How to Use Accounting Software to Manage Your Restaurant's Cost of Goods Sold?

Posted In | Finance | Accounting Software | Restaurants, Hotels & Hospitality

The Cost of Goods Sold (COGS) is a critical metric for any business, and the restaurant industry is no exception. COGS reflects the direct costs involved in preparing the food and beverages sold to customers. The formula for calculating it includes the cost of raw materials and ingredients, but it doesn't consider indirect costs like rent, utilities, or salaries. Accurately tracking COGS can help restaurant owners optimize their menus, price their dishes appropriately, and ultimately increase their profitability. One of the most efficient ways to manage COGS is by using accounting software. Here's how to do it.

 

1. Choose the Right Accounting Software

The first step is choosing an accounting software package that best suits your restaurant's needs. These platforms come with features specifically designed for restaurants, like inventory management, sales tracking, and COGS calculation.
 

2. Set Up Your Chart of Accounts

Once you've selected your software, set up your chart of accounts. This is essentially a list of categories that you'll use to classify your financial transactions. For restaurants, this might include categories like "Food Ingredients," "Beverages," "Labor," "Rent," and "Utilities." Your COGS categories would include all the direct costs related to preparing and serving food and beverages.
 

3. Track Your Inventory

Your accounting software will likely have an inventory management feature. Use this to track the quantity and cost of your ingredients. You can set up the system to automatically subtract from your inventory as sales are made, ensuring that your records are always up-to-date. This will also help you identify when it's time to reorder supplies.
 

4. Record Your Purchases

Every time you buy new ingredients or other items that fall under your COGS categories, record the transaction in your accounting software. Be sure to include details like the date of the purchase, the quantity bought, and the price per unit.
 

5. Calculate Your COGS

At the end of each accounting period (weekly, monthly, or annually), you can calculate your COGS. Most accounting software will do this automatically based on your inventory changes and purchases.

The basic formula is:

COGS = Opening Inventory + Purchases - Closing Inventory

Opening Inventory is the value of your ingredients at the start of the accounting period, Purchases are all the ingredients bought during that period, and Closing Inventory is the value of the ingredients left at the end of the period.
 

6. Analyze Your Results

Once you have your COGS, you can use it to calculate your gross margin, which is Sales - COGS. A higher gross margin means more profitability. If your COGS is too high, you might need to look for ways to reduce your direct costs. This could include negotiating with suppliers for better prices, reducing waste in your kitchen, or adjusting your menu prices.
 

Remember, managing your restaurant's COGS effectively requires consistent tracking and analysis. With the right accounting software, you can automate much of this process, giving you more time to focus on what you do best: serving delicious food to your customers. Accounting software can provide valuable insights into your restaurant's financial health and help you make data-driven decisions to maximize profitability.