9 Accounting Mistakes That Can Hurt Your Restaurant Business

Food enthusiasts and talented cooks are not hard to find. But what is hard to find are those ambitious business owners who make the best use of their passion for hospitality and food to start their own restaurant venture. However, the majority of those efforts might go down the drain and one of the primary reasons behind the same can be insufficient knowledge about accounting processes.

A large number of restaurateurs across the globe are not seasoned accounting experts and do not have the required financial expertise to run a successful restaurant business. Therefore, the majority of restaurants are unsuccessful as a result of poor financial management of some or all aspects of restaurant accounting. Such situations are not completely hopeless. Your dream of a thriving restaurant can still come true if you ensure that all the accounting protocols are implemented properly. This article focuses on the 9 most typical restaurant accounting errors:

1) Inaccurate Analysis of Your Items

It isn’t unusual and not particularly a bad idea to get an insight into your restaurant’s success on the basis of how your competitors are performing. This is not a mandatory practice to evaluate your net profit, loss or bottom line. In general, a restaurant’s success is dependent on a lot of moving pieces. Particularly the costs that are fixed by your suppliers.

The prices of raw materials provided by the suppliers can increase or decrease in just one day. And these kinds of fluctuations in the prices are very difficult to foresee if you do not have a proper understanding of accounting protocols in the hospitality sector. Taking into consideration that restaurants generally have thin profit margins, it makes more sense to engage the services of a qualified accountant who can help you in assigning the prices to your menu items.

2) Inadequate Accounting Software

One of the biggest accounting mistakes is using improper accounting software. To put it simply, it has often been observed by people that their accounting software programs are not up to the mark. Sometimes, it may even be the case that the restaurants don’t even make use of an actual accounting system. Making use of such non-competent systems can have an immense impact on the restaurant’s overall efficiency and profits. A good accounting software will help in categorizing and tracking all the expenses and earnings while also concurrently integrating with your payroll, inventory management, and Point-of-sale systems.

3) Accounting Mistakes in Bookkeeping

The hospitality sector is one of a kind in the way that most of the earnings are made in cash. This simply cannot be a justification for lousy bookkeeping! Should there be one area wherein your restaurant cannot take the leverage of having a laid-back attitude is with regards to its record keeping. Dollars and even cents are going to add up ultimately, thus, precisely accounting for every single penny is crucial. Your bookkeeping records can help you in identifying how ideal your rates are and if any kind of modifications ought to be done as per the industry standards.

Accounting mistakes in bookkeeping

4) Problems in Accounts Payable

It is a common perception that spare time is practically non-existent to all business owners. They need to handle all the burdensome chores of paying the suppliers, going over their invoices, and drafting checks. Simultaneously, however, paying your vendors’ invoices in a timely manner is crucial to running your restaurant. Considering that they provide most of the day-to-day products required for running your eatery. What your eatery needs are a reliable and automated accounting program. Which makes sure that all the suppliers are paid by the due date in a smooth manner.

5) 4-week Accounting Period

Another exclusive facet of restaurant accounting procedures is that you need not close the books at the end of every month. Accounting for restaurants is based on a time period of four weeks. Every week in this time period begins on Monday and ends on Sunday.

There are a plenty of reasons behind following this time period for accounting and a few of them are: The outcome of comparing the P&L of a specific month of the year to the same month of the previous year would be inaccurate. For instance, June 2017 must not be compared with June 2016. Why? The number of Saturdays and Fridays in June 2017 were not the same as those in June 2016. Fridays and Saturdays are amongst the busiest days for restaurant businesses so your P&L would not match. If you follow a weekly schedule, the yearly comparison would then make some sense since you are going to have the same number of days for comparing.

6) Forgetting to Reconcile Your Accounts

Not conducting a comprehensive reconciliation of bank account and credit card statements can result in a lot of problems for the restaurant businesses. All things considered, accounting mistakes are determined with the help of reconciliations. Listed below are a few quite tangible reasons why you should reconcile from time to time:

  • You can find out if all your payments have been made.
  • Can have an insight into your per-month or weekly income and expenditures; this is going to streamline year-to-year evaluations
  • You can figure out if you are below, above or perhaps within the pre-determined financial budget
  • Also, you can view where exactly your money is going – occasionally this requires evaluation
  • You can view and forecast where existing, past and future deficits might happen
  • You can take a look at the bigger picture of the economic health of your restaurant

7) Cash-based Accounting for Your Restaurant

As a business that ought to file tax returns and produce financial reports, you have the option to make use of either the cash-based accounting or accrual accounting. Let’s understand what these terms actually mean. Cash-based accounting is performed by recording your expenses and earnings any time the physical cash transaction is done. It can either be a debit or a credit.

Accrual accounting, on the other hand, is when the entries are made into the books as they occur. Even if the payment for the same has not been made or received. With regards to the restaurant industry, expenditure needs to be assigned to the time period when actually it was incurred. This makes accrual accounting a viable option for restaurants. Also, if you adopt accrual accounting technique to manage your books, it would provide you a better and deep insight into your profit and loss scenario.

8) Inadequate Weekly Inventory

Maintaining a weekly inventory is the primary aspect of your restaurant business as it helps in calculating your cost of goods sold. A restaurant’s food prices can increase or decrease in no time. So it important that you remain abreast with these kinds of changes. Which may not be possible if the inventory is evaluated monthly. Furthermore, take into account the point that a lot of restaurant food items, as well as beverages, are perishable in nature. You can’t purchase a perishable product at the start of the month and presume it to be in a good condition by the end of the month. Which will result in huge losses. Thus, a weekly inventory is a must to keep your kitchen a lot more systematized and avoid any accounting mistakes!

9) Employing an Accountant Who is Not an Expert in Hospitality

If you work with a CPA or restaurant accounting company to manage your books, ensure that your choice carries sufficient and strong understanding of the restaurant sector. The restaurant industry is unique and every single day more changes and rules are being unveiled. The accountancy firm must have a specialized expertise in your trade. Making sure that they can present you with the best guidance when required.


Should you be concerned about the current situation of your business, don’t fret. Almost everything can be taken care of if you seek help from the appropriate people to maintain your books. You should have a clear picture of where your money is going. Also, what it is being utilized for, in order to attain success in the restaurant business.

Avneet Narang
Digital Marketing Manager of Cogneesol - Avneet lives and breathes Facebook, Twitter, LinkedIn, Instagram, Google+, YouTube, SEO, content writing and email marketing. Her main gig at Cogneesol is to help businesses increase their profits through digital marketing.
Avneet Narang

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