What You Actually Need to Know About Accounting For Your Food Business
Accounting, at its core, is a record of the flow of money and resources in and out of your business. It allows you to keep track of your financial health. This becomes increasingly important as you add more customers, increase the number of transactions, and have a larger and larger inventory to manage.
It can seem intimidating when you first get started. Really though, accounting is all about organization, setting the right habits, and cataloging everything. We’ve pulled together this quick guide to get you started.
Accounting is the act or process of keeping financial records. In practice, this means recording all of the money and resources coming in and out of your business.
Assets, Liabilities, and Owner’s Equity
Accounting tracks and organizes the movement of your cash and resources into three buckets: (1) Assets, (2) Liabilities, and (3) Owner’s Equity.
Assets are anything that is a resource owned by your company! Think about assets as what you use to accomplish your mission - cash, accounts receivable (money customers owe you), inventory, investments, etc.
Liabilities are resources that belong to others. These can be any debt or loans you may have taken on. It also includes your accounts payable (the money you owe others).
Owner’s Equity is the amount of capital you put into your business when you first started.
Your assets must equal your liabilities plus the owner’s equity. This is because every resource must belong to someone. Liabilities and owner’s equity are identifying where and who an asset belongs to. Anytime you add an asset, you also need to add who it belongs to.
Assets = Liabilities + Owner’s Equity
Let's look at an example: Your parents provide a $50,000 loan for you to buy packaging. This falls under liabilities, as a loan, but it is also cash that you can spend. It counts as an asset as well. You would record this $50,000 in liabilities (what you owe) and as an asset (cash in the bank).
Managing the Flow of Money and Resources
At Union Kitchen, we recommend using Quickbooks, an online accounting software. Through Quickbooks you can input all incoming resources, outgoing expenses, and log your liabilities. They also offer a ton of great resources to get you started. For example, you can check out their Beginner’s Guide to Cash Flow.
Quickbooks also provides three key reference materials for assessing your company’s financial health: Balance Sheets, Income Statements, and Cash Flow Statements. Let’s take a closer look:
Balance Sheet is a snapshot of your business. It includes your assets, your liabilities, and owner’s equity for one specific point in time.
Income Statements describe the movement of assets, liabilities, and owner’s equity over an extended financial period.
Cash Flow Statements outline the flow of cash in and out of your company over a specified period of time. This could be over a month, quarter, year, etc.
Together, these documents help you understand the financial health of your business. We recommend reviewing each on a monthly or quarterly basis with all the stakeholders in your business.
*Tip: These reports are only as helpful as the information you put in. Inaccurate information in, leads to inaccurate reports out.
The best way to maintain quality information is through a process called bookkeeping. Bookkeeping is the process of recording financial transactions and it can be broken up into daily, weekly, and monthly tasks.
Daily Tasks
Daily bookkeeping is all about tracking Purchase Orders. Every time you fulfill a purchase order and receive a payment, you should log it accordingly. Remember to create invoices for products you have delivered and to check your bank statements for completed transactions. This daily data describes your cash flow and determines how much money is actually available in your bank accounts.
Weekly Tasks
Weekly bookkeeping should be scheduled for the same day every week. Persistent habits lead to consistent results. Weekly tasks can include depositing checks & cash, printing and mailing checks, reviewing inventory, organizing bills, and coding all transactions so that you won’t double count your payments or your deposits.
Monthly Tasks
Some accounting tasks are not immediately time sensitive and thus can be completed on a monthly basis. As with weekly tasks, the best strategy is to choose a specific day for monthly tasks and to stick to that day consistently. Monthly tasks can include addressing your accounts payable, accounts receivable, and reconciling (comparing) your bank statements against your Quickbooks data to check for discrepancies. You may also need to pay any sales taxes that are applicable to your business.
A Quick Review
Starting a food business involves a lot of moving parts. This includes managing the financial well-being of your business through diligent bookkeeping habits. Listing your assets, indexing your liabilities, and calculating your owner’s equity will provide a clear baseline for what is happening in your business. Managing your records and monitoring your accounts via Quickbooks will provide easy access to hard data and create valuable reference materials via Balance Sheets, Income Statements, and Cash Flow Statements. Maintaining the quality of your Quickbooks information through bookkeeping ensures the accuracy of your accounts and the utility of your data. Finally, establishing and sustaining proper bookkeeping habits will help you practice healthy financial habits and set your business on the path towards stable growth and subsequent success!
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