Accounting Questions Answered: How Does It Help to Reduce Costs and Boost Profit for Restaurants?
When accounting is mentioned, a lot of people just shake their head since they see it as a hassle. You’d have to deal with a lot of numbers that give you a headache. Some see it as a difficult thing to do. However, it wouldn’t be wrong to say that accounting is like the eyes of a restaurant or café business. The numbers in your account not only tell you the income and expenses, they can tell you a lot of other details, for example, they can tell you about the appropriate pricing, which menu items sell well, the popular ingredients, how to manage your stock and so many other details.
We’ve invited Ajarn Thanai Nopphakhun, an accounting guru and Course Director of FlowAccount, to join us and teach us about how to do accounting to help save costs and boost profit, what our business be missing if we don’t do it and the first things beginners need to know about accounting to give us some ideas and guidelines so we can improve our businesses together.
- Accounting, Something Restaurant/Café Operators Need
- 5 Reasons Why Accounting Can Help You Save Costs/Boost Profit
- 5 Cautions; What Are You Missing If You Don’t Keep an Account?
- Things for Restaurant-Café Owners in the New Normal Era to Think About Regarding Accounting
Accounting, Something Restaurant/Café Operators Need
For beginner restaurant/café owners, other than building the restaurant and creating a menu, snacks and drinks, decorating the restaurant and finding chefs and baristas, what you definitely can’t overlook is accounting because if the food and drinks are the heart and the personnel are the spine of your restaurant, then, as we mentioned earlier, accounting is like your eyes allowing you to see the movement of the numbers in your restaurant. So, what are the things restaurants/cafés have to record in their accounts?
First, Ajarn Thanai explained to us about the basic accounting system that restaurant/café owners need to know. Accounting means keeping income-expense information in an organized manner. Beginners or anyone who wants to create a system for their restaurant can do their accounting as follows:
We’ll categorize restaurants as ‘ordinary’ and ‘corporate’ (according to how the restaurant is registered by the owner). Ordinary restaurants need to do the following:
- Income account for collecting income information.
- Expense account for collecting information about expenses. Categorize the items, such as food costs, rental fees, employee salary, etc.
- Stock Account: You need to keep product and ingredient information, both incoming and outgoing, in order to know the status of your stock. It’ll save you from wasting money on excessive back-up stock.
The pros of this is that not only do you know the income, expenses and calculated profit, but accounting also helps you with product pricing because it lets you know the true cost of the food and services. You can set the appropriate price for whatever profit rate you want. Moreover, you should also properly register your restaurant with the Department of Business Development.
For corporate restaurants that have properly been registered as companies, accounting is even more grueling than for ordinary restaurants since the law forces you to do the accounting. The basic things you need are as follows:
- Income-expense account. It’s the same as with ordinary restaurants, except that invoices and withholding tax certificates must be issued every time, including for marketing expenses such as hiring fees for influencers to review your restaurant, etc.
- Stock account, the same as with ordinary restaurants.
- Employee salary account.
- At the end of the year, you’ll have to submit a financial statement and pay taxes to the Revenue Department.
Furthermore, today’s restaurants/cafés have added income from delivery application services, which is considered the same kind of income as storefront income in accounting. Originally, you received cash or credit card payment and now money is transferred or paid into your bank account. It’s a different payment channel. That’s why you need to make a report that also covers details such as delivery.
5 Reasons Why Accounting Can Help You Save Costs/Boost Profit
Now that you know the basic types of accounting a restaurant needs, the reasons for which Ajarn Thanai has explained, there are five reasons why accounting can help reduce costs and boost income. If you want things to go smoothly, accounting can help.
- You Know the Food Costs
The first reason to do accounting is to inform you of the true costs of products, because when you want to set prices for your products, you need to know their cost, including the ingredient purchase prices, fees involved in the purchase of the products and who you have make deals with.
Once you’ve gathered all of the product information correctly, it lets you know the cost that goes into each menu item or service. As a result, you can set the selling prices you want. If you want to offer a promotion or discount, it wouldn’t eat into the cost to the point that it affects the restaurant’s income.
- You Know Your Stock
Another account requiring importance is the stock account, which is useful for certain
situations. For instance, you can keep a record of which menu items sell best which will let you know the amount of ingredients used in each menu item sold. It’ll also let you know the types of food you can make with your stock, leading to you ordering ingredients according to your real needs and helping your restaurant’s finances from being poured into unnecessary ingredients.
3. You Can Manage the finances
Accounting allows you to manage your finances properly since you’ll know the true income and cost categorization. It lets you know where the restaurant’s cash is, such as ingredient costs, employee salaries, etc. As a result, you’ll know which budget is too big or too small and where you should increase or decrease the funding. For example, right now there’s an economic decline, so if you have any debtors, you should try to take as much money back as possible. As for creditors, you need to try to make a deal about how you can delay your expenses and how much. Or, if you have money in the form of products, you need to hurry up and exchange them to bring cash into your restaurant.
4. You Understand Your Financial Status
From a business perspective, if you keep an account, you’ll know how to manage your finances. From another perspective, you’ll also see the numbers and how much your income is compared to your expenses and, after some calculation, how much profit is left. What’s the relationship between the profit and cash income? It’s a very common problem: You sell products and earn profit but don’t know where the cash went. If you keep an account of things, you can fix this because you’ll know where the money is leaking.
5. You know the status of your business.
Once you know your own financial status, and this is important in accounting, “Once you do it, make a future financial plan.” Let’s say you know how much income you want to increase for the next year and what’s bad for business, you can make a plan to fix those things to reduce costs and increase profit channels in the future.
5 Cautions: What Are You Missing If You Don’t Keep an Account?
- You Won’t Know the Cost
If you don’t keep an account, it’s like you’re selling with a blindfold or driving at night without turning on the headlights because you won’t be able to set the appropriate prices according to the real costs. You risk losing money. Most importantly, if you’re registered as a company, not keeping an account is also illegal.
- You Won’t Know if All the Money Has Been Collected
This is an issue for internal management because if you don’t keep an account, how can you be sure that the employees have collected the full amount or if you’re missing some money.
3. You Won’t Know Your Business’s Cash Flow: If you don’t keep an account, you can’t tell how much money is going in-out each day. Here’s a simple example: If you keep your cash in a cashier drawer, without a record you won’t know or can’t estimate how much money goes in-out or is exchanged. If you don’t know about something as small as the change at the cashier, will you know how much money is paid in or out. If you look at the big picture of the business’s finances, this point is very important.
4. Corruption Prevention: If you don’t keep an account, you naturally won’t have a tool to monitor the income-expenses, costs and stock. That means you won’t know what the accounting numbers are. An owner has to watch their own restaurant to make sure no one is cheating them. Are the employees collecting all the money they’re supposed to and are is the stock being used correctly?
- Your Business Won’t Grow: If you don’t keep an account, we can tell that you don’t have a good data management system. You won’t be able to tell the owner’s money and the restaurant’s money apart. The money will get mixed up, preventing you from knowing how much the income from sales has increased.
Things for Restaurant-Café Owners in the New Normal Era to Think about in Terms of Accounting
For amateur restaurant/café owners who have just started, accounting might seem difficult and complicated. However, the suggestions provided by Ajarn Thanai above has probably sparked some ideas and made you all give at least some importance to your restaurant’s accounting. Finally, Ajarn Thanai has given some encouragement as well as something to think about:
“When starting a business, you need to know the costs and profit and how to collect money. If you can keep your documents well, you’ll know the cost and how to collect money and your restaurant business will soon grow.”
Ajarn Thanai Nopphakhun : Accounting Guru and Course Director of FlowAccount
“Restaurants and cafés businesses are attractive and it’s tempting to invest in them because they grow easily. Therefore, when starting a business, you need to know the costs and profit and how to collect money properly. You need someone to keep the documents. That’s good accounting. Nowadays, business owners have technology to assist them, making it even more convenient. Keeping accounting data used to be a hassle because it involved a lot of paperwork. Today, some documents can be scanned and kept as electronic copies, allowing you to realize your income-expenses more easily than before. So, what I want to leave with you is this: If you can keep your documents well, you’ll know the cost and how to collect money and your restaurant business will soon grow.”