Bookkeeping basics for food entrepreneurs

Bookkeeping for a small food business comes down to five records: what you sell, what you spend with a receipt, what you take out or put in yourself, what you are owed and what you owe, and a stock count once a month. With those you can check your cash every week and close each month knowing what you sold, what it cost and what was left. Everything else is detail.

The five minimum records

1. Sales. Each sale or each day of sales: date, product, quantity, price, channel (market, preorder, café) and payment method (card, cash, bank transfer). At a busy market, one total per day per payment method is enough.

2. Expenses. Date, who you bought from, what, amount, category and payment method. Every expense with its receipt, or a photo of the shelf tag or handwritten note if there is no receipt. The guide on keeping useful receipts and purchase records covers which details to keep so they are useful later.

3. Owner draws and contributions. Every time you take money out of the business for yourself, or put your own money in. They are neither expenses nor sales. They get their own list.

4. What you are owed and what you owe. The café that pays at the end of the month, the supplier who lets you pay on Friday. A list with name, amount and due date.

5. Stock count. Once a month, how much you hold in ingredients, packaging and finished product, valued at what you paid. Without this count you cannot tell how much of what you bought was actually used.

Few expense categories

Use six to eight categories, no more: ingredients, packaging and labels, energy, transport, pitch or rent, fees and commissions, equipment, other. With few categories you record quickly and compare one month with another without getting lost.

Keep purchases that become product (ingredients, packaging) apart from fixed costs (energy, transport, pitch fees). The first rise and fall with what you make; the second stay the same.

The routine: five minutes a day, half an hour a week

• Every day: note the day's sales by payment method and keep receipts in one place (an envelope, a photo album on your phone).
• Every week: move receipts into the expense record and check your cash.
• Every month: count stock, add up sales and expenses by category and work out the month's result.

How to check your cash

Cash means all the business's money: notes and coins, the card processor balance and the bank account. The formula is:

opening balance + money in − money out = expected balance

Then count what is actually there. If it matches, your records are complete. If not, something is missing.

Worked example: a sourdough micro-bakery

You sell sourdough at a Saturday farmers market and through weekly preorders. This is one week:

• Money in: 1,140 + 460 + 300 = $1,900.
• Money out: 380 + 70 + 40 + 45 + 600 = $1,135.
• Expected balance: 520 + 1,900 − 1,135 = $1,285.
• Counted: $1,262.
• Gap: 1,285 − 1,262 = $23.

You go back through the week and find $23 of seeds bought with cash at the market and never written down. You add it and the cash matches.

Closing the month. You put four weeks together:

• Sales for the month: $7,600.
• Ingredient and packaging purchases: $1,850.
• Stock at the start of the month: $300. Stock at the end: $410.
• Cost of what you used: 300 + 1,850 − 410 = $1,740.
• Gross profit: 7,600 − 1,740 = $5,860, which is 5,860 ÷ 7,600 = 77.1% of sales.
• Expenses: pitch fees $160, fuel $180, card fees $91.20 (at an example rate of 2% on $4,560 of card sales), your share of electricity for the oven $140, phone and software $50. Total: $621.20.
• Result for the month before paying yourself: 5,860 − 621.20 = $5,238.80.

You took $2,400 in draws during the month ($600 a week). That draw is not part of the result; it comes out of it. That leaves 5,238.80 − 2,400 = $2,838.80 in the business, which shows up in cash and stock.

Look at the stock. You bought $1,850 but used $1,740. The $110 difference is sitting on your shelves as flour and seeds. It left your cash but has not turned into a sale yet; the guide on how inventory ties up cash explains why that number is worth watching.

What the tax office will want

The records in this guide are for you to understand your business. What the law asks of you depends on where you are, how the business is set up and how much it earns: what invoices to issue, what records to keep, what to file. Check your local tax rules or ask an accountant. If your sales and expenses are already in order, that conversation will be short and cheap.

What else it gives you

With your books up to date you can see what your operation costs each month, whether a rise in ingredient prices is eating your margin and how much money you really have. It is also the first thing anyone asks for if you look for financing: the guide on loans and financing covers which numbers to check before you apply. And it is the base for following your cash flow week by week.

Do it with the calculator

Your records tell you what you spent; the food cost calculator tells you what each product should cost. Enter your recipes with the prices on your receipts and compare: if the cost of what you used in a month is well above what your recipes add up to, there is waste or over-portioning you are not seeing.