Good record keeping of "money in" and "money out" is the first step toward the profitable management of your restaurant. Inaccurate or irregular records makes it impossible for you to know how your business is doing and usually prevents a timely correction of any problems that may occur.

Cash Versus Accrual Accounting Methods

You can choose either a cash accounting method or an accrual accounting method for reporting the income and expenses of your restaurant. A general rule of thumb is that smaller establishments with a relatively stable, small-volume inventory would be more likely to use a cash method, while larger restaurants with greater inventory would be more likely to use the accrual method. Absentee ownership almost always demands an accrual basis. Your choice should be made after discussing the matter with your bookkeeper or accountant. Here are some of the differences between the two methods.

The Cash Method	The Accrual Method
The cash method of accounting is used by individuals and small businesses that do not have inventories.	The purpose of the accrual method of accounting is to match the income and expenses in the correct year.
All items of income received during the year are included in gross income.	All items of income are included in gross income when earned, even though they may be received in another tax year.
Usually you must deduct expenses in the tax year that you actually pay them.	You deduct business expenses when you become liable for them, whether or not you pay them in the same year. All events that set the amount of the liability must have happened, and you must be able to figure the amount of the expense with reasonable accuracy.

Manual Versus Computerized Accounting Systems

Business records can be kept in two basic ways, either manually or on a computerized system. Many systems -- such as "One-write" -- are designed for use in any retail or service establishment, while others -- such as "McBee Systems for Photographers" are designed for use in specific retail and service trades. Trade associations often provide guidelines on accounting records tailored to a particular business.

Record-keeping systems vary in both their cost and their degree of sophistication. Here are some points to consider when choosing a system for your restaurant.

Manual Systems

Manual record-keeping systems, such as the series available from the Dome Publishing Company, are designed to record inflows and outflows of money. These systems are similar to a home check book but more detailed. Manual systems are easily understandable by most people, since unlike computerized systems they require no technical expertise. They are also initially less expensive than computerized systems because they do not require any investment in computer hardware or software.

Among the least expensive and easiest to use manual systems are the Dome Simplified Monthly Bookkeeping Record #612 and Dome Simplified Weekly Bookkeeping Record #600, which contain forms sufficient for recording the results of one year of business. This record was designed by a CPA over 50 years ago and fits every type and kind of business. Like a personal checkbook, the record can be carried around and filled out after the checks have been written. While Dome handles cash basis accounting efficiently, it is not as good to use with accrual basis accounting.

Accrual basis accounting is better served with a more sophisticated manual record-keeping system known as the "One-write" system, which is among the most commonly used record keeping systems used by small businesses. "One-write" has a time-saving feature which allows three records to be posted simultaneously at one entry, reducing errors. A hot carbon strip creates the check stub as you write the check, and ledger balances in various categories are carried forward. This record-keeping system has three combinations: accounts payable, accounts payable/payroll, and accounts receivable. At approximately 20-30 cents per check, "one-write" systems are more costly than the Dome system, which cost less than 10 cents each. "One-write" systems are manufactured by a number of companies.

Computerized Systems

There are many software programs available which are designed to keep computerized records for small businesses. As with everything, you get what you pay for when it comes to record-keeping software. All of the less expensive packages have limitations and may need various "work arounds" to get them to meet individual needs. You may or may not find these adjustments acceptable. Even with the better low-end software packages, it is highly recommended that you purchase software support in every case.

At the higher end of the software market, you will find record-keeping systems that are specifically tailored to a particular industry, i.e. daycare, fast food, construction, etc. These programs offer sophisticated record-keeping at a price which can be upwards of several thousand dollars per module. Here again, your trade association can provide guidelines for selecting an appropriate software system for your type of restaurant.

One caveat to keep in mind is that all of these programs require an understanding of accounting theory as well as an accountant who is familiar with that particular software.

Low End Cost, High End Sophistication

You will generally get the best of both record-keeping software worlds by using an accountant who can often supply you with low-cost software that is "integrated" with the sophisticated accounting package used by the accounting firm. Another advantage of this type of arrangement is that while a computer company can only handle your computer questions, an accountant can answer all of your bookkeeping and accounting questions at one time, as well as dial into your computer and fix any bookkeeping or software problems you may be having.

Hiring a Professional

It is highly recommended that you hire both a competent bookkeeper and a professional accountant familiar with the restaurant industry. It is not necessary to hire an accountant to do your day-to-day bookkeeping, but your bookkeeper must have adequate experience and qualifications to handle the record keeping needs of your restaurant. If you feel that you are capable of doing your own monthly bookkeeping, it is still advisable to have an accountant review your work monthly for at least three months or so after installing the computer to ensure that you are completely competent in whatever record-keeping method you are using.

Contracting the services of a professional accountant will provide important advice and help in determining what records to keep, the most economical way of maintaining the records, techniques on how to insure against paying unnecessary taxes, and the most efficient system for cash flow management.

An accountant's advice is helpful in keeping track of inventory so that your business will always have enough on hand for customers but not more than should be kept. The accountant will also suggest methods for depreciating assets, and maintaining up-to-date balance sheets and income statements.

It may be more efficient, easier and less costly overall to contract both the bookkeeping and accounting through an accounting firm.