A good amount of restaurant owners and managers don’t come from strong financial backgrounds. Maybe you started off cooking. Maybe you’re more about the bigger picture brand concept. Maybe you’re all about interpersonal employee communication.
But even if you come into the job without a lot of accounting experience, learning how to handle your finances will be a big part of making the restaurant successful. This is where understanding GAAP can come in handy.
Standing for “Generally Accepted Accounting Principles,” GAAP is meant to be a standard framework for financial account guidelines. In other words, these are accounting standards that businesses should be following to ensure their financial statements are prepared correctly.
The term was first used in the 1930s after faulty financial reporting helped push America into the Great Depression. These principles became regulated so that all American businesses are held to the same accounting standard.
Many states have specific on-the-book requirements for GAAP compliance. Public companies are required by federal law to comply. But even if you aren’t legally required to, being GAAP compliant is still important for your restaurant — both when it comes to preparing for your taxes and having a well organized bookkeeping system all year round.
GAAP also creates a consistency in format for businesses to follow if they’re looking to attract investors. If you’re courting additional investors for your already established restaurant, they’ll be wanting to see your documentation. Everything must be in order if you want that funding. Ultimately, GAAP is there to help you navigate the financial aspects of your business, even if you don’t come from an accountant background.
There are a few focuses when it comes to GAAP:
- Recognizing: crucial items like liabilities, revenue, assets, and expenses should be easily recognized in your various financial statements
- Measuring: the specific amounts need to be reported for each part of your statements.
- Presenting: subtotals and totals need to be properly displayed and line items should be aggregated clearly.
- Disclosing: the most important information for the users should be highlighted in easy to understand terms. Doing this can make it easier for you to explain items and supplement your numbers.
While this seems simple, the GAAP system is less a list of rules and more various moving parts. Setting up efficient, transparent accounting practices that fit the needs of your business and for the modern business work isn’t an exact science, so the general guidelines for business accounting are adjusted over time.
GAAP continues to be looked at by both the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB). This is good for industry as a whole, since consistently reevaluating these standards can ensure the GAAP works the way it should for holding businesses accountable in their reporting.
But it also means that these guidelines are going to be adjusted here and there over time. If you’re going to commit to following GAAP, it’ll mean keeping an eye on these organizations to see if they have any recommendations for slight change to your standard practices.
It’s important to remember that while they are very helpful in ensuring transparency in your financial statements, GAAP are still simply a framework for guidelines. Your business can be following GAAP and still have calculation errors. There’s still plenty of room for restaurant managers to make mistakes on the books, which is why you should be very careful to keep track of all records. This is also exactly why hiring a professional accountant could be a good choice when it comes to the more complicated financial issues.
Want to compare your current financial workflow to a GAAP compliant template? Download one now.
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Rewards Network® does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
