A restaurant’s chart of accounts is the foundation for all financial recordkeeping. It’s a coded list of all of the assets, liabilities, income and expenses that flow in and out of your business. Have you ever looked at your P&L and wondered what made up each line item? Having a solid chart of accounts will help you analyze your business and help you be more profitable. Without one, it will be extremely difficult to track your income and expenses, have your taxes prepared or make financial decisions.
There are five categories in most chart of accounts. They include sections related to assets, liabilities, equity, income and expenses.
Assets – Any cash or items of value that may be converted into cash, such as inventory, equipment and furniture.
Liabilities – Money your restaurant operation owes, including debts and taxes.
Equity – The ownership interest in your business.
Revenue – The money your restaurant operation earns, including in-house food and beverage sales, takeout and delivery, catering and pop-up events and merchandise sales.
Expenses – The costs and money you spend to make and fulfill sales, including your prime costs (COGS and labor cost), controllable costs (linens, marketing, utilities, etc.) and non-controllable costs (rent, property tax, depreciation, etc.)
It’s especially important to have a good handle on your prime and controllable costs, as those typically have the most opportunity to be analyzed and reduced, thus increasing your profits. After all, what makes up most of a restaurant’s expenses? Food and labor. The non-controllable costs are harder to cut.
You want to make sure your chart of accounts has enough lines to reflect proper detail, but you also don’t want it to be so complex you can’t manage it. Most accounting packages come with a chart of accounts loaded into the software, but it’s important to make sure you are using one designed for restaurants.
If you have a good handle on your chart of accounts and use it consistently, you should understand exactly where your money is going so you can make changes right away to save more of it. Without one, you’ll probably feel like you’re flying blind!
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.