Restaurant Month-End Closing Procedures: A Step-by-Step Guide for SMBs

Managing a successful restaurant isn’t all just about what’s in the kitchen. Every month, restaurateurs have to go back to the past month’s financial activity to record all of them. To do that, they must know restaurant month-end closing procedures.

As the fancy term suggests, month-end closing is a regular practice of recording financial reports from the previous month. Small and medium-sized businesses (SMBs) like restaurants need to do this to make strategic decisions based on reports.

However, this practice could take restaurants a few days to almost two weeks. Hence, it is important to learn about how to create the most efficient month-end for restaurants to save some time.

Why Restaurant Month-End Closing Procedures Matter 

This accounting process allows restaurateurs to review transactions, reconcile accounts, record vendor bills, and prepare financial statements from their SMB. With this in mind, month-end closing matters for restaurants because of these benefits:

• Restaurants can have more accurate financial information to plan business decisions. Restaurants can prevent financial risks by planning in the right direction using up-to-date financial information. 
• Easy access to learn about the restaurant’s financial health. Having solid information about financial data can ensure confidence amongst restaurant investors, maintaining their trust.
• Identifying rooms for improving restaurants’ weakest area from the financial perspective. It gives an opportunity to search for any rooms for improvement, maximizing profit and minimizing waste of resources.

Step-by-Step Restaurant Month-End Closing Procedures

Since it does matter, restaurateurs should get an SMB restaurant financial close checklist to record their restaurant’s past month’s financial activities. Here’s a comprehensive guide to having a month-end checklist:

Finalize Sales & Reconcile Daily Deposits

The first step for restaurant accounting is to generate a report of the previous month’s sales. This can be done by gathering all the sales revenue, then categorizing it to know how much income comes from which type of sales.

After finalizing them, verify the accuracy of overall sales—known as sales reconciliation—by matching financial records with the external documents. This is to ensure restaurateurs don’t make an error while making a financial statement. 

Record All Vendor Bills

Since restaurants rely on vendors to provide supplies, recording vendor bills needs to be included in month-end closing. Recording them will require each vendor’s invoice, which will have the invoice date, due date, number references, and purchased supplies.

When it comes to recording vendor bills, restaurateurs need to ensure the accounts payable are recorded in the correct month. This is known as account payable (AP) cut-off, which prevents delaying payment to vendors.

Count and Value Inventory

The next step of making an efficient month-end for restaurants is calculating the value of inventory. To do this, restaurateurs need to verify the quantity of the items in inventory and then determine the value of each item.

This is important for calculating Cost of Goods Sold (COGS), where its formula is Beginning Inventory + Purchases (during the month) - Ending Inventory. Simply put, counting and valuing inventory is required to have an accurate month-end closing report.

Accrue Payroll, Tips, and Taxes

Employees matter a lot in SMB restaurants, so their payrolls need to be included in month-end closing procedures. Restaurateurs need to be aware of how much they still owe them by the end of that month.

Accrued payroll involves their wages, bonuses, tips, and employment-related taxes. All of these have to be included in an SMB restaurant financial close checklist.

Reconcile Bank & Merchant Accounts

Besides reconciling sales, bank and merchant accounts need to be reconciled as well. Here’s a reason why verifying transactions recorded in the restaurant’s financial reports with records from bank and merchant accounts is important:

• For bank accounts, restaurateurs can make sure withdrawals, deposits, and balances match with the restaurant’s records.
• For merchant accounts, restaurateurs can make sure every transferred payment matches with the records as well.

Post Adjusting Journal Entries

After all of that, the next step would be post adjusting journal entries. Typically, restaurants need to post these types of adjusting journal entries to the general ledger:

• Prepaid expenses, which cover payments made for items that had not yet been received.
• Accruals, which cover expenses and revenues already incurred but not paid yet.
• Depreciations, which cover tangible assets like equipment and vehicles being used for running the restaurant.

Review Key Expense Accounts

With the restaurant month-end closing procedures almost done, it’s a good time to review key expense accounts in the checklist. This needs to be done so restaurateurs can also identify areas where its costs can still be optimized.

Expense accounts include invoices from vendors, operating expenses, payrolls, insurance, and anything related to expenses. Organize these well into subcategories for easier access to specific data for financial reports.

Run Preliminary P&L and Balance Sheet

Now, the final step is running a preliminary P&L and balance sheet for the restaurant's financial statement. Reminder that P&L needs to include sales, operating income/expenses, income before tax, and net income.

Meanwhile, the latter includes assets, liabilities, and equity. Finally, these financial statements can be used to be shown to the restaurant’s investors or as a basis for next month’s new business strategies.

Using Technology to Simplify Restaurant Month-End Closing Procedures

The step-by-step guide explained above might still seem complex for new SMBs, which leaves us with the question: is there a simple way to do the procedures? Ideally, using these tools can help get an efficient month-end restaurant closing:

• POS (Point-of-Sale) & Accounting Software integration. Leveraging this software can eliminate manual data entry, create accurate restaurant P&L reporting, and gain insight into restaurant’s financial performance.
• Inventory & automation tools. These tools can help automate some tasks required for month-end closing procedures, especially inventory counting.

Common Month-End Mistakes Restaurants Should Avoid

Given the complexity of month-end closing procedures, it is natural that mistakes may happen at some point. As such, restaurateurs should avoid these basic common mistakes:

• Not tracking Cost of Goods Sold. This can cause errors while reporting financial statements and heavily affect business decisions.
• Not reconciling bank and merchant accounts. This can leave some inaccuracies undetected, giving rise to major problems like money seemingly missing or payments that have yet to be paid to vendors. 
• Not using a consistent accounting schedule like a 4-week accounting period. This can cause some inaccurate reports of the week that don't last for 7 days.

Conclusion

Month-end closing procedures help shape the restaurant's financial success. It is now even simpler to do thanks to accounting software and automation tools that can be integrated into the restaurant’s accounting system.

However, restaurants can also opt in for Global Virtuoso’s accounting outsourcing service to help process month-end closing. Reach us today for hassle-free and efficient restaurant month-end closing procedures!