Restaurant Accounting Basics for First-Time Owners

Overview

Owning a restaurant usually starts with food and people, not numbers. But very quickly, most owners run into money questions -

- "Why is my bank balance low when sales look good?"
- "Where is all the cash going?"
- "Why does it feel like I'm busy but not making real profit?"

The truth is, guessing is stressful. Without a simple accounting system, it's hard to know if your restaurant is actually healthy or just getting by. Many restaurants close not because the food is bad, but because the owner didn't have a clear picture of costs, profit, and cash flow.

Simple, clear numbers help you see problems early - like rising food costs or labor getting too high - so you can fix them before they turn into emergencies.

Key Accounting Terms for Restaurant Owners

Before you worry about reports or software, it helps to understand a few basic words. Once these click, everything else feels less confusing.

1. Revenue - This is the total money your restaurant brings in from sales. Think of it as all the money guests pay you before any costs are taken out. You can track revenue by type- dine-in, delivery, catering, alcohol, etc.
2. Expenses - These are the costs of running your restaurant. Food, beverages, labor, rent, utilities, supplies, and software all count as expenses. When you subtract expenses from revenue, you get profit (or loss).
3. Assets - These are things your business owns that have value- cash in the bank, equipment, furniture, maybe a company vehicle, and inventory (food and beverage on hand).
4. Liabilities - These are what your business owes- loans, credit card balances, unpaid invoices to vendors, and taxes you haven't paid yet.
5. Equity - This is the owner's stake in the business. It's basically what would be left for you if you sold everything and paid off all debts.

Cash vs. Accrual Accounting -

1. Cash basis - You record things when cash moves. Guest pays today, you record revenue today. You pay a vendor today, you record an expense today.
2. Accrual basis - You record revenue when it's earned and expenses when they happen, even if the cash moves later.

Three Core Reports You'll Hear About -

1. Profit & Loss (P&L) - Shows revenue, expenses, and profit over a period.
2. Balance Sheet - Shows assets, liabilities, and equity at a point in time.
3. Cash Flow Statement - Shows how cash comes in and goes out.

You don't need to memorize every rule. Just knowing these terms will help you hold better conversations with your bookkeeper and understand what your software is telling you.

Setting Up Your Chart of Accounts

Your chart of accounts is simply a list of all the "buckets" where you put your money in the books. Every sale and every expense will land in one of these buckets. If this list is messy, your reports will be messy. If it's clear, you can quickly see what's working and what's not.

Think of it like organizing your kitchen. If you throw everything into one drawer, you waste time digging. If you have clear sections - knives here, pans there - you move faster. Your chart of accounts does the same thing for your money.

Most restaurant charts of accounts follow a similar structure

1. Sales (Revenue) -

- Food Sales
- Beverage Sales (Non-Alcohol)
- Alcohol Sales
- Delivery/Online Sales
- Catering or Events

2. Cost of Goods Sold (COGS) -

- Food Cost
- Beverage Cost
- Alcohol Cost
- Packaging/To-Go Supplies

3. Labor Costs -

- FOH Wages
- BOH Wages
- Payroll Taxes
- Benefits

4. Operating Expenses (Overhead) -

- Rent
- Utilities
- Repairs & Maintenance
- Marketing
- Licenses & Permits
- Insurance
- Software & Subscriptions

5. Other Income/Expenses -

- Interest Expense
- Loan Payments (principal vs. interest tracked properly)

Start simple. You don't need dozens of small categories like "Toothpicks" or "Soy Sauce." Group items in a way that helps you spot big trends- food, labor, overhead. Too many accounts create noise; too few hide problems.

Once you choose your chart of accounts, stick with it. Consistency over time is what makes your reports powerful and lets you compare this month to last month or this year to last year.

Tracking Income

Sales are the starting point for all your numbers. If sales aren't tracked cleanly, every report after that will be off. The good news - with a POS system and a simple routine, you can keep this under control without spending hours in spreadsheets.

First, break your revenue into clear categories. Common ones are -

- Dine-in food sales
- Delivery/online food sales
- Alcohol sales
- Non-alcohol beverage sales
- Catering or events

Why split it up? Because not all sales are equal. Alcohol often has higher margins than food. Delivery might have higher fees. Seeing sales by category helps you know what's really driving profit, not just total revenue.
Every day, your POS should give you a daily sales report. This usually includes -

- Total sales
- Sales by category
- Discounts and comps
- Sales tax
- Tips collected

Create a daily habit -

1. Run the POS end-of-day report.
2. Compare total sales to the amount actually deposited or in your cash drawer.
3. Check that credit card batches match what the processor shows.

This is called reconciling sales, and it's how you catch problems early - like missed voids, incorrect discounts, or deposits that never landed.

Also, try to separate sales tax from your revenue. Sales tax is money you collect for the government, not income. Your chart of accounts should have a separate liability account for sales tax payable.

Over time, look at your weekly and monthly sales trends. Are dine-in sales dropping while delivery rises? Are alcohol sales growing? These patterns help you adjust menu pricing, staffing, and marketing. Clean, consistent sales tracking turns your POS data into real insight instead of just a long report you ignore.

Tracking Expenses

If sales are the "front door" of your numbers, expenses are the "back door" where money quietly slips out. Your goal is not to squeeze every penny, but to know where your money is going and whether the levels are healthy.

Start with the big three -

1. Food and Beverage Costs (COGS)
These are the direct costs of what you sell - ingredients, beverages, and packaging. Many restaurants aim for -

Food cost - about 25-35% of food sales
Beverage cost - about 18-25% of beverage sales

To track this, you need -

- Purchases from vendors by category (food, alcohol, non-alcohol)
- Regular inventory counts (at least monthly, ideally weekly)
- Food cost % = (Beginning Inventory + Purchases - Ending Inventory) / Food Sales.

2. Labor Costs
Labor is usually your other major cost besides food. This includes -

- Wages for FOH and BOH
- Overtime
- Payroll taxes
- Benefits (if any)

Many restaurants try to keep total labor around 25-35% of sales. Look at labor weekly, not just monthly, so you can fix problems quickly (over-scheduling, too much overtime, etc.).

3. Overhead (Operating Expenses)
These are the costs that keep the doors open -

- Rent and common area fees
- Utilities (gas, electric, water, internet)
- Repairs and maintenance
- Marketing
- Insurance, licenses, and software

You don't need to check every line item every day. Instead, focus on percentages of sales - food cost %, labor %, and total operating expenses %. When one jumps higher than normal, that's your signal to dig in. A simple monthly routine - review vendor bills, check labor vs. sales, scan overhead - will keep you in control without drowning in details.

Reading Your Profit & Loss Statement

Your Profit & Loss statement (P&L) is simply a report that shows whether you made money or lost money over a period of time. It usually covers a month, quarter, or year. Think of it as a scorecard for how your restaurant performed.

Most P&Ls follow this structure -

1. Sales (Revenue) - This is all the money your restaurant brought in. It may be broken into food, beverage, alcohol, delivery, and catering.
2. Cost of Goods Sold (COGS) - This is what it cost you to produce what you sold- food, beverages, packaging.
3. Gross Profit -

- Gross Profit = Sales COGS
- Gross Profit % = Gross Profit / Sales

This shows how much is left after paying for ingredients and drinks.
4. Labor Cost -This includes wages, payroll taxes, and benefits. Sometimes it's shown as a single line, sometimes split into FOH and BOH.
5. Operating Expenses (Overhead) - Rent, utilities, repairs, marketing, insurance, licenses, software, and other ongoing costs.
6. Operating Profit -
Operating Profit = Gross Profit - Labor - Operating Expenses

This shows what your core restaurant operations are earning.
7. Other Income/Expenses and Net Profit - Here you'll see things like interest, one-time fees, or other items.

Net Profit = Operating Profit Other Expenses

This is the "bottom line."

When you review your P&L, don't get lost in every line right away. Start with -

1. Sales trend - Up, down, or flat vs. last month?
2. Food cost % and beverage cost % - Are they within your target range?
3. Labor % - Did it spike during a slow month or stay steady?
4. Net profit - Are you actually making money after all costs?

Look for red flags like rising food cost %, labor that climbs faster than sales, or shrinking gross profit %. Review your P&L at least monthly, and ideally compare it to both last month and the same month last year. Over time, you'll see patterns that help you make better calls on pricing, staffing, and menu changes.

Cash Flow and Taxes

You can show a profit on paper and still feel broke in real life. That gap is called cash flow - the timing of when money comes in and when it goes out. Many restaurant owners feel constant pressure not because the business is failing, but because cash is badly timed.

Think about your big cash hits -

- Rent is due once a month
- Payroll hits every week or every two weeks
- Vendors want payment on their terms
- Taxes come on a fixed schedule whether you're ready or not

Now think about your cash coming in -

- Sales arrive daily
- Credit card deposits may lag by a day or two
- Slow weeks still bring the same fixed bills

To manage this, build a simple cash flow habit -

1. List your fixed monthly costs (rent, insurance, software).
2. List your payroll dates and estimated amounts.
3. Review vendor terms (Net 7, Net 15, Net 30) and plan payments.
4. Look ahead 4-6 weeks and see where cash might get tight.

On the tax side, there are three main areas to track -

1. Sales tax - Money you collect from guests that you must send to the state. It is not your income. Keep it in a separate account if possible.
2. Payroll taxes - Taken from paychecks and owed on top of wages. Your payroll provider can help, but you still need to make sure it's funded.
3. Income tax - Based on your profit. Staying organized all year makes this much less painful.

A basic monthly checklist helps you stay out of trouble -

- Reconcile bank accounts
- Review sales tax collected vs. owed
- Confirm payroll taxes were filed and paid
- Check upcoming rent, loan, and vendor payments

You don't have to love this work, but a simple, steady routine will protect your restaurant from painful surprises and last-minute scrambles.

A Simple Accounting Routine for First-Time Owners

You don't need a complicated system to stay on top of your numbers. What you need is a simple routine that you repeat every day, week, and month. Think of it like your prep lists - small, regular tasks that prevent chaos later.

Daily Tasks (10-15 minutes)

1. Run your POS end-of-day report - Check total sales, sales by category, discounts, voids, and tips.
2. Compare sales to deposits and cash - Make sure what the POS shows matches what's in the drawer and what's being sent to the bank.
3. Log any unusual items - Big comps, refunds, or voids - make a quick note so you remember later.

Weekly Tasks (30-60 minutes)

1. Review labor vs. sales - Look at total labor % for the week. Was it in your target range?
2. Check vendor invoices - Make sure invoices match deliveries and are coded to the right accounts (food, beverage, supplies).
3. Do a quick inventory check on key items - Proteins, high-cost items, kegs, wine - anything that can swing your food or beverage cost.

Monthly Tasks (1-2 hours with your bookkeeper or software)

1. Close the month and review your P&L - Look at sales, food cost %, labor %, and net profit.
2. Compare to last month and the same month last year - Note any major changes and ask "why."
3. Check cash flow and big bills coming up - Rent, taxes, loan payments, large vendor balances.

What to Do Yourself vs. Delegate

1. You - Review reports, approve major spending, and make decisions based on the numbers.
2. Bookkeeper/CPA - Data entry, reconciliations, tax filings, detailed setup in your accounting software.

You don't have to be perfect. If you follow this routine most of the time, you'll know what's happening in your business, catch problems early, and make calmer, smarter decisions for your restaurant.