Do you own a restaurant or perhaps a bakery? If your answer is YES, this article is for you.
You love cooking and enjoy making sumptuous meals for relatives and friends. After months of contemplation, you decide to open your own small bar and restaurant. You have everything in place: location, equipment, recipes, wonderful seating space, and even eager clients. However, have you thought about book keeping for the restaurant? Effective accounting allows you to track the money that comes and goes and is a key recipe for keeping your restaurant doors open.
You will need to decide which accounting system to use. The bar and restaurant business is mostly a cash-based venture and most establishments choose the cash accounting method. In this system, a transaction is recorded when cash is exchanged, that is when customers pay for their food and spirits as well as when the business pays for expenses and costs.
While this accounting method sounds easy, it does not recognize delayed payments from payment plans and credit accounts. Most businesses have credit facilities with vendors that allow the restaurant to pay for supplies weeks, even months after the supplies have been delivered. Under cash accounting, the transaction is recorded when the restaurant settles the payment with no record of when the goods were supplied.
Accrual accounting requires the business to record a transaction when it actually happens. If supplies are received in March, this is recorded in March even though the restaurant may actually pay in April. Accrual method requires double – entry bookkeeping because the transaction is recorded twice, when the goods are received and when the payment is made. This gives a more accurate view of how the expenses are incurred and how income is generated.
Apart from tracking cash flow of income and expenses, accounting is used to calculate necessary tax payments, manage payroll and produce financial documents. When you are starting, out you may manage the books using a basic spreadsheet. You can enter transactions manually into the cells and organize them under different tabs. Spreadsheets can also be used to generate reports using pie charts and line graphs. An accounting software is highly recommended and you can download a free application over the internet to get you started. These applications have useful tools such as cheque writing and tracking bank accounts.
If numbers are not your strong suit and you prefer preparing delicious meals to crunch figures, then you can hire an accountant to handle the restaurants financial matters. The accountant will use the spreadsheets or software reports to create income or financial statements, calculate taxes owed and prepare tax returns at the end of the year.
As a small restaurant owner, you need to track the income and expenses of your business. You may use the cash accounting system when starting out. However, when you enter into a partnership with customers and suppliers, you may need to adopt the accrual method for an accurate view of how revenue is generated and expenses are incurred. A spreadsheet is a simple way to manage the books and you can eventually graduate to a more advanced accounting software.