Counting Your Beans with Confidence...
A QuickBooks Primer for the Startup Restaurateur
Restaurant Resource Group
I often feel like a Pied Piper, singing the praises
of QuickBooks to every independent restaurant owner and operator that I meet. I
have good reasons for being so unabashedly supportive of this product. As a
consultant and former restaurant owner and operator who has used just about
every accounting product on the market at one time or another; I know what
I am talking about! QuickBooks is inexpensive, powerful enough to handle every
financial task that you will face, exceptionally easy to use, well known to your
accountant, and far and away the most popular small business accounting software
in the universe (this is important because you will always be able to find
someone to help you if you need support). I liked the product so much I even
wrote a book to help restaurant owners like you to take complete control of the
“business” side of their restaurant.
going to share a little secret with you. You don’t have to know much, if
anything, about accounting or bookkeeping to take control of the finances
of your restaurant. What you do need is discipline, some guidance, common
sense, and a real desire to make your restaurant successful"
Like most small businesses,
the typical restaurant owner/operator must wear lots of different hats, usually
all at the same time. Some hats fit better than others. Most likely you have
come into this venture with some experience in one particular area of the
restaurant business. Perhaps it’s from the kitchen end as a Chef or maybe it’s
from the front of the house as a Manager. As you will learn quickly (if you have
not already done so), the responsibilities of running a restaurant business are
much more demanding than of being responsible for a specific job or position
within the business. In my experience working with many restaurant startups, the
“hat” that is most “ill fitting” is that of your restaurant’s Financial Manager.
Moreover, as the saying goes: “If you can’t count it you can’t manage it”.
That’s why it’s so important to make sure that implementing a well organized and
easy to use accounting system should be one of your highest priorities. It’s
equally important to have that system in place well before you open the doors,
as once you get open you will have little or no time to focus on anything other
than getting through each day.
To get you in the right frame
of mind I’m going to share a little secret with you. You don’t have to know
much, if anything, about accounting or bookkeeping to take control of the
finances of your restaurant. What you do need is discipline, some guidance,
common sense, and a real desire to make your restaurant successful (which means
more than offering great food, service, and value to your customers). I am
living proof having never had an accounting course, or any financial training or
background prior to opening any of my restaurants!
What Version to Use?
QuickBooks has constantly
upgraded its offering with regular annual releases since 1999. The most current
release, QuickBooks 2005 is no exception. It used to be that QuickBooks had just
two products in the line, the Basic version (formerly just called QuickBooks)
and QuickBooks Pro. Now there are a variety of new product variations, called
QuickBooks Premier, QuickBooks Accountant, QuickBooks On-Line, and even the 2005
re-release of a version for Mac users. You don’t need any of these (unless of
course you are a Mac user). Just stick to QuickBooks Basic (or pay an additional
$50 for the Pro version) and you will be just fine. The main advantage to Pro is
that you can export all your financial reports to MS Excel spreadsheets, where
the data can be manipulated in ways not possible from within QuickBooks. I
should mention that QuickBooks Pro (and all “higher” editions) offer multi-user
versions that allow up to five users to access the file at the same time. I do
not often see independent restaurants that use the multi-user version, but under
some circumstances this can be a very helpful feature.
If you are now using, or have
access to, a recent version of QuickBooks there is no real need to upgrade. Just
beware that QuickBooks has a “Sunset Policy”. Under this policy only the most
current annual version of the software, plus the prior two versions, will be
supported (by support I mean live technical support and business services
relating to that version). Therefore, if you are using QuickBooks 2002 or
earlier I would highly recommend upgrading to the 2005 version so as to avoid
putting your financial data at risk.
Unlike most software
applications that can be used immediately “out of the box”, QuickBooks (this
goes for all accounting software products) requires that you create a file that
is “configured” or setup specifically for your business (restaurant, in this
case). This file should also include all your “account” balances as of the date
that you begin using it (e.g. checking account, fixed assets, vendor payables,
and year-to-date income and expenses).
QuickBooks makes this task
simple with its Easy Step Interview. The software prompts you with
step-by-step questions about your company, the way you want to set it up, and
even prompts you to enter all your beginning account balances. These questions
include the type of business that you are in with the option to create a
Chart of Accounts that QuickBooks deems is appropriate for the business that
you select. Other questions involve the collection and payment of Sales tax, use
of QuickBooks Payroll, Inventory, Class, and Item features, how you want to use
Bill payment options, and whether you will be using Cash or Accrual accounting.
Context sensitive help is always available throughout the interview to provide
the needed support to help you answer each one of these questions.
Let’s go back to the Chart of
Accounts because it is truly the “heart” of your accounting
system. It defines exactly how every financial transaction that occurs in your
restaurant can be recorded and used to help you manage your business.
Unfortunately the Chart of Accounts that QuickBooks utilizes for restaurants is
less than desirable (though I’ve got to cut them some slack here as they
maintain a database for hundred’s of business types). You should use the
Uniform System of Accounts for Restaurants
as your guide (scroll down to the Business & Finance Section).
The Uniform Systems of Accounts for Restaurants provides all restaurants with an
industry standard accounting classification system, one that not only will allow
you to make common sense of your sales and expenses, but will also permit you to
compare your restaurant’s performance against industry standards.
"The Chart of Accounts is
truly the heart of your accounting system. It defines exactly how
every financial transaction that occurs in your restaurant can be recorded
and used to help you manage your business."
If you are using the
QuickBooks Easy Step Interview to setup your company file you have two options
as it relates to the Chart of Accounts: 1) select the account list for
Restaurants that QuickBooks recommends, or 2) select the alternate option to
create no accounts at the current time. If you let QuickBooks create accounts, you can always edit the list later (though the process
will be tedious and time consuming). If you choose to have no accounts setup at
this time you have the opportunity to 1) either manually create your own accounts,
2) “import” a
more appropriate chart of accounts list from another restaurant file, a process that is simple so long as you
have such a list (you are in luck!
for a free download) or 3) "restore" a preconfigured QuickBooks company file
which has the Chart of Accounts already setup along with other features
such as Memorized Transactions for entering sales and payroll (such a file is
included with the
Restaurant Operators Complete Guide to QuickBooks)
Select a Start Date
The interview will also ask
you to select a Start Date. This is the date after which you will be
recording every financial transaction that occurs in your restaurant. If you are
a new restaurant then this choice is simple. You will start on the day that your
first financial transaction was made (most likely the day you opened your bank
account). You will record every single financial transaction from that day
If on the other hand you are
switching to QuickBooks from another program, or you have been not using any
accounting software to run the restaurant or perhaps you are transitioning your
accounting “in-house” from an outside vendor, then you have a choice to make.
The ideal situation in this case is for your Start Date to be the first day of
the new year (January 1) so that you will have complete financials for the
entire year ahead. If you are already into the new year then going back to
January 1, and recording all your transactions, may or may not be practical. In
this case start on the first day of the current month, but never mid-month, and
begin recording all your transactions from this point forward.
If you are using the Easy
Step Interview then QuickBooks will walk you through the process of entering all
the beginning account balances based on the start date that you select. This
process can also be performed at a later date either manually or by going back
to the Interview.
Entering and Paying Your Bills
Entering and paying your
restaurant’s bills represents at least 80% of the total time you will spend
using QuickBooks, and QuickBooks is designed to make this process easy. Most
restaurants have established “terms” with their vendors from Net 7 days for the
small “mom and pop” suppliers to the more typical Net 14 to Net 30 days for the
larger commercial vendors. In Massachusetts, our alcoholic beverage vendors are
on Net 60 day terms. You should therefore be entering your bills at one time and
paying them at a later date. This is called Accrual Accounting because the
expense is recognized when the product is received and not the date it is paid.
This has important implications for your Profit and Loss Statement because you
want all your business expenses to precisely match the period that the
corresponding revenue is recorded (the date that the meals are sold). If you
need to pay a bill immediately upon receipt, then simply use the Write Check
feature to record the payment (there is no need to enter the bill when you use
Entering a bill is as easy as
clicking an on-screen “icon” that reads Enter Bills. A graphic image of
a bill appears which makes the process of entering the information effortless.
QuickBooks “remembers” Vendor’s names so that when you start typing the name the
software will automatically complete it. It can even be set to remember which
account the bill should be “coded to” so that you do not have to search the
account list every time you enter a bill from the same vendor. QuickBooks makes
it easy to enter each Vendor’s “terms”, and uses this information to let you
know when each bill is due (or how many days it is overdue!)
QuickBooks Vendor reports are
also easy to access and the two that you will use most often are the Open
Balance detail (shows each un-paid bill sorted by vendor with the due date
for each and total owed) and the Vendor Balance Detail (shows the history
and running balance of bills, credits and payments chronologically for each
vendor). Once you decide who and how much you are going to pay simply click on
the Pay Bills screen icon and a list of every unpaid bill will appear,
sorted by vendor and due date. All you need to do is click on each bill you want
to pay and then select the Pay & Close button. This screen will also
indicate the running total of all the bills you select for payment to help you
keep your payments inline with available cash. Once you complete this task you
can use the software to either print your checks (recommended) or write them
manually and assign check numbers. I suggest you use a standard three-part check
(one check per sheet with two “stubs”, one stays with the check and the other
attaches to the bills that your paying to make your record keeping easy).
Sales and Deposits
QuickBooks was not really
designed for retail business (like a restaurant) that uses a POS system or cash
register to record and consolidate individual sales and receipts. Fortunately,
it is easily adapted to do just that. There are two approaches to accomplish
this task, 1) use of a QuickBooks form called a Sales Receipt, or 2)
making a General Journal Entry. The information entered is the
same whichever method you choose.
Use your POS report to
identify your daily sales totals (e.g. food, beer, wine, liquor), the tax you
collect, other transactions that result in either more or less cash being
present than your recorded sales indicate (e.g. house charges, gift certificates
sold or redeemed, discounts, complimentary meals, cash over/short etc), and
finally your cash and credit card receipts. Each of these categories should
correspond to an “account” in your Chart of Accounts, and combined they create a
single financial “entry” for each day of business (whether it be a Sales Receipt
or Journal Entry).
Some restaurants create
unique QuickBooks accounts for depositing credit card receipts, and even set
them up as Current Assets rather than as Bank accounts (different
categories on the Balance Sheet). The logic is that these payments take a few
days to be processed and deposited into your checking account, and should
therefore be technically be viewed as “Receivables” rather than bank deposits.
The balances are then transferred into the checking account when the funds are
actually deposited. I recommend that you treat credit cards as you do cash and
simply use your Checking Account for all deposits. Use your common sense to know
that when you look at you Checking Account balance you must take into account
any credit card receipts that might still be “in transit”. By the time a vendor
receives and deposits a payment based on this checking account balance the
credit cards will have surely been deposited.
Just make sure that you record your credit card receipts exactly as they will
appear on your bank statement. Visa and MC totals are always processed together,
and deposited into your bank account in a single amount for each batch. You
therefore need to record the total of the two as a single line item in your
QuickBooks sales entry. Another example involves the way in which American
Express (AMEX) processes it’s receipts. In some cases AMEX deducts the discount
fee (typically 3.5%) from the batch total and then deposits the amount “net of
the discount” into your account. If you do not make your QuickBooks entry in a
way that mirrors this you will have a hard time reconciling your bank statements
when they arrive.
Whichever method you choose,
Sales Receipt or Journal Entry, QuickBooks has a feature that will make the
process more efficient, the Memorized Transaction. It allows you to
create a “template” that you can use for each entry with all the accounts that
you will be using already set up, and ready for your daily dollar inputs. Not
only can you create a Memorized Sales Receipt or a Memorized Journal
Entry for your daily sales and deposits, but you can also create
Memorized Bills, Invoices, and even Reports for transactions
or information that you use and/or repeat on a regular basis.
Accounting for Your Payroll Expenses
Restaurant payroll, including
employer paid taxes and benefits, is currently the highest single expense
category in the restaurant industry. For this reason an accurate accounting of
your monthly payroll (assuming that you use monthly accounting periods) is
absolutely essential. The topic of restaurant payroll cannot possibly be covered
in an article like this. For now I will simply summarize the most important
issues that you need to be aware of. This will insure that you handle your
payroll recording in QuickBooks in a way that will not only provide you with
high quality accounting information, but also in a way that allows you to
pro-actively manage your restaurant’s payroll expenses.
Outsource your restaurant’s payroll
to a qualified Payroll Processing Service.
While QuickBooks does have robust features to
process payroll I strongly urge you to hire an outside vendor for this task. The
cost is very reasonable and the headaches and time that you will avoid are worth
every last nickel spent.
Create Payroll Departments to get
more detail from your payroll reports.
Instead of simply recording your wages and salaries in one or
perhaps two general categories (e.g. Gross Wages or Salaries and Hourly Wages),
create detailed payroll accounts based on the functions that each category
performs in the restaurant. At a minimum create an account for Kitchen Wages,
Front of the House Wages and Manager Wages. From there you can create
sub-accounts for more detail. Remember, what you cannot count you cannot manage!
If possible process your payroll
twice per month (not the same as bi-weekly).
Weekly or bi-weekly payroll processing will
typically result in monthly Profit and Loss statements with 28 days of payroll
expenses (with 35 or 42 days in some months), but will never match the number of
days of income or other expenses (typically 30 or 31 days). This will result in
the understating or overstating of your payroll expenses. Ask your payroll
company to process your payroll twice per month, from the 1st to the
15th and then from the 16th to either the 30th
If you already operate with weekly
or bi-weekly payroll periods, then make a monthly “accrual” entry into
QuickBooks to account for the disparity between the number of payroll days and
days in the month. For a
description of this process with detailed examples read the article located on
Use a QuickBooks Memorized Journal
Entry to record the payroll totals summarized in the Report provided by your
Payroll Service. Your payroll company
will provide you with a detailed report that summarizes the gross wages and
payroll taxes and expenses that you pay as the employer. It will also indicate
any employee deductions or advances that are made, and indicate the details as
to the disbursement of all cash based on your employee payroll checks as well as
the combined taxes that are withheld from these checks and your employer related
tax expenses. All this information can be combined into a single QuickBooks
Journal Entry that takes no more than a few minutes to make (no exaggeration!).
This process is made even easier if you create a Memorized transaction with all
the accounts setup and waiting for your dollar entries.
There are many other periodic
bookkeeping tasks that you will need to make that I cannot possibly cover in
this article. Loan payments, inventory adjustments, allocating insurance
premiums evenly during the year, creating customer invoices, paying your sales
tax, dealing with charged tips, handling employee meals, bartered services, and
the list goes on. The good news is that QuickBooks offers easy procedures for
each. In addition, QuickBooks has the easiest Bank Reconciliation
procedure I have seen in any comparable software program. This is extremely
important as paperless cash transactions are occurring with increasing
frequency, and you need to be able to have confidence in the balance of your
QuickBooks cash account.
Operators Complete Guide to QuickBooks to help you through the maze, or seek guidance from your accountant if you have
any problems getting these procedures straight. Remember, all it takes is
discipline and common sense. The effort is not only well worth it, but essential
to your long-term success!