taxes, and so forth.

All of these liabilities are recorded in the liabilities section of your restaurant’s chart of accounts, and allow you to maintain a strong grip on your business activities and ensure that you keep fulfilling your liabilities and don’t default.

Equity

While typically not as relevant for restaurants, equity is nevertheless an integral section in the restaurant’s chart of accounts. Equity refers to any land or property owned by the business, or any stock if the company is listed.

Restaurants are generally not listed unless they are big chains, so the equity section largely comes down to recording the value of any land and property under the business’ name.

Income

Income is especially important as far as the restaurant’s chart of accounts’ value is concerned. Income is any money that flows into the business in the form of revenue from sales.

The income section details all the various avenues through which the business is earning income, which can be highly advantageous in figuring out what food is selling and what isn’t. For example, you can make sub-categories for the dishes the restaurant offers, and compare the income generated by various items on the menu.

This can help you better plan your ingredient inventory and focus your marketing on the products that appear to be selling the best. And that’s just one major benefit of creating a restaurant chart of accounts.

Expenses

The expenses section is next on our list of essential sections in a restaurant chart of accounts. Expenses denote how money is flowing out of the business. Cashflow is the combination of your restaurant’s income and expense data and allows you to see how you are procuring cash and where it is going after coming into your possession.

Expenses can include payments to ingredient suppliers, maintenance costs of the restaurant, operational costs, rent and utility costs, and labor costs.

Build The Perfect Restaurant Chart of Accounts with Expertise Accelerated

It’s no surprise to anyone that restaurant accounting is a complex process and, truthfully, can be quite a big hassle for entrepreneurs. Restaurant owners are already overtaxed with how many things they must manage to keep the business going smoothly, so piling accounting on top of the workload is not ideal. Therefore, the best course of action is to hire a restaurant accounting professional or firm for the job or if you need some basic bookkeeping you can also buy accounting software to automate accounting processes.

If only it were that easy, but we realize that hiring even the most basic accounting professional is too heavy a price in this recessionary spell. Small and medium-sized restaurant businesses, in particular, may struggle with the financial burden of employing dedicated accounting services.

That’s where Expertise Accelerated presents an alternative. EA CEO Haroon Jafree feels the plight of the restaurant industry and is dedicated to providing every restaurant owner in the US the opportunity to have their very own restaurant accounting professional, all at a fraction of the cost.

By leveraging EA’s staff augmentation services for restaurant accounting, entrepreneurs gain access to the global accounting talent pool. EA connects entrepreneurs to accountants, and entrepreneurs can have their pick from EA’s curated list of gold-standard restaurant accounting professionals.

Whether you run a small restaurant or a restaurant chain, EA will stand by your side and be your one-stop shop for all your accounting needs.