Bookkeeping Tips for Coffee Shop Owners

Bookkeeping Tips for Coffee Shops

Coffee Shop Management

Bookkeeping Tips for Coffee Shop Owners

Many successful business owners rarely start with significant accounting or bookkeeping knowledge but quickly learn the importance of the skill.

It's highly recommended that you start your coffee shop business with good accounting practices.

We also encourage you to seek the advice of a local accountant or bookkeeper, especially at the beginning of your coffee shop startup, as you frame your business, set up payroll, and learn about tax reporting.

Coffee can be much fun to serve, but the fun will eventually stop if your accounting isn't maintained. Many coffee shop owners think that their business is so small that it doesn’t require complex bookkeeping. However, it’s a myth that we will attempt to change.

In this article, we’re going to take a look at some key accounting terms you’ll likely run into when opening a coffee shop – and eventually operating a coffee business.

Bookkeeping Tips for Coffee Shops

Why Does Coffee Shop Bookkeeping Matter?

Whether you operate a coffee shop, a drive-thru coffee stand, or a coffee trailer, getting your paperwork in order matters.

And it makes all the difference come tax time too! It gives you the data and papers you need to submit annual and quarterly taxes and get ready for audits and other kinds of inspections.

With accurate bookkeeping, you will have a clear picture of your business health at the end of every month. It will save you time and money in the long run.

Accounting and bookkeeping provide you with the tools you need to monitor your financial state and help you make better managerial decisions.

Accounting and bookkeeping help you with:

• Managing coffee shop inventory
• Maintaining coffee shop payroll
• Staying on top of coffee shop taxes
• Determining where your coffee shop revenue is coming from
• Help you assess where your losses are originating
• Tax reporting
• Coffee shop managerial decisions

Far too many new and veteran coffee shop business owners gloss over the accounting and bookkeeping that needs to be done daily, weekly, and quarterly, which can overwhelm them.

Bookkeeping Tips for Coffee Shops

Unfortunately, many coffee business owners fail to implement good systems for accounting in everything that they do.

Remember, developing good systems creates a successful coffee business.

Owners need to maintain good record-keeping practices to avoid unnecessary audits, fines, and other penalties.

We'll talk about specific financial documents in just a little bit, but for now, let’s acquaint – or reacquaint you with a couple of key terms.

Featured Article: How to Be an Amazing Coffee Shop Manager

Bookkeeping Tips for Coffee Shops

Coffee Shop Accounting Basics

Many coffee shop business owners often follow basic avenues to maintain accounting records:

• Cash Method
• Accrual Method

The Cash Method

For small businesses, the cash method is a commonly used method for accounting. This method of accounting is often used in coffee shop businesses.

The cash method only accounts for cash when it’s paid out or received. Tracking the cash flow of a company is also easier with the cash method.

So, for example, let's say that your coffee trailer business serves coffee at a private event – such as a wedding reception – in June.

You agree to get paid in August.

With the cash method, you record the income in August – when your coffee business actually gets paid. With the accrual method, you would add the income in June – when you serve coffee at a private event.

The Accrual Method

When using the accrual method, the transaction is recorded when the actual order is made, regardless of when the money is received.

Revenue is accounted for when it is earned. Typically, revenue is recorded before any money changes hands.

This is different from the cash method – the accrual method records revenue when a product or service is delivered to a customer with the expectation that money will be paid in the future.

Expenses of goods and services are recorded despite no cash being paid out yet for those expenses.

So, for example, let's say you purchase a new coffee shop display case in January on credit, and you pay $1000 for it three months later in March.

With the cash method, you would record a payment of $1000 for the month of March when you pay for it.

However, with the accrual method, you would record the transaction in March when you take ownership of the display – though you are required to pay for it at a later date.

Further Reading: How to Price Your Coffee Beverages

Accounting Makes Your Coffee Business Better

When you keep your accounting and bookkeeping up to speed at your coffee shop, you also get some critical information that you need for some essentials.

These include having the data for the two important financial documents.

• Income Statement
• Balance Sheet

Income Statement

Your income statement is a good snapshot of how your business is progressing.

In other words, your Income Statement details what you are projecting to earn versus what you are planning on spending.

Balance Sheet

A “balance sheet” allows you to tally up your assets and your liabilities. Remember, your assets will always equal your liabilities plus your equity.

A balance sheet has two main parts: The first shows the assets of your company. The second is the liabilities of your company (this will also include your debts).

These two financial documents will help you navigate some coffee management decisions while keeping you informed on the health of your business.

Bookkeeping Tips for Coffee Shops

Further Reading: Meaningful Ways to Grow Your Coffee Business

Coffee Shop Management

Tips for Bookkeeping & Managing Your Coffee Business

Coffee shop owners want a successful business. But operating a successful business requires us to manage our revenue and expenses well.

Accounting and bookkeeping are central to coffee shop management.

Therefore, we need to honor the time for your business's bookkeeping and accounting aspects. If you cannot do it yourself, you should hire an accountant or an assistant.

1. Invest in a good POS (point-of-sale) system, such as Square POS.

With a small business dealing with plenty of cash and digital transactions, a point-of-sale system will help centralize much of the data you can use to stay up to speed in real-time.

Using a Coffee Shop POS system will help you reduce waste, inventory blunders, and theft. Be aware that stealing may occur among your employees. Minimize the opportunity for others to take advantage of your trust and kindness – there should be physical and digital receipts for everything.

2. Open a business bank account.

Don't use your personal account for business. Rather, open a business bank account and pay for everything through that bank account, including your own salary.

3. Make time for your coffee business paperwork.

As a coffee shop owner and general manager, you may need up to 20-25% of your time doing paperwork. This time would include keeping track of your income and expenses, budgeting, analyzing and comparing costs, maintaining up-to-date employee records, filing payroll reports, and paying payroll taxes on time.

You certainly don't want to get behind on payroll and taxes because there are many penalties that you may be charged if you don't follow through. And most importantly, you’ll have a lot of upset baristas!

4. Hire a bookkeeper or accounting service

If you have experience and knowledge, you can do things yourself. However, paperwork can be intimidating and staying on top of it can be challenging for the best of us.

If you are someone who needs help with paperwork – either because you lack the time or skill – then you may need to bring on board someone who can help you.

Hiring a bookkeeper and or accountant for your retail shop business – especially for the first two or three years – can help you get your financial house in order and on the right track.

Hiring a bookkeeper initially may help you develop good habits to run your coffee shop.

Bookkeeping Tips for Coffee Shops

5. Invest in Accounting Software.

If you haven't considered it already – you'll want to invest in accounting software.  

Quickbooks is a popular one with many coffee shop owners. Whichever accounting software you choose, consider using accounting software that works seamlessly with your coffee shop’s POS system.

Your POS system will help you keep track of everything – sales, refunds, inventory, and employee hours, among several other items.

6. Embrace Accounting.

While you may not be familiar with accounting right now – accounting will become your best friend.

When used properly, it will show you how to better manage financial decisions and run a better coffee business.

7. Keep Your Coffee Shop Business Accounts Clean.

I strongly encourage you to avoid any co-mingling of money. It’s easy to see your business bank account with freshly deposited funds and use it to spend on personal items, groceries, gas, or your clothes. If you start using your business funds to pay for your personal items directly – things can get messy pretty quickly.

Your Coffee Shop Accounting & Bookkeeping

Recommendations for finding a bookkeeper/CPA

Hire someone with experience in the restaurant industry and working with small businesses.

You’ll want to interview the bookkeeper and/or CPA to see if they understand the retail business.

Getting recommendations is always a good way to go. For example, ask other coffee business owners whom they use for their bookkeeping.

Hire somebody who will teach you about the paperwork part of your business and how you might cut costs or run your business more efficiently.

Remember that professional accounts should follow GAAP – Generally Accepted Accounting Principles. These are accounting principles, standards, and procedures – which include high ethical standards by which to do your bookkeeping.

Bookkeeping Tips for Coffee Shops

Conclusion:

When it comes to understanding your bookkeeping and accounting, you can’t cut any corners. After all, without properly managing your money, it doesn’t make sense to work so hard to operate a business.

You want to fully take the opportunity to keep your finger on the pulse of your business’s health, which is done through your accounting.

How to Operate a Coffee Shop Successfully

Coffee Shop Business Accounting & Bookkeeping

Related Questions:

How do you pay yourself?

When you start your business, you have many unexpected expenses and meet your cash flow requirements. Sometimes, there isn't much money to pay yourself, but if there is money, consider writing yourself a check as a draw from your business account and deposit it into your personal account.

Just remember – It's not good to use your business account to pay for personal expenses; the IRS likes it when records are clean. So again, it's a good idea to keep your business account and personal money usage separate.

Is it hard to run a coffee shop?

I wouldn’t say it’s hard to run a coffee business. Instead, I would say that operating a coffee shop is challenging. It requires you to keep your hand at the wheel at all times.

Managing inventory, employees, and customers requires the development of good systems, consistent training, monitoring, and adaptation.

For an in-depth look at this question, read our article, Is It Hard to Open a Coffee Shop?

How much money will I make with a coffee shop?

Your coffee shop can be profitable, but by how much? Certainly, different coffee businesses vary in the revenue they bring in. Much of the money your coffee business will make will depend on several important factors, such as your concept, your menu, pricing, and sales volume, among others.

Your concept and capacity to serve customers impact your revenue generation.

While the size of your coffee shop may play a role, you may actually make more money with a smaller business because your expenses are less.

We take a deeper look at coffee shop revenue in our article, How Much Money Can I Make With a Coffee Shop?

How to avoid coffee shop owner burnout?

If you ever do something long enough, the chances of burning out can occur. Burnout can significantly impact your coffee shop sales and revenue, the quality of your products, your customer experience, and coffee brand.

Burnout among you or your employees can be anticipated; things can be built into your management strategy, policies, and practices to avoid burnout. These elements include hiring, training, proper delegation of responsibilities, building and maintaining a positive work culture free of sexual harassment, and chances to display your creativity. For a deeper look, read our post, How to Avoid Coffee Shop Owner Burnout.

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Based in Seattle, Washington, USA, Coffee Shop Startups is dedicated to providing you with the most relevant information on how to start a coffee shop business successfully. Over the last 11 years, we've helped thousands of aspiring coffee business owners worldwide. We harness the experience, wisdom, and knowledge of many successful coffee shop owners to help you increase your chances of success and profits. We support business owners who want to start a coffee business by providing them with valuable information on starting their coffee business successfully.