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In-House, Outsource, or Combination of Both: Determining the Best Way to Manage
Your Startup’s Accounting Function
Emily Durham

Your passion for accounting and financial reporting is probably not why you went into the restaurant business. Managing the numbers is not as fun as cooking and creating new dishes, talking with guests, or working within the quick and dynamic pace of our exciting industry where every day is different. It is most likely not what attracted you to our industry; however, skills in these areas are crucial to keeping you in business, so their importance cannot be overlooked. Without accurate, timely information about the financial state of your business, you cannot make sound business decisions. In fact, without collecting ongoing information about your business and finances, you may not have the opportunity to correct a problem that could have been fixed, until it is too late to recover. Keeping track of things like purchases, cash balances, paid-outs and bank transactions should be an obvious part of your daily and weekly routine; after all, we’re talking about your money.

From an analytical point of view, the best way to think about accounting and reporting is like driving a car. You look at the gauges on the dashboard to determine how you are doing and adjust from what you see depending on how fast you want to go, how far, how much fuel you have. In your car you have warning lights that go off in advance of an emergency so you can take care of a problem before it occurs. Accounting and reporting functions serve as a road map to help you get where you want to go. There are far too many operators who end up closing their doors because they did not identify a problem before it was too late.

Accounting Requires a Significant Time Commitment

From a practical standpoint, the time commitment required to complete the daily and weekly tasks that go along with all of this is often tough to fit into a busy restaurateur’s day. At some point, everyone has to consider whether they have the capacity to do it themselves, hire someone to come in and do it, or outsource some or all of the functions to an outside party. The goals will remain the same; to achieve maximum accuracy, efficiency, and value through a system that works best for you and your company.

By tracking key data on a daily and weekly basis and completing financial statements at the end of each month or period, if not sooner, you will maintain the control you need to operate most effectively and keep the proper focus on your bottom line and those things that affect it. There is no question about the need for good recordkeeping and timely accounting and reporting; the question is one of how and where to do it. The outsourcing of business processes is becoming very common for almost all types of businesses and especially the outsourcing of bookkeeping and accounting for restaurants. So how do you decide if outsourcing is right for you? When does it make sense to keep the accounting functions in-house? Perhaps a combination of the two makes the most sense for you. These are the questions we’ll consider.

First Things

The first thing we should do is establish what we are talking about when we say accounting, bookkeeping and reporting functions and processes, as these terms, and the level of work done within them by different operators, will vary. On Page 42 is a fairly comprehensive checklist of accounting, reporting and bookkeeping processes at work in restaurants, or that should be.

There are some things on this list you likely do yourself and do well, some things you may have others do, and maybe even some things you hadn’t considered doing at all. Our list doesn’t even include the multitude of various operations reports that operators should look at in their effort to best manage their businesses. These are critical gauges like product mix reports, prime cost reports, operations reports that detail metrics like average check size, table turn and staff productivity data, and so forth. Not only must there be good accounting and reporting practices and controls in place, the feedback you get through the data must be reviewed, analyzed and used and it must be done on a real-time basis for it to be useful. Perhaps the best way to look at the decision to outsource or keep in house these functions is to first determine your true capacity for getting these things done. It probably makes sense for you to do some or all of these functions yourself and then outsource those areas that can be completed more efficiently by someone else.

The Upside of Bringing It In

John Nessel, president of Restaurant Resource Group, a Boston-based firm offering financial management tools and support services to restaurants, says that operators should retain as much of the accounting function in-house as possible solely because the more you can do in house, the sooner you will have access to the information and the better you can manage your business. Nessel believes that timely data analysis is what will make or break an operator in a competitive industry working on slim margins. You have to be constantly vigilant of what is going on in your business and keep an eye on the numbers and what they tell you and that the closer you are to them the more likely your success in using the information as you should. In Nessel’s view, the more you outsource, the more you pay less attention to the information as it moves away from your daily focus. That is undoubtedly dependent on the operator and their focal points. For the chef-operator, you can envision the scenario in which they are pulled toward the back of the house on a daily basis, while maybe not as much to the back office. This type of operator must make the time to focus on the numbers and resultant decision making. Says Nessel, “How much or how little an operator outsources the accounting function is largely dependent on their capacity for bookkeeping and data analysis and their motivation to do it.” He believes that analyzing the numbers and operating data is part of an operator’s job. They should watch their business for exactly that reason; it is their business. Clearly though, if someone truly lacks the ability or willingness to perform these tasks, they should hand the job off.

Nessel assists a great many restaurant operators with the well-known accounting software QuickBooks®, whether he is helping them to set up their books and accounting systems or, as he puts it, “clean up a mess,” and for good reason. QuickBooks is the small- to mediumsize restaurant accounting software of choice. About 60 percent of about 700 operators surveyed recently by RestaurantOwner.com reported using QuickBooks for their restaurants. To put that into even more perspective, another 16.6 percent reported using none, so “do the math” as they say. Also evidenced in the survey results, 30 percent of the respondents reported that the owner prepares financial statements, 25.2 percent said they are done by outside CPAs, and 21.2 percent by an in-house bookkeeper. Managers only prepare financial statements in 3.8 percent of the cases. By contrast, 22 percent reported that managers code invoices (38.2 percent have owners serving in that role, and 22.1 percent in-house bookkeepers). Clearly, there is no one-size-fits-all solution and you will likely divide and conquer these important tasks. The list of accounting and bookkeeping functions can easily be spread among an owner and in-house employees, on-staff bookkeepers and outside bookkeepers and accounting firms. You need to decide what you can do in-house and what you cannot. For anything you decide to do in-house, you must do it correctly or you are really not saving anything by not going the outsourcing route.

Take It Outside

There are several good reasons to leave your books in the hands of an outside party. For one thing, you have a lot going on during your day that pulls you in many different directions. In most instances, the staff of outside accounting and bookkeeping firms does only that, accounting and bookkeeping. Their staff is experienced and educated in that field. If you look at it from a standpoint of core competencies, there is something attractive about farming out some or all of your accounting to accountants. They are probably more knowledgeable about accounting, more likely to get the work done more efficiently and perhaps with greater accuracy. The key is, however, that they must also be knowledgeable about restaurants. This point cannot be emphasized enough. The restaurant industry is unique, and working with people who are not intimately familiar with its inner workings and how to perform the accounting and reporting tasks that will help you manage your restaurant will not provide maximum — I will not say “any” — benefit. There are suggested formats for restaurant financial statements that allow you to understand precisely what is happening, operationally, within your restaurant. There is what’s called a Uniform System of Accounts for restaurants that everyone should use to code their invoices, record their expenses, and report their revenue. (The Restaurant Uniform System of Accounts is published by the National Restaurant Association and available for purchase at www.restaurant.org.) When you follow these guidelines, you see how your data tells a story and that story tells you how to best manage your business. Even if you retain the accounting function in house, or part of it, and use something like QuickBooks to do your books, you can and should employ these same guidelines. There are books, software, consultants like Nessel, and other resources that can help you do this.

Some other advantages of using an outsourced firm are the level of technology you can access through them that you probably could not afford on your own. Many companies poll data from POS systems that you can see on the Internet, from anywhere. This comes in handy if you travel and have multiple units and cannot get to all of them to check in. Many have other types of robust reporting systems used to provide a fast turnaround of operations and financial calculations and useful comparisons and trends based on your business history. Of great benefit are those that can provide things like industry comparisons and benchmarking. How useful would it be to get a good feel not only for how you are doing but also how you measure up to others in your market segment?

Certainly, there is a case to be made for not having the responsibility for bookkeeping employees. If you outsource your bookkeeping and accounting function, you will not usually have to worry about people calling in sick, quitting or taking the time to train anyone or pay their taxes. Depending on the extent of the outsourcing, you might also eliminate some truly timeconsuming, perhaps occasionally irksome tasks like taking vendor calls about disputed invoices or payment questions, finding out whether a check has cleared, what your outstanding balances are per payment terms with different vendors. The flip side of that is that when you have someone in your office performing bookkeeping and accounting functions you can usually rely on them to complete even more tasks, and that is a great asset when you are trying to run a restaurant. Much of the decision comes down to the level of complexity within your business and the available commensurate resources. Doing the books or bookkeeping for one unit is very different from keeping the books for 10 units with different hours, revenue and cost components. This is a decision that can only be made on a case-by-case basis but there are sometimes practical implications to help you make the decision.

Deciding on a Case-by-Case Basis

Sandy Beckman, a CPA and shareholder with Weinstein Spira & Co. in Houston, a CPA and business advisory firm with an active restaurant practice, also says that the outsourcing decision must be made on a case-by-case basis but suggests some rules of thumb based on what he has seen emerge from his many years of financial work with restaurant clients, many of whom are very high-volume companies. While Beckman’s role is typically that of outsourced CFO (chief financial officer) and strategy consultant, he has seen his share of companies go through the transition from in-house to outsource and back. As a rule, Beckman says, the size and volume of the company indicate the direction to take in outsourcing vs. keeping accounting in-house. The two things to look at, he says, are revenue volume and number of units. Beckman says that a good rule of thumb is that a restaurant can probably best handle a lot of the accounting functions in-house when under the $3-million-a-year revenue mark and that when restaurants grow beyond $3 million or $4 million and when there are multiple units achieving this level of revenue, it is probably time to outsource. Of course there are operations that earn less revenue by virtue of their concept, not their success, so another way to apply a broad rule of thumb, according to Beckman, is to think about outsourcing when systemwide sales, regardless of number of units, reach beyond $5 million. He believes that it is at that point, and oftentimes well before then, that there is a level of complexity even if only through sheer volume, that might be better left to dedicated accounting professionals. Of course, the owners and operators still must receive data back on a timely basis, in time to use it, and must take the time to use the feedback properly and truly analyze the data for good decision making.

I agree with Beckman, Nessel and many others that there are some functions that should just be done somewhere else, period. First and foremost in that department is payroll. The cost of payroll processing has become very reasonable while it remains time consuming and often tedious. I’m not sure you derive a lot of insightful benefit from doing it yourself. That might be a good area to free up from the get-go. Your local restaurant association, credit card processor, and POS vendor can all give you lots of recommendations for payroll companies. Just remember to get references.

Another job you can outsource is entering invoices to the accounting system. The important part is that they are coded correctly and that should be done by a member of the management team or anyone who really knows your inventory and operations and knows how to categorize your purchases. After that, entering them for payment is a great job for a bookkeeper that you bring in for a few hours or an outside bookkeeping firm. What functions you choose to retain and which ones you may outsource will be determined by your skills, your needs, and other factors about your business.

Whatever Your Decision, You Need Meaningful Information on Time

To end where we began, good accounting and reporting is critical to the success of your business. If you cannot devote the necessary time to work “on” your business and not just “in” your business you might ask yourself how you can be successful without anyone truly minding the store, and your money. Since there will not likely come a time when you are sitting around without anything to do, you then need to ask yourself what your abilities truly are, what capacity you have for bringing people in to help you, what tasks you can delegate to your management team and what things will be best handled by accounting professionals. Just remember, whoever does it has to do it on time, must provide meaningful information for your business and our industry, and must use it for you to truly be as successful as you can be.

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