Managing a restaurant or cafe involves handling numerous transactions daily. The presence of both cash and digital payments can make the process feel overwhelming. Amidst this activity, it’s easy to lose track or ask questions like, “How much did we earn today?” or “Are we profitable?”
Yet, behind the busy scenes of running a restaurant or cafe, there is a quiet but essential task: recording financial data accurately. Keeping track of daily cash flow rules in financial reporting and avoid losing insight into the financial conditions of the establishment.
In this blog, we will explore how restaurant and cafe owners can effectively maintain their bookkeeping.
What is Bookkeeping for Restaurants and Cafes
The process of bookkeeping for restaurants and cafes involves recording, organising, and managing all financial transactions related to restaurants and cafes. As the foundational step in the accounting pipeline, it helps hospitality establishments like restaurants and cafes ensure compliance with the appropriate financial reporting standards.
Hospitality Bookkeeping UK specifically is tailored to meet the unique needs of restaurants & cafes. This involves a high volume of transactions, complex VAT treatment and cash & card payments, and more.
Challenges Faced by UK Restaurants & Cafes
The challenges faced by restaurants and cafes usually revolve around a combination of labor shortages, high inflation, and frequent disruptions in cash flows during daily operations. The following section lists those challenges faced by the restaurant and cafe industry and how they tie in with maintaining accounts relievable records:
Payroll Compliance and Reporting Complexity
Usually, payroll is the largest expense category for restaurants and cafes. Restaurants and cafes need to comply with payroll and pension regulations supervised by The Pensions Regulator. Errors in payroll calculations can lead to casualties such as incorrect tax deductions, or late submissions can result in penalties.
Investing in maintaining bookkeeping allows for compliance with Pension enrolment, PAYE reporting, and RTI submissions. Moreover, shift-based wage calculations and overtime tracking need proper payroll bookkeeping systems. This is to ensure that there is no compliance risk related to compliance and to prevent disputes. Structured bookkeeping makes sure that wages, employer contributions, and tax deductions are recorded accurately and are compliant.
Inability to Keep Receipts
Failure to keep receipts can create both compliance and financial risk. It affects cash flow management, VAT recovery, supplier reconciliation, and HMRC compliance. Since the HMRC makes it mandatory for businesses to retain necessary financial documents for a minimum of six years to ensure compliance. Along with this, it can lead to missed VAT claims, increased tax bills, poor financial situation and more. This failure can be rectified through incorporation of cloud-based accounting software, allowing for receipts to be digitally uploaded instantly. Moreover, bookkeeping ensures real-time expense recording.
Mixing Business and Personal Finances
Mixing business and personal finances is pretty prevalent among small restaurant & cafe owners who may use a common bank account for business and personal finances. This can lead to confusion, tax risks, and inaccurate reporting.
Bookkeeping, when done by a professional, provides structure and separation as well as clarity with respect to a business’s finances. Bookkeeping also provides increased accuracy for the purposes of accurately reporting financial results. As a result, good bookkeeping provides a level of assurance that the business is in compliance and free from the risk of tax penalties due to errors in the coding (for example, miscoding VAT). Therefore, it is very important to keep personal finances and business finances separate so that one will provide an accurate record of the transactions.
Tax Rates & Implications for Restaurants and Cafes
The standard VAT rate for business in the UK is 20%, but it can be complex for restaurants and cafes. The VAT rate for food and non-alcoholic drinks served in restaurants and cafes is 20%. Although, there are some exceptions to it, especially when it is about takeaway items or hot food.
An example of this is when you serve food for on-premises consumption; you will charge 20% VAT. However, if you sell food for takeaway, you may not charge VAT at all, or the VAT rate may be reduced. Understanding these differences and ensuring that the restaurant is applying the appropriate rate of VAT is critical to successful operations and is the basis by which good bookkeeping practices will help expose errors prior to becoming costly.
What Can Restaurants & Cafes Expect from Bookkeeping Services?
Bookkeeping has come a long way from manual data entry to automated entry. With the introduction of Making Tax Digital by HMRC, it has become important for businesses to keep digital records. Bookkeeping ensures that the point-of-sale system is digitally linked to the accounting software being used by the restaurant or cafe.
Here is what restaurants & cafes can expect from modern hospitality bookkeeping services:
Daily Or Weekly Accurate Financial Recording
UK restaurants & cafes can expect the bookkeeping services to accurately record all sales from cash takings, EPOS systems, card machines, card machines and delivery platforms. Bookkeeping also helps in reconciling bank accounts and matching supplier invoices on a daily basis. A good bookkeeping service will also record expenses accurately, manage petty cash, and properly account for tips and service charges. This is to ensure that the financial records stay reliable and organized throughout the year.
Weekly bookkeeping is usually more appropriate for restaurants and cafes because of the high volume of transactions and tight margins.
Digitisation and Retention of Financial Records
UK restaurants & cafes can expect accurate and fully digitised financial records from the modern hospitality bookkeeping services. This means using cloud-based accounting software to record transactions in real time. It ensures that all financial data is organised and can be accessed easily.
Digital record-keeping reduces manual error, simplifies VAT submissions, and improves efficiency. It also ensures that the quarterly digital updates to HMRC are correct and submitted on time. It becomes especially critical when the turnover of the restaurant or cafe exceeds the threshold of £50,000.
Cash Flow Monitoring
Cash flow is one of the most significant tasks for restaurants and cafes. This is because the supplier’s payments, wages, and rent usually fall due before all revenue has been cleared.
The restaurants & cafes can expect cash flow forecasting, inventory management and weekly reconciliation and reporting from bookkeeping. Therefore, bookkeeping services should have regular cash-flow updates, clear visibility of liabilities in the near future, and forward-looking forecasts. This helps the owners of restaurants and cafes maintain a positive cash flow which is necessary for managing high, regular operational costs. Along with this, cash flow monitoring also helps avoid shortages, plan payments strategically, and maintain financial stability.
Conclusion
Bookkeeping for restaurants & cafes has a unique nature. Since it involves managing a high volume of transactions on a daily basis. It is necessary to maintain accurate bookkeeping to comply with the tax regulations, track daily cash flow, and maintain profit.
Any kind of mistake in maintaining accurate bookkeeping can lead to severe penalties by the HMRC, non-compliance, and more. As restaurants & cafes have to focus on strategic growth and other important tasks, outsourcing restaurant bookkeeping to service providers like AcoBloom can be a good choice.
