The food business has been booming after quarantine restrictions have eased. 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 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.
Table of Contents
What is a Restaurant Chart of Accounts?
The chart of accounts is basically where you document all of your business’ 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’ revenue and profit. These categories will further be divided into subcategories depending on the size, location, operational capacity, and other such factors.
Why is a Restaurant Chart of Accounts Important?
A restaurant chart of accounts will be your framework for all of your accounting activities. While you could do as some very small businesses do, and only note down income and expense, a proper restaurant chart of accounts will serve you far better in the long run.
You will be able to see exactly where your money is going and be able to assess your restaurant’s financial health and performance.
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.
And if you’re thinking of expanding, then having all of your financials visible for inspection is integral to securing external funding for 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.
The Benefits of a Restaurant Chart of Accounts
Accuracy and Management Efficiency
The biggest benefit of having a proper chart of accounts is the ease of financial management that it grants. Instead of noting down your income, expenses, and everything else in an Excel sheet, which makes it hard to track where your money is being spent and how your business is performing; a restaurant chart of accounts provides all the data neatly arranged categorically so that you can see clearly what’s going on in the business.
You can also mitigate the risk of financial confusion from erroneous bookkeeping that is bound to happen if there is no restaurant chart of accounts.
Improved Financial Analysis
With a proper chart of accounts, you can generate proper financial statements for the business, which can then be leveraged to analyze the restaurant’s financial health and performance. This is an invaluable tool to have in your tool belt, as by leveraging financial analysis properly, you can grow your restaurant exponentially.
Just having an idea of where you can save money and what is causing you to lose money is already a huge lifesaver, as that money can be better spent elsewhere or set aside for another business drought like the pandemic.
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 balance 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.
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 is especially important as far as the restaurant’s chart of accounts’ value is concerned. Income is basically any money that flows into the business in the form of revenue from sales.
The income section details all the various avenues that 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.
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….
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.
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.