An efficient back-office plays a critical role in the success of a restaurant. It is the system that takes care of your financial information and ensures that you are making enough revenue to cover your expenses. Even if you do not have a background in accounting, understanding this administrative area puts you in a better place of knowing how your business is performing.
As a restaurant owner, being aware of your business’s financial health is an important factor in ensuring that you are not running your business blindly. With 50% of businesses failing within 5 years due to a lack of profits, understanding your finances can help you avoid major pitfalls. You will be able to see how your business is fairing in the market and take on challenges that come in raising income for your business.
Before looking at the role that accounting plays in your restaurant, let’s first understand what it entails.
What is Accounting?
Accounting refers to the collection, interpretation, classification, analysis, and reporting of financial data. It goes a notch higher than bookkeeping, which is just recording the financial transactions of the business.
Another way of looking at accounting is that it is the process of preparing and communicating the financial statements of a business entity. This includes communication of financial statements like income statements, balance sheets, and cash flow. Although the process is almost the same across many industries, it is quite different in the restaurant industry.
Restaurant accounting involves the collection, interpretation, and analysis of restaurant financial information. This includes the revenue of the restaurant, cashflow, inventory levels, and income statements. The process allows restaurant owners and managers to document all financial transactions of the business and determine how well it is performing.
A restaurant accountant is a professional who has specialized in restaurant accounting. They document all the financial transactions of the restaurant, keeping track of the inventory, cash flow, and income statements.
The information provided by restaurant accounting allows you to manage your cash more efficiently, predict your profits, balance your financial books, and plan for your business future. Now let’s take a detailed look at how accounting is important to your restaurant.
Better Financial Management
For a business to be successful, it needs to have solid financial management. If you are running a restaurant, you need to have a way of accounting for the salaries paid to the employees, recording transactions, reporting total sales, and analyzing your restaurant. Without an efficient accounting system or function, such administrative areas of your business will be mismanaged and inefficient.
Accounting helps you get the necessary financial information needed for running every aspect of your business. This allows you to make proactive decisions and structure your business in a way that improves your profitability.
For you to run a successful restaurant business, you need data, reports, records, analysis, and accurate information about your finances. You need to know how much you have in your assets, your liabilities, and the amount of profit your business is making. Restaurant accounting allows you to have a clear picture of all this and manage your business in a better way: It involves:
- Business planning
- Budget preparation
- Tracking and managing cost of goods sold
- Tracking and managing labor costs