Very few small business owners would list bookkeeping among their favorite activities in running their business. The time dedicated to it seems to take away from the core effort of the business, whether it is a restaurant or any other type of business.
But even beyond the need to file taxes, it is critical that the business owner understand their cash flow and financial position if they expect to remain profitable. For most restaurateurs, there is a minimum amount of bookkeeping they need to do in order to have that information.
The most basic information, of course, is income vs. expenses. Even though that is only one part of the accounting picture, it is the one that is universally important to everyone.
Some type of system must be used to tally up all sales, whether it is a Point-of-Sale computer system, or a calculator adding up a shoebox full of cash. And all expenses need to be tallied in one way or another, probably separated, at the very least, between “cost of goods sold” and “other expenses”.
The cost of goods sold for a restaurant represents the cost of the food and beverages, plus some of the incidentals like paper napkins or straws. The total sales minus the cost of goods sold is generally referred to as the “gross profit”.
$ sales – $ cost of goods sold = $ gross profit
This gives the owner a view of whether their food costs are in line with their food sales. Most restaurants need to keep food costs below 30% of food sales. To determine the percentage, divide the costs by the sales, and multiply by 100.
( $ cost of goods sold / $ sales ) * 100 = food cost percentage
The net profit is calculated by subtracting all the expenses from the sales. The net profit is the owner’s take.
$ sales – ($ cost of goods sold + $ other expenses) = $ net profit
$ gross profit – $ other expenses = $ net profit
But there are many additional advantages that can be found with just a small increase in the amount of information. With a well focused accounting tool, and a little effort to categorize expenses and track things like the owner’s cash in and out, a much more vivid picture of the business operation can be seen.