Small baking companies may have a complex financial system. These businesses must pay taxes, consider different categories of costs, and correctly forecast the budget. Therefore, you may have difficulties with bakery accounting if you do not have the necessary knowledge and experience. In this article, we have collected several recommendations that will help improve the economic situation of your enterprise.
Importance of Accounting in the Food Industry
Firms must maintain financial records to understand their economic position and adhere to requirements for paying tax and invoices, especially in the accounting for bakery business, where the average profit margin is only 6.5%. Good bookkeeping practices allow you to monitor spending, control operating activities, and achieve economic goals. Working with finances is also indispensable in other areas:
- Inventory management: Reserves are an essential bakery element and directly affect profits. Practical work with reserves optimizes production costs and ensures savings by using leftover dry ingredients.
- Working with cash flow: Bakeries need cash to buy supplies, pay staff, and cut operating expenses. Precise bookkeeping for bakery helps enterprises monitor supplier expenditures and prepayments to pay rent and staff salaries on time.
We encourage you to read our blog to learn which techniques will assist new entrepreneurs and experienced bakery owners in handling their books effectively.
How to Do Accounting in a Bakery Business?
Opening and owning a bakery requires carefully monitoring and managing your capital. It’s not enough to keep notes; you need to know exactly how much assets flow in and out of the enterprise. Some tricks and hacks can help you keep your business finance in order. Let’s look at the main recommendations on how to manage a bakery.
Select accounting system
The Internal Revenue Service recognizes two accounting techniques, regardless of business category: the cash method and the accrual method of accounting.
Under the cash method, capital inflows and outflows are recorded when cash is obtained, or bills are paid. If you sell 20 donuts and the customer pays with a check, you must show the income even if you haven’t cashed the check yet. Likewise, if you pay for flour delivery, the data should appear on the report when you write the check, even if you haven’t sent it yet.
The accrual method records revenues and expenses as they are earned or incurred, regardless of when capital is received or bills are paid. You must recognize delivery revenue if a customer buys 20 buns and you send him a bill. Likewise, if you receive a shipment of sugar and flour, you show the income immediately, even if you send a check several weeks later.
You will likely bake regularly to please customers and will need to control many expenditures. We recommend creating an expense structure to get quick access to them anytime.
The primary reason you should monitor your spending is that there is potential to deduct a portion of the costs when filing tax returns. s. If you gain $50,000 and receive a tax deduction of $15,000, then you’ll only have to pay income tax on $35,000 of your revenue.
Tax deductions can significantly decrease your responsibilities, so review the expenditures that can be deducted.
Open a business bank account
Many people (especially new entrepreneurs) mix enterprise profits with personal income, leading to chaos and confusion when estimating taxes.
Create a separate business account; then, controlling the inflow and outflow of resources will be easier.
Consider recruiting a bookkeeper
If you are still struggling with some economic work, it may make sense to start working with a qualified accountant instead of spending long hours on simple procedures.
While gaining additional knowledge and skills is helpful, your time is valuable, so hiring a bookkeeper can be an excellent decision despite the cost for their services.
Some Bookkeeping Challenges in the Bakery Industry
Bakeries face some specific problems when carrying out their economic activities. You must be prepared to solve the following issues:
- Payroll: Depending on the size of the bakery, it may have a large staff, including cooks, drivers, shift supervisors, and front counter workers. It may lead to scheduling difficulties and make payroll challenging to manage.
- Difficulty determining product value: In pastry shops, all the baked goods sold to customers are commodities. Product costs include direct labor, materials, and overhead costs incurred during production. Accurate costing of goods ensures that the value of commodities sold reported on the income statement is correct.
You must constantly monitor your activities to avoid financial problems. Verify the information you enter into your bakery accounting software or spreadsheets against your bank statement monthly to ensure accuracy.
As a bakery owner, you’ll have to juggle many different jobs, and, honestly, keeping the books isn’t as much fun as baking. This truth may surprise you, but that’s how it is.
Utilizing the recommendations listed above, you can explore and streamline the financial management of your enterprise so that you may spend more time in the kitchen and fewer hours addressing financial issues.
If you have no experience in bakery accounting, we recommend transferring your financial activities to BooksTime specialists. Our accountants will help you set up a chart of accounts, tell you how to record profits from selling bakery products, and help you prepare financial reports. We will oversee bill payments, payroll processing, and balance reconciliation. Precise control of finances today guarantees significant profits in the future.