Curt Mastio
By Curt Mastio on June 19, 2024

Restaurant Chart of Accounts: Everything You Need to Know

If you currently own and operate a restaurant, you know that it’s not easy — especially when it comes to cash flow management. Although a restaurant needs to offer great food and service, there’s nothing more vital to the establishment’s long-term success than effective bookkeeping.

This is where a chart of accounts comes into play — an organized system that will help you better understand how your restaurant makes money and where that money is spent. As you begin to better organize each and every account associated with your restaurant, you will gain greater short- and long-term control over your business. In turn, you will remain financially aware as you build and grow the success of your restaurant.

What Is a Chart of Accounts?

Whether you take out a new bank loan, purchase a stove, or buy staff uniforms, each and every transaction must be recorded appropriately — the same is true regarding sales. To remain organized, you’ll require a chart of accounts, which is essentially a list of all your company’s accounts, organized in one place.

Offering you a greater overall insight into your business, you will then better understand where your money is being spent and how it is your business makes money. For example, some of the main types of accounts you frequently encounter include but are not limited to:

  • Operating revenues
  • Assets
  • Liabilities
  • Operating expenses
  • Equity

Then, depending on the industry and business itself, there will also be a wide range of other specialized, subcategory accounts. In this case, you may have an account for insurance, equipment, cleaning supplies, food costs, marketing, wages, rent, etc. Each account essentially acts like a “bucket” — allowing you to clearly categorize all of the money that flows in and out of your business.

Not only will a restaurant chart of accounts help you better understand your business, but when it comes to tax season, you will save yourself a significant amount of time and money. You can also create detailed reports, including:

  • A profit and loss (P&L) statement — Also known as an income statement or statement of operations, your P&L statement simply showcases all of your costs and sales. This can then be used to determine the total revenue and expenses associated with your restaurant across time. That way, you can determine where it is you need to cut costs, how you can potentially increase sales, etc.
  • A cash flow report — As suggested in its name, your cash flow report tracks all of the cash that goes in and out. This will help you determine how much money you currently have available and what that means in terms of your current operations. This will then allow you to better understand whether or not you’ll require external financing.
  • A balance sheet — This report will list all of your liabilities (i.e. equipment loans and vendor bills), assets (i.e. anything you own, including inventory, equipment, and cash), as well as your equity (which is essentially your net worth). Your balance sheet will essentially show you your debt load and your actual financial position. That way, you can identify early warning signs that your restaurant is potentially in trouble.

How to Apply a Chart of Accounts to Your Restaurant

Even if a restaurant serves the best food in town and has great service, there are many reasons why it may still fail. From its location to the development of tax complications, a restaurant can fail, even if, in theory, it’s good.

Of course, one of the main reasons why some restaurants fail is due to poor accounting practices. If you have more money going out then coming in, and you are unaware until its too late, your restaurant could go out of business.

That is why you should implement accounting best practices as soon as possible. Unfortunately, once you fall behind in your accounting, it’s easy to get lost within your own business. Poor decisions are made and in some cases, those decisions are detrimental to your continued success.

For example, if you don’t know your numbers, you’ll be lost in terms of key financial decisions. Ask yourself, do you know what your food costs are? What about your labor costs? The key is staying up-to-date with these types of calculations because variables do change. One month, select ingredients may be higher than they are the following month. Being aware of these types of fluctuations can make all the difference in regards to current and future planning.

RelatedRestaurant Bookkeeping — 5 Steps to Restaurant Bookkeeping | Founder’s CPA

Creating categories that will increase your overall financial awareness

In the restaurant industry, you need to focus on unique accounts, mainly in relation to food and other depreciable assets. In this case, there are a number of ways you could approach this expense. The first is to list food as a simple asset. Although this is the least accurate approach in regards to learning more about profits and wastes, it is certainly the simplest method.

In other cases, restaurant owners categorize food based on perishable and nonperishable items, or in other cases, food is monitored by waste. The best approach will depend on your day-to-day operations, management, and the overall size of your establishment. For example, a small restaurant with just 1-2 chefs may not benefit from a system where food is monitored by waste, simply because it’s too time-consuming.

Once again, that is why you should speak with a professional consultant as soon as possible. They can help you determine how you should approach your chart of accounts from the get-go, as you implement targeted strategies based on your unique restaurants and business model.

To further breakdown your chart of accounts, consider the following:

  • Your revenues — Food sales, beverage sales, other sales (i.e. catering opportunities).
  • Your expenses — The cost of food sales, the cost of beverage sales, any discounts that impact your bottom-line. If you need assistance in regards to food costs, this is an excellent food cost calculator resource.
  • Operating expenses — Rent, insurance, janitorial, utilities, property taxes, licenses, office supplies, etc.
  • Labor and management expenses — Salaries and wages, health insurance, meal and discounts, benefits, etc.

These are just some examples. Depending on how you operate and what you biggest expenses are and sources of revenue, your chart of accounts will differ.

How Founder’s CPA Can Help You with Your Chart of Accounts

As a restaurateur, you have enough on your plate, which is why so many seek the assistance of professional accounting services. This is especially important if your business is already growing at a significant rate.

By investing in an accounting service, you will be able to create a more customized chart of accounts based on your specific business model and day-to-day operations. For example, you may have recently implemented a new cocktail menu. To ensure that it is profitable, you could create categories based on your sales and expenses required to run your new cocktail program.

Although you can later make changes, it is critical that you set up your chart of accounts correctly from the beginning. While you will want to ensure that each category is accounted for, an accountant can help you make your chart of accounts as simple and streamlined as possible. After all, if you try to make your chart of accounts too complex, key pieces of information could be lost.

Founder’s CPA offers restaurant-specific bookkeeping solutions and support, helping you understand the type of information you should extract on a daily basis. By implementing such solutions as soon as possible, you can ensure that your records are as up-to-date and accurate as possible.

For example, at Founder’s CPA, we often work with restaurant owners at the end of the year. Unfortunately, as we help them prepare for their taxes, we often find out that they simply have too many accounts — or in some cases, not enough. This means that budgets and forecasts are not as accurate as they could be.

It is highly recommended that before you setup your bookkeeping system, you consult with a CPA. That way, they can properly review your accounts before you record inaccurate or irrelevant information.

As you become familiarized with each associated report, you will then be able to make guided decisions that promote growth and productivity.

What Else Does Founder’s CPA Offer?

Although it is imperative that you setup a chart of accounts and regularly review your financial reports, there are other aspects of accounting you may require assistance with.

Just some of the ways in which Founder’s CPA can assist you along your journey, include:

  • Bookkeeping — Accrual and cash basis
  • Payroll — Setup and administration
  • Outsourced CFO Services — Part-time and full-time
  • Taxes — Compliance and strategy
  • Budgeting and Forecasting
  • Training Services
  • Financial Consulting

Whether you are a new restaurant or have recently made changes to your business structure, we can help.

Ready to take back control of your restaurant’s accounting needs? Be sure to request a free consultation. Get started today!

Schedule a free consultation with Founder’s CPA today!

Published by Curt Mastio June 19, 2024
Curt Mastio