Restaurant is a 24-hour operation with long hours, erratic customer flow, a lot of competition and low profit. However, amidst the hustle of managing staff, suppliers and satisfying the customers, one important aspect that is usually overlooked is accounting.
Most restaurant owners often overlook the intricacies of financial record maintenance by believing that a general accounting software could be used or that it would be possible to do it themselves. Nevertheless, when the accounts for restaurants have not been properly banked, the journal entries can easily run amok, causing severe financial problems.
This blog will discuss the most typical errors of the restaurant businesses that register mistakes in their accounting and journal entries, and how to eliminate expensive errors and guarantee long-term profitability by employing specialised restaurant accountants.
Mistake #1: Not Regularly Managing Accounting Functions
The Problem:
Most of the restaurant owners can postpone the bookkeeping chores by just awaiting the next date or the month end; some can even wait up to the quarter ending.
The Impact:
- Time lapses in identifying financial red flags (e.g., cash flow deficiency, cost escalations)
- False financial shots
- Miscalculation of taxes or the missing tax deadlines
The Fix:
- Establish a weekly or bi-weekly bookkeeping schedule.
- Automate recurring journal entries (e.g., rent, subscriptions).
- Hire restaurant accountants to monitor day-to-day finances and issue timely reports.
Mistake #2: Not Using Restaurant-Specific Purchasing Software
The Problem:
Managing purchases by using Excel spreadsheets or non-restaurant software.
The Impact:
- Entry errors caused by manual inputs
- Late payments or vendor invoices
- Failure to correctly track the cost of goods sold (COGS)
The Fix:
- Install specific systems (MarketMan or SimpleOrder) used in restaurants.
- Software should be selected that is integrated with the accounting system.
- Follow purchases in real-time, which are even connected to the inventory and financial data.
Mistake #3: Improper Posting of POS Transactions and Expenses
The Problem:
Wrongly posting Point-of-Sale (POS) data, or failure to post it daily.
The Impact:
- Tips are not included in income
- Refunds and discounts left out
- Distorted sales numbers
The Fix:
- Use a POS system that integrates with accounting software (e.g., Square + Xero).
- Map each data point (sales, tips, refunds, discounts) to specific accounts.
- To prevent the accumulation of data and reconciliation errors, post the entries on daily basis.
Mistake #4: Operating Without a Budget
The Problem:
There is no planned budget laid down as a guide on spending and revenue targets.
The Impact:
- Overspending on materials or employees
- Cash flow crunches or unplanned shortages
- The inability to recognise items or services that can be profitable
The Fix:
- Make a monthly and annual budget that includes categories such as labour, food, rent, etc.
- Forecast on the basis of historical data and seasonal trends about the income and expenses.
- Actuals vs. budget should be benchmarked frequently and adjusted accordingly.
Mistake #5: Inconsistent Inventory Records
The Problem:
The inventory checks are also rare and sometimes manual.
The Impact:
- Food costs are incorrectly reported in many cases. It can either be understating or overstating food costs.
- Lack of ability to notice a theft or wastage
- Stockouts and over-ordering
The Fix:
- Carry out inventory checks once a week.
- Utilise inventory software, such as xtraCHEF or BlueCart which is integrated with the accounting.
- Record usage and losses consistently for more accurate COGS tracking.
Mistake #6: Misrecording Third-Party Delivery Sales
The Problem:
Inaccurately reporting the sales on such platforms as Uber Eats or DoorDash.
The Impact:
- Revenue being overstated because fees are not subtracted from gross sales.
- Recording net payouts leading to understated revenue.
The Fix:
- Enter the gross sales in revenue
- The platform fees should be recorded as an expense
- The gross income in the ledger of accounting, as well as the fees and net deposits, should be separated to become transparent
Mistake #7: Data Entry Errors
The Problem:
Manual transmission of transactions exposes it to more errors, such as typographical errors or wrong coding.
The Impact:
- Misleading reports
- Possibility of problems in tax filing
- Errors and time wastages in correcting compliance risks
The Fix:
- Apply tools that have pre-validations and select drop-downs in category options.
- Implement a review mechanism (e.g., have someone check entries once a week).
- Automate bank feeds, POS imports, and payroll as far as possible.
Mistake #8: Using a Generic Chart of Accounts
The Problem:
Applying a generic chart of accounts developed by use of a general business setup.
The Impact:
- Inability to analyse important measures, such as the food versus beverage margin.
- Failure in detecting high-cost zones or menu profitability
The Fix:
- Prepare a customised chart of accounts that pertains to the restaurant business.
- Distinct sources of revenues (dine-in, takeaway, catering).
- Create spending into categories like food, drink, wages, waste, power, etc.
Mistake #9: Relying on the Wrong Accounting Method
The Problem:
Several small restaurants would have adopted cash-basis accounting, where the only records that are recognised are income and expenses when cash exchanges hands.
The Impact:
- Failure to display the liabilities (e.g. unpaid bills) or receivables
- Misleading profitability
- Unsuccessful financial projection
The Fix:
- Convert to the accrual accounting method in recording income as earned and expenses as incurred.
- It gives a better financial representation.
- Hire professional restaurant accountants to help in the transition.
Mistake #10: Not Reconciling Bank and Credit Card Statements
The Problem:
Failing to reconcile your accounting ledger and bank or credit card statements.
The Impact:
- Fraud or duplicate charges may go unnoticed.
- Incorrect cash balances
- Incorrect statements of finances
The Fix:
- Conduct monthly reconciliations on the statements.
- Compare every transaction with an account in your bookkeeping system.
- Use reconciliation tools, such as QuickBooks, Xero or Sage.
Mistake #11: Neglecting Sales Tax Compliance
The Problem:
Mistake in calculating taxes, delays in filing returns, or incorrect classification of taxable goods.
The Impact:
- Penalties from tax authorities
- Chances of auditing, financial and legal risk
- Damage of reputation
The Fix:
- Use accounting programs that have automatic sales tax tracking.
- Submit the returns in time and verify the tax treatment on every category is done.
- Hire Restaurant accountants or tax advisors familiar with local laws should be consulted.
Mistake #12: Mixing Personal and Business Finances
The Problem:
Making business purchases using personal credit cards or bank accounts (or vice versa).
The Impact:
- Misunderstanding of financial statements
- Imperfect tax deductibility of expenses
- Hazard in audits
The Fix:
- Opening separate business accounts and credit cards.
- Recording owner’s drawings and investment as capital or drawings entries.
- Retain the receipts and notes on the transactions to ease clarity.
Mistake #13: Ignoring Key Performance Indicators (KPIs)
The Problem:
Failure to monitor or comprehend measures such as labour cost% , food cost% or table turnover.
The Impact:
- Poor decision-making
- Lost opportunities to decrease trash or raise profitability
The Fix:
- Track KPIs on a weekly basis or a monthly basis.
- Look at trends using a dashboard or reporting tools.
- Work with accountants to make sense of data and implement performance improvement.
Mistake #14: Trying to Do It Yourself When You Can’t
The Problem:
The restaurant owners runs the business and finances without any accounting experience.
The Impact:
- Expensive mistakes of compliance
- Skipped deductions or indefinite payments
- Wasted time which can be utilised in expanding the business
The Fix:
- Outsource your accounting to those who specialise in restaurant accounting.
- Take advantage of their knowledge and skills relating to taxation consulting, integration of software, and analysis of cash flow.
- Concentrate on the operation of your business and not on bookkeeping.
How E2E Accounting Can Help
E2E Accounting becomes your partner of choice to get proper, precise, timely, and restaurant-focused accounting services. As skilled accountants of restaurants, we know how tricky the hospitality industry can be and provide fully customised services that will cover:
- Customised chart of accounts for restaurant businesses
- POS system integration
- Inventory and purchasing software setup
- Budget creation and variance analysis
- Monthly reconciliations and KPI dashboards
- Sales tax compliance and returns
- Advisory and forecasting support
No matter whether you run a small cafe or a chain that is expanding rapidly, E2E Accounting makes sure your restaurant operations accounts are clean and adequately prepared at all times to be grown, funded, and compliance-ready.
Wrapping Up
Restaurant accounting goes beyond the bookkeeping business, and it is all about enabling more intelligent judgement, being compliant, and ensuring that your business doesn’t put its finances at risk.
These common mistakes in journal entries can be eliminated with the help of experienced restaurant accounting firms, and it is possible to make financial operations a source of competitive advantage instead of making it a pressure point.
Poor accounting should not bite into your margins. Contact E2E Accounting today and get your restaurant’s finances on the right track.
