Restaurant Year-End Close: A Stress-Free Roadmap to Financial Compliance

As 2025 draws to a close, the financial health of your restaurant hinges on a successful and compliant year-end process. This period is critical for setting accurate opening balances for the new year, preparing necessary tax documents, and gaining deep insights into your business performance. Use this comprehensive checklist to simplify your close, minimize errors, and ensure you start the new year on solid financial footing.

1. Reconcile All Bank, Credit Card & Merchant Accounts

Why it Matters: The goal is to ensure your internal accounting records (your books) perfectly mirror your external financial statements. Reconciliation is your primary defense against fraud, misplaced funds, or errors in recording transactions.

• Action: Match every transaction – deposits, withdrawals, credit card sales, processing fees, third-party delivery apps (i.e. Uber Eats & DoorDash) – between your accounting software and the bank/merchant statements. Pay close attention to timing differences (e.g., checks written but not yet cleared) and ensure your merchant account fees are accurately expensed.

2. Review Outstanding Vendor Bills

Why it Matters: Under the accrual accounting method (which is recommended for most restaurants), you must record expenses in the period they were incurred, even if the payment hasn't been made.

• Action: Compile all outstanding invoices for food, beverages, supplies, and services received before December 31st. Verify that any credits received during the year (for damaged goods, overcharges, etc.) have been properly applied and documented. This ensures your Cost of Goods Sold (COGS) and expense accounts are complete and accurate for the year.

3. Count and Adjust Inventory

Why it Matters: Inventory is one of the largest variables affecting your COGS and profitability. An accurate physical count is required to determine your closing inventory value, which directly impacts your reported profit.

• Action: Conduct a thorough physical count of all food, liquor, beer, and wine on hand as of midnight on December 31st. Compare this physical count to the perpetual inventory records in your POS or management software. The difference, known as inventory variance (shrinkage), must be recorded to properly adjust your COGS.

4. Verify Payroll Reports

Why it Matters: Payroll compliance is non-negotiable. Errors here can lead to IRS penalties and employee disputes.

• Action: Scrutinize all final payroll reports. Confirm the accurate recording of total wages, tips (including allocated tips), bonuses, accrued Paid Time Off (PTO), and proper tax withholdings. Ensure all employee classifications (e.g., full-time, part-time, seasonal) and state/local tax filings are correct, especially concerning final paychecks and W-2 preparation.

5. Review Sales Tax Filings

Why it Matters: States frequently audit sales tax compliance, and discrepancies between your Point of Sale (POS) system and your tax filings are major red flags.

• Action: Run summary reports from your POS system for the entire year and compare the total sales and collected tax amounts against all submitted sales tax returns. Confirm that every required filing period (monthly or quarterly) is accounted for and that all payments have been made to the relevant tax authorities.

6. Update Fixed Assets and Depreciation

Why it Matters: Fixed assets (like ovens, refrigerators, and furniture) must be systematically depreciated to reflect their loss of value over time, which reduces your taxable income.

• Action: Review all significant purchases made during the year (e.g., new kitchen equipment, POS hardware). Record these as fixed assets and update their depreciation schedules. Similarly, record any assets that were sold or disposed of (disposals) during the year, ensuring all associated accounting entries are completed.

7. Prepare for 1099s and Year-End Filings

Why it Matters: Accurate preparation of tax forms like 1099s is a primary year-end compliance requirement for independent contractors.

• Action: Identify all vendors and individuals (e.g., repair technicians, graphic designers) to whom your restaurant paid over the reporting threshold (Note: the current minimum reporting threshold for Form 1099 is now $2,500 for certain payments in 2025, not $600 as it has been in the past). You must have a current Form W-9 on file for every contractor. Confirm the total amount paid to each contractor to ensure correct 1099-NEC (Nonemployee Compensation) forms can be issued by the deadline.

Conclusion

A thorough year-end close isn’t just an administrative requirement – it’s a strategic opportunity to strengthen your restaurant’s financial foundation. By reconciling accounts, validating expenses, tightening inventory accuracy, and ensuring full tax and payroll compliance, you gain a clear and trustworthy picture of your business’s true performance. This clarity empowers you to make smarter decisions, avoid costly penalties, and start the new year with confidence. With a disciplined, step-by-step approach, your year-end close becomes less of a burden and more of a blueprint for long-term operational and financial success.