Restaurant Accounting

Restaurant Accounting

Restaurant Accounting Basics: Your Bottom Line for a Thriving Business

Managing a restaurant is a fast-paced and high-pressure endeavor. In addition to making great food, you have to keep a close eye on your restaurant accounting. Knowing how much those meals cost to produce, how often you replenish inventory, and your staff costs make the difference between profitability and insolvency. Here’s a step-by-step guide to the basics of restaurant accounting and how it’s different from other industries.

Restaurant accounting

Know Your Figures: Key Terms in Restaurant Accounting

Every business owner knows you have to charge enough to cover costs and make a profit. But restaurants work a bit differently than other businesses, because of the product that they sell. Their revenue is dependent on service and a high-turnover, perishable product. To gain insight into how your restaurant is performing, it’s key to gain an understanding of these key terms:
  • Cost of Goods Sold: This is how much it costs to make your menu items. It does not take into account overhead expenses like rent or staff. Instead, it is a simple calculation of the ingredient costs for each dish.
  • Labor Costs: Your labor costs are the people power that gets the job done in your restaurant. This includes everyone from the front of house to back of house. Include salaries, benefits, and payroll taxes in your labor costs.
  • Prime Costs: The majority of your business expenses are included in prime costs. Your prime costs are your cost of goods sold and your labor costs. Experts often recommend keeping your prime costs at 65 percent or lower of your overall budget.
  • Occupancy Expenses: This is what it costs for you to maintain your space. That’s your rent or lease costs, insurance, repairs, and utilities.
  • Operating Expenses: These are everything else that you have to pay for in order to run a successful restaurant. This is your website costs, marketing, napkins, and printed menus.
  • Cost-to-Sales Ratio: This is a measure of your prime costs (cost of goods sold plus labor costs) to your revenue. If you bring in $20,000 revenue on a weekly basis and your prime costs are $12,000, then your cost-to-sales is 60 percent.

For most restaurants, it’s easier to cut back on prime costs before occupancy and operating expenses. Having these figures clearly defined can help you to assess whether you are on the right track or have to make changes.

That’s one reason why you should review your prime costs on a weekly basis. You have an opportunity to cut back, especially with reference to how busy you are. If you aren’t filling tables, you may want to order less food or reduce the number of staff shifts. Conversely, if your revenue is high and you still have tables available, you may want to increase your capacity through more ordering and more people working.

Restaurant accounting

Know Your Accounting Method

There are two accounting options for all small businesses: cash and accrual. The main difference is that in a cash-based method, you record revenue when money actually changes hands. In the accrual method, you record revenue when you invoice for payment. Most restaurants use a cash-based method, although the IRS may require you to use the accrual method once your revenue becomes large.

Here’s an example of the difference. Perhaps you have a contract to cater an event off-site. The event takes place on February 26, but you give the client seven days to pay. Under the accrual method, the revenue occurs in February because that’s when you agreed to the job and the contract for payment is in place. Under the cash method, the revenue would occur in March — or whenever you receive payment — because that is when the money actually changed hands.

Restaurant accounting

Key Statements

In addition to understanding important accounting terms, you should also know what you are looking at when your accountant gives you certain statements. Here are a few important documents you should be familiar with:
  • Cash flow: This measures the amount of cash (or cash equivalent) going through the business. You can think of it as a way of gauging how well you are managing the money that’s coming in and out of your doors.
  • Profit and loss: This is the overall picture of your restaurant finances. The P&L statement is a snapshot of how much you’re spending and how much you’re bringing in. The bottom line of this statement is, as the name suggests, either a profit or a loss.
  • Chart of accounts: This is the master sheet of all the financials to do with your business. Its main categories include your assets (like the equipment you own), liabilities (like business loans), revenue, expenses, and equity. These categories will get broken down into more detail, so you can analyze your full financial picture.
Working with your accountant, you can discern what areas of your financial well-being need attention. That insight allows you to keep going in the short term, and plan for a healthy business over the long term.
Restaurant accounting

Managing Inventory

Because inventory is the heart of your business — you serve freshly prepared food to patrons daily, after all — it’s essential to keep a close eye on your rate of turnover. You don’t want to order more ingredients than you use, but you also don’t want to disappoint customers by making menu items unavailable. Do your inventory on a weekly basis in order to calculate an accurate cost of goods sold and to ensure appropriate planning.

Partner With the Experts

Part of being a savvy business owner is knowing when it’s time to call in partners with more expertise. Honest Buck knows the ins and outs of restaurant and cafe accounting. To learn how we can help you gain visibility into your bottom line, contact us today.
Food Cost Management, Restaurant Accounting

Recipe Cost Calculator: How to Cost Out a Recipe (with Spreadsheet)

Do you want to save money, stop wasting food, and stick to your budget while still eating great?

Whether you’re trying to cook healthy meals for your family or are a restaurant owner trying to boost your profits, a recipe cost calculator can help you achieve your goals. Keep reading to learn how to track your food costs down to the portion and what you can do with that information.

Don’t forget to grab our sample recipe cost calculator spreadsheet and make a copy for yourself!

recipe costs

recipe costs vary dramatically by ingredient

Why Knowing Recipe Costs Helps at Home

What do you know about your grocery budget? How much you spend per month? How much you spend per week or trip to the grocery store? What about per meal?

You can cook a healthy, filling meal for around $2 per person if you focus on keeping costs low and about $4 if you’re a little more relaxed about what you spend. Multiply that by the number of meals (breakfast, lunch, and dinner) and days that you usually shop for. If you’re spending more each trip, is it because you’re:

  • Having food go bad before you cook it?
  • Buying ingredients in packages bigger than you need?
  • Absorbing cleaning supplies or other purchases into your grocery budget instead of tracking them separately?
  • Buying expensive snacks or processed foods?
  • Splurging on steak or lobster?

Knowing your cost per recipe or meal lets you know exactly where you can trim your budget, how much to buy when you go shopping, and when you can treat yourself if you want to.

know how to track per service food cost

Why Restaurant Owners Must Know Their Recipe Costs

If you’re cooking at home, it’s OK if you go over budget on some meals if that’s how you choose to spend your money. If you’re running a restaurant, not sticking to a budget could mean going out of business.

The average restaurant profit margin is only three to five percent. With up to half of your costs coming from food, maintaining tight control over your food costs is the key to success.

This doesn’t mean always trying to go lower, though. A good $20 dish might sell better than a bad $15 dish. What you don’t want to do is price something at $15 because you feel like that’s a good price without realizing you’re putting in $16 worth of ingredients.

Knowing your per-plate recipe costs helps you understand the minimum amount you must sell a dish for to cover your food, overhead, and profit. You then need to think about your customers’ preferences and how you want to position your restaurant in the market to decide if that’s a good price for your menu.

If it isn’t, you’ll need to adjust your recipe or skip that dish altogether.

chicken and waffles

how much does each item cost?

How to Calculate Your Recipe Costs

Calculating your recipe costs is a simple three-step process. (It may be easier to follow along if you download our free recipe cost calculator now.)

recipe cost calculator spreadsheet

use our free recipe cost calculator spreadsheet to maximize profit

1. Write Out Your Recipe

Write out your full recipe as you actually cook it. If you use a recipe book, don’t just copy it if that’s not exactly how you make it. For anything that isn’t a precise measurement, e.g., a sprinkle of seasoning or one potato, use a measuring cup or scale to get its volume or weight.

2. Figure Out Your Ingredient Costs

Next to each ingredient on your recipe, write down its cost per unit. For example, if you need two pounds of chicken and chicken is $5.99 per pound, write down $5.99 per pound. Next to that, multiply $5.99 times two for a total cost of $11.98. This makes it easy to update your recipe cost when food prices change.

Some items only come in packages bigger than you need. In these cases, you need to figure out if it’s something you can use again.

  • If it’s something that lasts a long time, like cooking oil, you can get out your calculator to figure out the cost per ounce or tablespoon. Use that number for your ingredient cost.
  • If it’s something you end up throwing away, like the other half of a container of broth, use the cost of the entire container as the total cost for that ingredient.

3. Add it Up

Once you have all of your ingredient costs, add them all up for your total recipe cost. Divide by the number of servings to get the per-serving cost.

Remember to use the number of servings you actually use. Don’t use the number from the original recipe if that’s not how much you serve.

Additional Steps for Restaurants

Restaurants need to add three more numbers to their per-serving cost to get their total costs and needed selling price.


Overhead is all of your other expenses. This includes things like rent, wages, and utilities. There are two ways to figure out overhead.

  • If most of your items are priced similarly, you can divide your total monthly overhead by the total meals you serve each month. Add that flat amount to each serving’s cost.
  • Otherwise, you can use a ratio. Look at your profit-and-loss statements for the last year. If you spend an average of $5 on overhead for every $10 in food costs, your ratio is 0.5. For each serving, multiply your ingredient costs times 0.5 to get your overhead cost.
restaurant overhead

add in worker costs to overhead


Waste is typically unavoidable in a restaurant setting. Some things may need to be precooked and thrown away at the end of the night if not ordered. Other things may have random slowdowns in sales and go bad before you can sell them.

To calculate waste, you need to track exactly how much you throw away. If you only serve 90 percent of what you buy, you should add another ten percent of ingredient costs to account for waste.

There are three different ways you can calculate your waste.

  • Dividing the value of all the food you threw away by your total food purchasing costs. This is the simplest method.
  • Dividing the number of times you sold a specific dish by the number of times you made it. This method is good for restaurants that precook their meals and throw away unsold portions.
  • Dividing the number of times you sold a specific dish by the number you could have sold with the amount of ingredients you bought to make that dish. This is the most accurate method but gets complicated when you use the same ingredients for multiple dishes.

If you use the third method, make sure you’re only tracking ingredients that went into that dish or were thrown away. If you bought enough ingredients to make 100 of the dish, used some of the ingredients to make another dish, and only had enough ingredients left to make 80 of the original dish, divide by 80 not by 100.


Now that you have all of your food costs, overhead, and waste, you need to add a profit. To do so, multiply your total costs by your desired profit margin.

This might be the average five percent, or you can go higher if you think your customers will pay it. If you want, you can vary your margin by dish based on how popular it is or to round up to a number that looks good on your menu.

Extra Credit: Prime Costs

After calculating your recipe cost and profit you can take an additional step and calculate your restaurant’s prime cost.   Prime cost provides a helpful metric to the overall management of your restaurant.    Combine with recipe costs and profitability, prime cost can illuminate a profitable path forward for your restaurant.

Use Your Recipe Costs for Smart Buying

Once you have your recipe costs, buying food for home or your restaurant becomes a breeze.

  1. Figure out how much of each recipe you want to make.
  2. Add all of those ingredients to your shopping list or food order guide with the cost you’re expecting to pay (from your cost calculator).
  3. Sort your shopping list by the total cost (not unit cost) of each ingredient.
  4. Start at the top of your list and look for stores or vendors with specials on those items. As you move down your list towards items that make up a smaller portion of your costs, it may not be worth the extra time, gas, or shipping costs to keep looking for a better price.
  5. If you can’t find a price at or below your expected cost, do another cost calculation with the price that you found. If you’re shopping at home, does the new cost work for your budget, and is it worth it? If you’re shopping for your restaurant, is it time to raise prices or change your menu?
  6. Buy exactly what you need. Hopefully, you can order in units that match your shopping list. If you can’t, make sure you plan for how to use the extra amount or that you’ve included the cost of waste in your budget.

shop intelligently with recipe cost data

Get Started With Our Recipe Cost Calculator

Does recipe cost calculation sound like a smart idea but maybe a little complicated? Our recipe cost calculator makes it simple. All you need to do is fill in the blanks. Download it now to get started.

Are you a restaurant owner that wants to take even more control over your costs? Sourcery tracks your spending and price changes and sends alerts when they exceed your chosen limits. This lets you easily know when to update your recipe cost calculator and when you need to ask your vendors why prices have changed. All you need to do is email your invoices, and Sourcery automates the rest.

Restaurant Accounting

10-15 Ways to Improve Your Accounts Payable Process

If you are a restaurant manager or owner, you may find yourself playing an almost never-ending game of catch-up. While attending to the stress related to ensuring your guests have a positive experience and generating superior satisfaction, you also have to handle accounts payable issues. This includes all the problems that can occur at the backend of your restaurant, such as inventory issues, missing payments from your vendors, duplicate invoices and more.

The good news is, there are some ways you can improve your restaurant accounting processes. Use the tips here to make sure your accounts payable are handled and that they run on auto-pilot.

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Restaurant Accounting

5 Easy Invoice Processing Steps with AP Automation

Your accounts payable process is fundamental to the smooth functioning of your restaurant. After all, without it you can’t pay the bills or keep the supplies coming in. If your eatery is like most, you have regular food orders and must maintain positive relationships with your vendors. That isn’t always easy when your already-busy location has to ruffle through piles of paperwork to get the bills processed in a timely and accurate manner.

There’s a way to solve this issue: automation. With the right system in place, you can focus on what’s really important in your business while satisfying your accounting needs. Often, all it takes is a few tweaks to your existing procedures as well as the implementation of new software that will make things easier and give you more control over the financial health of your eatery. Here are the 5 easy invoice processing steps:

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Restaurant Accounting

Benefits of Moving From Paper Invoices to AP Automation

When you run a restaurant, you may get so caught up in the day-to-day tasks at the front. You neglect all the paperwork and other processes that have to be handled at the back office. This can lead to a wide array of issues, from inaccurate invoicing, improper supplies, late payments and more. If this is combined with a manual accounting process, you may find your entire restaurant in disarray after just a few months.

Today, thanks to innovative technology, there are few things that can’t be done online and automatically. Unfortunately, if you are one of the 58 percent of businesses still handling accounting and invoicing manually, you are likely wasting time and losing profits.

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Restaurant Accounting

How to Manage Accounts Payable Effectively

Running a restaurant involves quite a few moving parts. While the customer is often the focus for many restaurant owners, there are situations when it’s the back office that is holding you back from growing.

Having the best accounts payable management processes in place can help ensure that suppliers and creditors are always paid in a timely manner and that you don’t lose time trying to fix mistakes. Also, when you begin using the right accounts payment system in your restaurant, it will help free up the capital on your balance sheet, opening up an array of new opportunities. Another benefit of a quality accounts payable system for your restaurant is that you can avoid expensive mistakes. These take both resources and time to fix, which may divert your staff from other, more important tasks.

Additionally, if your payments are delayed to your suppliers, then it can result in missed food or drink shipments, delayed vendor payments for linens and cleaning, and more. All of this can negatively affect your restaurant business, but it can be avoided by utilizing the right accounts payable solution.

With the right accounts payable management system and procedures in place for your restaurant, you can even reach higher levels of success.

There are several ways that you can begin to improve your accounts payable management, such as:

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Restaurant Accounting

How Does Paperless Accounts Payable Work?

As a restaurant owner, you can feel confident that things are going to continue to change and evolve. It is your job to adapt to these changes to ensure your restaurant can continue being successful.

For many years, owners and managers of restaurants didn’t use much technology. In fact, the typical desk in restaurant offices was full of notes, binders, invoices and piles and piles of other paperwork that needed to be reconciled. The only marketing outreach even considered was newspaper and radio ads in the local area. Technology was extremely expensive at this time and it required training, which was two items that most restaurant owners were short on.

Even today, you don’t have much time to sit around and contemplate growth. As a restaurant owner, you know things are always moving. As a result, it is best to eliminate those outdated manual processes and start using something more efficient and effective in your accounting processes – paperless AP automation.

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Restaurant Accounting

Accounts Payable Invoice Processing For Restaurants

As a restaurant manager, you are likely playing a seemingly never-ending game of catch-up. In addition to trying to provide a quality experience and ensuring guest satisfaction, you also have to deal with issues that usually occur at the worst possible times – such as missing a payment to a liquor or food vendor, inaccurate food costs, duplicate invoices, inventory problems and more.

If you are part of the management team (or you are the management team) at a restaurant, especially chains that have several locations, you may be searching for a simpler solution. After all, the process of handling all the accounts payable invoice processing can be tedious and daunting at the least.

Learn more about this process and why it may be time to think about automation solutions, like the ones offered by Sourcery, here.

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Restaurant Accounting

Accounting Tips For Restaurants

Restaurant accounting is a unique beast. You can be a huge success in the restaurant business with decades of experience in all the positions from head chef to general manager, however, you still may not be an expert when it comes to restaurant accounting processes. Where do you start? Do you know what a profit and loss statement looks?

Choose an Option for Keeping Your Records

You have to first figure out how you are going to keep your records. In most cases, this is based on your personal preferences and budget. There are several options to consider, including the following:

  • Paper ledger: If you have a lower volume of business, and you aren’t exactly comfortable with technology, working on paper is a straightforward option. You can utilize a basic ledger book; just make sure to carbon paper everything you do. The downside is that this method is extremely at risk of human error. This is one of the lowest cost options, however, when you provide these records to your accountant for taxes, they will likely charge more than if you used a restaurant-specific software.
  • Spreadsheet: Another fairly simple option is a spreadsheet. Once created, you can use this to export your information to your accountant.
  • Small-business accounting software: You can find many software options (discussed below) to help you keep your records.
  • Restaurant-specific programs: There are software programs specifically for restaurants that offer features such as point of sale and ordering and inventory management. This option is more expensive initially but makes your record keeping easier and less time-consuming.

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