QuickBooks… How to Get Up and Running

Using QuickBooks to Manage Your Restaurants Finances

 or...If You Can’t Count It, You Can’t Manage It!

By John Nessel
President, 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.

"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"

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 2010 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. Well they got rid of the Basic version a few years back and there are presently a variety of new product variations, called Editions, including QuickBooks Pro, QuickBooks Premier, QuickBooks Accountant, QuickBooks On-Line Edition, and a even a version for Mac users. You don’t need any of these (unless of course you are a Mac user). Just stick to QuickBooks Pro and you will be good to go. 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 2008 or earlier I would highly recommend upgrading to the most current version so as to avoid putting your financial data at risk.

Installation and Setup

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. 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 either manually create your own accounts, “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. The best option is importing ("Restoring" is the technical term) a complete QuickBooks company file that has already configured, one that already has an appropriate Chart of Accounts (e.g. that mirrors the Uniform System of Accounts for Restaurants), and perhaps other preconfigured features appropriate for restaurant use. As a reward for getting this far in the article I will send you this file. Just email me at and let me know which year's release you are using. I will forward it to you via email. Better yet, purchase my book The Restaurant Operators Complete Guide to QuickBooks 2nd Edition and get a fully configured company file with many additional  features included. It will have you up and running in a few minutes.

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 forward.

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 this feature).

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).

Recording Daily 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, MC and Discover totals are now processed together, and deposited into your bank account in a single amount for each batch. You therefore need to record the total of these three 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.

1)  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.

2)  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! 

3)  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 or 31st.  

4)  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 my website: www.rrgconsulting.com/payroll_accrual_article  

5)  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.

Use the Restaurant 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!


John Nessel is the President of Restaurant Resource Group a management consulting firm that provides simple yet powerful financial tools and support services to restaurant owners and managers. He is also the author of The Restaurant Operators Complete Guide to QuickBooks. John can be contacted at john@rrgconsulting.com

 

 

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