Restaurants are all about amazing food and unforgettable memories. Unfortunately, there’s more required to ensure a profitable, growing restaurant company. Operational and financial excellence are two of the largest unseen pillars of restaurant success and go hand-in-hand with the food cooks prepare, and diners savor. A restaurant chart of accounts is among the best ways for owners, operators, and managers to quickly and more deeply understand their finances and operations and adjust to ensure continued success.
What is a restaurant chart of accounts?
The chart of accounts is a simple, quick grouping of all accounts related to your restaurant business. Every one of your restaurant company’s transactions changes the balance of at least two accounts. Your chart of accounts includes your assets, liabilities, revenue, expenses, and equity, as well as various restaurant-specific categories that can give operators and managers an accurate picture of the business. The chart of accounts is the source of your restaurant’s financial statements, so it’s essential for getting insights into your revenue and expenses.
The power of a restaurant chart of accounts is its ability to quickly convey all of your critical performance information. It’s not a complete financial picture. It’s a detailed overview enabling you to spot any potential challenges or opportunities. Too many sub-accounts may prevent it from being useful.
At the same time, it’s essential, as a restaurant operator, that you tailor your chart of accounts to your specific needs. Generic accounting software offers the ability to create charts of accounts, but those might exclude critical information that can significantly impact your operations and finances. This is doubly important when considering the narrow margins that are commonplace across the restaurant industry.
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What’s in a restaurant chart of accounts
Different categories in your restaurant chart of accounts will be coded with four-digit numbers to help quickly identify where subcategories belong. Assets, for example, will often be coded in the 1000s, liabilities, the 2000s, equity, 3000s, and so on. As previously mentioned, the restaurant industry is an exceptional case; it’s one of only a few industries where all businesses create and sell their products in the same space and workflow. Be sure your chart includes categories like front and back-of-house salaries, various ingredient costs, and others not often found in other industries. Below, we’ll outline the categories and subcategories of charts.
Here’s where you’ll list every asset, whether they are fixed or current. For restaurants, this means checking accounts, savings accounts, food inventory, bar inventory, accounts receivable, short-term investments, and more. Given how large and vital inventory is to restaurants’ operational and financial health, it’s crucial to have a dynamic, tech-enabled inventory management system that provides accurate, real-time inventory data. Ideally, that system should be part of a more extensive Restaurant Enterprise Management system that immediately accounts for inventory on an ongoing basis.
Here’s where the bills go, where everything your restaurant owes is compiled, whether it’s for 100 locations or one place. Here’s where you’ll put all credit cards, credit lines, sales tax, payroll clearing, outstanding gift cards, and more.
Equity is often a measure of a company’s value, which is established by what remains after liabilities are subtracted from assets. This category includes various ownership interests in your business, such as any stock issued to investors.
Revenue includes every dollar that comes into the house, whether from traditional, sit-down dining, delivery apps, curbside takeaway, catering, or special events, you name it. Comps and refunds also fall under revenue. Revenue is divided according to types, such as food and beverage sales. Those categories can be further divided, for example, into food: lunch; and food: dinner. Like assets, it’s critical to have a system in place to accurately capture your revenue for your restaurant chart of accounts to be useful. The best way to do this is by implementing an end-to-end platform that integrates with your preferred point-of-sale (POS) system and any other revenue channels to ensure all data is captured quickly, accurately, and easily accessed.
Cost of Goods Sold (CoGS)
This critical restaurant metric represents the total cost of all food and beverage ingredients used in your restaurant over a certain period. As such, in a restaurant chart of accounts, the CoGS section will include the same accounts as the revenue section. It will also include your various food and beverage costs broken out into their respective categories. These could consist of produce, dairy, meat, wine, and liquor.
These categories include your fixed expenses like rent, utilities, and insurance. The expense category is also home to labor cost and, optionally, Prime Cost.
How do restaurants use charts of accounts?
While tracking everything moving in and out of your restaurant or restaurants seems to be the bulk of the work around creating a restaurant chart of accounts, it’s what you can do with an accurate chart built from a dynamic, integrated system that’s exciting. With it, you can accurately track incoming money and determine which channels yield the most significant results. Debt categories provide a simplified, high-level view of your obligations and create the opportunity to structure that debt in a way that might be more advantageous to your liquidity position. You can also easily track spending to identify whether problems like theft or waste impact the overall business or if rising prices threaten margins. Finally, it takes a dramatic load off your accounting team around tax time, enabling them to act as advisers to the business rather than strict number crunchers.
A restaurant chart of accounts will provide you and your management team the ability to ensure that all the hard work done inside the restaurant is truly paying off for the entire company. While many restaurants deliver spectacular dishes, it’s those that can see when things might be going awry that will be able to succeed and grow on a consistent, long-term basis. Restaurant charts of accounts can’t exist in isolation. Without a dedicated, all-in-one accounting, operations, and workforce platform that easily integrates with all partners and automates administrative, data-related tasks, tabulating a restaurant chart of accounts is a cumbersome task that often produces unreliable results. With the proper system, however, a restaurant chart of accounts becomes a not-so-secret weapon that can help owners, operators, and managers successfully tackle any challenge or seize any opportunity.