The basics of restaurant accounting every owner should know
Most restaurant owners did not open a restaurant to do accounting. And yet every decision — pricing, hiring, expansion, even whether to open on a Monday — comes down to numbers. Here are the eight concepts you need to know, in plain English.
1. Chart of accounts
The list of every category you track money in and out of. Restaurants have a fairly standard one: sales (food, beverage, other), CoGS (food, beverage), labor (BOH, FOH, management), controllable expenses (linens, marketing, supplies), occupancy, depreciation. Keep it simple. Twenty accounts is plenty.
2. The P&L
Profit and loss. Revenue minus all the costs, ending in net profit (or loss). Your P&L tells you whether the business is actually profitable this month. Most operators look at revenue, which tells you nothing about profitability.
3. The balance sheet
What you own (assets), what you owe (liabilities), and what is left over (equity). The balance sheet is a snapshot; the P&L is a movie. You need both.
4. Cash vs accrual
Cash accounting counts money when it moves. Accrual counts it when the sale or expense happens. For taxes, cash is usually fine. For decisions, accrual is the only one that tells the truth. Make sure your books are accrual even if your taxes are cash.
5. Prime cost
CoGS + labor. This is the number to manage above all others. If prime cost is 55% or lower, you are running a healthy restaurant. If it is above 65%, you have a problem. Tools like Finio surface this in real time.
6. Breakeven
The revenue level at which total revenue equals total costs. Below breakeven, you are losing money. Above, you are making money. The breakeven formula is fixed costs divided by (1 − variable cost %). For most restaurants, breakeven is around 60–70% of full capacity.
7. The daily flash
One report, every day, by 9am: yesterday’s revenue, covers, average check, food cost %, labor cost %, prime cost %. Read it every day. Trends become obvious. Problems surface while they are still small.
8. Cash flow is not profit
A profitable restaurant can run out of cash. A unprofitable one can be sitting on cash. They are different things. Watch the bank balance and the P&L separately. Most failures are cash failures, not profit failures.
If you can read a P&L and a daily flash, you are ahead of 80% of restaurant owners. Everything else is detail.