Imagine being a restaurant owner and having to deal with one of your biggest hassles: inventory. Food items, unlike many other types of goods, are perishable. You may be tempted to overstock on some items, thinking about the better overall price and having enough stores handy for the occasional large order. Chances are that extra food is just going end up getting spoiled.
On the other hand, if you want to limit wastage by being conservative about purchases, you run the risk of running out of stock during a busy day or a large party. An incident like that could seriously damage your goodwill and even put you out of business. In the restaurant business, inventory management is an indispensable part of success.
Should you use QuickBooks Online for restaurant inventory management?
Some people argue that restaurants should not use QBO to track inventory. They recommend taking “periodic” physical inventory and using Journal Entries to manually adjust the value of Inventory, offsetting the appropriate COGS account.
However, using this system causes inventory records are not updated in real time, but only when a physical count is done, which is usually at the end of an accounting period. This means that at any given time, you cannot precisely know the quantity of items currently in the inventory.
Applying Perpetual Inventory System for More Accurate Records
On the face of it, perpetual inventory seems like the way to go, and this is the trend in modern businesses. But before you make a decision, the pros and cons of both systems need to be considered.
Two key benefits make perpetual inventory an attractive option. Firstly, it simplifies and improves record-keeping, providing you with the necessary figures when you need to draw up financial statements. Secondly, it allows you to find out accurately how much inventory you have at any given time, which helps you make decisions such as placing a purchase order when your stock of goods is running low. On the whole, a perpetual inventory system makes your business more responsive to customer needs and more dynamic. The downside is the high cost of implementation, but a large initial investment is well justified if the eventual rise in productivity and profitability are considered.
The periodic inventory has one major feature to recommend it: the ease of using it. This is why in the past, small business preferred it to perpetual inventory since they couldn’t afford the upfront cost. In this system, updating the inventory requires a manual count of the stock of goods, which may happen after a day, week, month or year, depending on the accounting practices of the business. In the meantime, there is no way to find out exactly how much inventory you have. So you avoid investing in an expensive inventory management system, in exchange for reduced accuracy which may result in lower productivity. This system is being abandoned by more and more businesses as they computerize their inventory management.
Four steps to set up QuickBooks Online restaurant inventory
- Turn-on QBO perpetual inventory management systems
(only works with QBO Plus) from the home page screen > Click the Company Gear (upper right corner) > Settings > Choose Company Settings > Sales (left side) > Products and Services > Click “Track quantity on hand” ON > Save/Done
- Create Charts of Accounts (COA) by categories, and don’t go overboard with too many details
1100: Inventory Assets
1110: Food Inventory
1120: Beverage Inventory
3000: Income accounts
3010: Food Services
3020: Beverage Services
3030: Merchandise Sales
4000: Cost of Goods Sold
4010: Food COGS
4020: Beverage COGS
4030: Restaurant Supplies
- Use the smallest Unit of Measure (UOM) to track inventories
Restaurant owners can save money by buying in bulk, for example by in cases, and sell individually for profit. However, QBO does not support Unit of Measure (UOM) conversion. It doesn’t allow user to buy in “cases” and sell by “pieces”. For example, buy 1 case and sell 4 pieces won’t work in QBO. User must use same UOM, such as buy 1 case and sell 0.25 case or buy 12 pieces and sell 4 pieces. For simplicity, use the smallest Unit of Measure (UOM).
- Create separate accounts for Shrinkage, Waste, and Theft as sub-accounts for COGS
Restaurant operators recognize that inventories can shrink as the result of breakage, theft, waste, and other production and handling errors. These operational problems with inventory require effective management processes and controls to minimize their financial impact on the restaurant.
In a restaurant business, it is advisable to take inventory as frequently as possible. This will enable you to see patterns in the consumption of goods and make decisions based on them. In particular, you can time your purchases so that you never run out of stock and – equally importantly – don’t have too much of perishables. If you have a large excess of inventory, goods may need to be disposed of due to spoilage, which is wasteful and results in unnecessary losses. A proper inventory management system can help you avoid buying too much or too little, and enhance the productivity of your restaurant business.