The Pros and Cons of Integrating Inventory Software with Your Accounting Software

Integrating inventory software with your accounting software can be a boon for many restaurants. Why? Restaurants deal with heavy purchasing and inventory volume and can be sensitive to the cost of the goods they sell. Because of this, it’s essential to keep track of your current inventory so that you don’t overspend when purchasing. We all hate going to the grocery store to buy eggs, only to get home to find a fresh 12-pack staring at you when you open the fridge. Now imagine running into that same feeling but with a purchase of 1,000 eggs! Knowing what you have, especially regarding perishables, is paramount to running a successful restaurant. Luckily, there are tools out there that can help you.

Modern Digital Solutions for Inventory

In today’s digital era, the importance of having your data accessible online, available while on-the-go, or for sharing with your team members, cannot be overstated. Having your inventory available online is no different. There are numerous tools available to help you maintain inventory control and identify potential overuse of specific items. Among these digital solutions, XtraChef by Toast and Restaurant365 (R365) have gained recognition for their effectiveness and ease of use.

Broadly speaking, these inventory software tools operate similarly. They require you to assign codes to individual purchase items that correspond to the items you use regularly, and then monitor purchases made through this coding process. Both XtraChef and R365 integrate your point-of-sale (POS) system with your accounting system, tracking the usage of purchased items by connecting them to menu items. For example, let’s say you have a customer order a cheeseburger. The POS system records the sale and deducts the corresponding inventory items in real-time. This means the number of buns, cheese, beef patties, lettuce, and tomatoes will all be reduced in their inventory count and at the end of a long service, you know if you’ll need to make a grocery run before your next delivery.

By integrating your POS system with your accounting software in this manner, you gain a theoretical understanding of how each menu item impacts your inventory. This helps you maintain control over stock levels, reduce wastage, and optimize your restaurant’s operations. However, the caveat is that it’s “theoretical”. Despite these tools’ impressive capabilities, you will still need to physically count your stock on a weekly basis to obtain an accurate inventory value. These digital solutions do not factor in variables such as spillage, damage, or theft. Therefore, we strongly advise you to conduct a weekly physical inventory count to obtain the most accurate reflection of your stock, which unfortunately no software can replace.

Benefits of connecting your inventory software with accounting software

Nevertheless, there is still significant merit in connecting your inventory software with your accounting software. Once linked, your inventory software can automatically update your balance sheet to reflect changes in the value of the products in stock. Additionally, both R365 and XtraChef monitor fluctuations in prices and will notify you when there is a significant price increase. As previously mentioned, having your sales and inventory data consolidated in a single platform aids in tracking expected usage and provides a basis for comparison with your actual usage.

Additionally, using either of these tools allows you to maintain your inventory online, making it easily sharable with your team. In many of the restaurants we work with, there are both morning and night shift managers, each of whom may require access to current inventory information. Also, it’s not uncommon to have a dedicated purchasing manager who relies on the previous shift manager to conduct accurate inventory counts before placing orders.

In addition, we strongly recommend establishing a system of checks and balances in place. As you might recall from accounting class the well-known saying: “Trust but verify”. In the context of inventory management, this means having a trusted manager handle your purchasing while maintaining the ability to oversee the process to ensure everything is running smoothly.

Drawbacks and Considerations

Now, as appealing as all these benefits may be, it’s important to acknowledge that every solution comes with trade-offs.

• Cost & Fees: XtraChef and R365 do come with additional fees in addition to what you would typically pay for QuickBooks Online (QBO). While these fees aren’t excessively high, any cost decision should be weighed against its benefit on an individual basis.
• Setup Time and Team Investment: The setup process is meticulous and can be time-consuming. Even small errors during setup can result in inaccurate data. The setup and ongoing maintenance typically fall under the responsibilities of your purchasing team. As you introduce new items, you have to make sure they are correctly mapped out within the system. This is an ongoing task – far from a “set it and forget it” job. If your current staff isn’t equipped to handle this type of work, it might not be the right time to implement these tools.

This brings us to the final consideration:

Do you have the right team in place to manage these tools effectively?

If you lack the appropriate staff to manage these tools mistakes may occur which can sync with your accounting software, causing discrepancies. Correcting these issues within your financial records can be expensive and time-consuming, particularly when it requires a lengthy cleanup process. To reduce this risk, consider maintaining a separation between your inventory and accounting records. From an accounting standpoint, frequent updates to your inventory are generally unnecessary and typically required only once per period. Attempting a weekly synchronization can become complicated if you are not confident in your system’s usage.

Choosing the Right Inventory Management Solution

The world of inventory management tools offers a wide array of options, each with its own set of advantages and drawbacks. The key lies in evaluating these pros and cons to determine the solutions that align best with your unique business needs. Remember, not all tools are equal, and the crucial question to ask is, “What problem am I trying to solve?” Tailoring your solutions to match your specific requirements is the path to success.

Looking for other ways to integrate your technology? Learn about the pros and cons of integrating your POS system with your payroll in this article.

Still Unsure About the Right Solution for Your Needs?

If you find yourself uncertain about your next steps or require expert guidance in navigating the intricacies of inventory management and software, know that Patrick Accounting is here to assist you. As experienced advisors, we can help you make informed business decisions, making sure that your choices align with your goals and move you toward the path of success. Don’t hesitate to schedule a call for guidance on optimizing your inventory management and accounting processes. Your business deserves the best, and we’re here to help you achieve it.