Three numbers determine whether a South African restaurant survives: food cost as a percentage of sales, labour as a percentage of sales, and prime cost, which is the two added together. Food cost above 35% or prime cost above 65% is where most independent restaurants get into trouble — and by the time it shows in the bank balance, several months have usually gone.
Restaurant accounting is not harder than other industries. It is faster. Margins are thin, volume is high, and a two-point drift in food cost costs real money within weeks rather than years.
The three numbers
Food cost percentage
Cost of food sold ÷ food sales × 100
Cost of food sold = opening stock + purchases − closing stock.
| Format | Typical range |
|---|---|
| Coffee shop / café | 25% – 32% |
| Casual dining | 28% – 35% |
| Fine dining | 30% – 38% |
| Bar (beverage cost) | 18% – 25% |
You need a stock count to calculate this properly. Using purchases alone is the single most common error — it tells you what you bought, not what you sold, and it makes a month where you overstocked look like a disaster.
Count monthly at minimum. Weekly for high-value items such as meat, seafood and spirits.
Labour percentage
Total labour cost ÷ total sales × 100
Include everything: wages, employer UIF and SDL, COIDA, and any contract labour. Typical range is 25% to 35%.
Prime cost
Food cost % + labour percentage
This is the number to watch. Under 60% is healthy. Above 65% is difficult. Above 70% and the business is usually losing money regardless of what the bank balance temporarily suggests.
Prime cost is diagnostic because it is the two costs you actually control day to day. Rent is fixed once signed.
Why your POS and your books never agree
Every restaurant has this problem, and understanding it prevents a lot of wasted time.
Your POS records sales at the till. Your books record deposits at the bank. Between them sit:
Card settlement timing — takings on Friday, deposited Monday, net of merchant fees
Merchant service fees deducted before deposit
Cash banked in different amounts and on different days
Voids, comps, staff meals and wastage
Delivery platform settlements, net of commission
The reconciliation you actually need, daily or weekly:
| Line | Source |
|---|---|
| POS gross sales | POS Z-report |
| Less: voids and comps | POS |
| Less: staff meals | POS |
| Net sales | |
| Split: cash / card / delivery platform | POS |
| Card settlement received | Bank |
| Merchant fees | Merchant statement |
| Cash banked | Bank |
| Variance | Investigate anything material |
A persistent unexplained variance is either a system problem or a control problem, and both need finding early.
Delivery platforms
Delivery aggregators complicate the numbers in three ways.
Commission is a cost, not a discount. A R220 order with 30% commission means R154 to you and R66 of commission expense. Record the gross sale and the commission separately — netting them off hides the true cost of that channel and makes your food cost percentage look wrong.
Settlement timing differs. Platforms settle weekly or fortnightly, net of commission, so a period-end cut-off creates a debtor.
Margins differ by channel. A dish that works at 30% food cost in-house may be loss-making after 30% commission. Calculate food cost by channel, not just overall — this is the single most valuable analysis a delivery-heavy restaurant can run.
VAT for food businesses
You charge 15% on prepared food and beverages. Restaurant meals are standard-rated regardless of what the ingredients would be if sold raw.
Some ingredients you buy are zero-rated — brown bread, maize meal, rice, milk, eggs, fruit and vegetables and others. You pay no VAT on them, so there is no input VAT to claim on those purchases.
The practical consequence: your input VAT is lower relative to your purchases than in most industries, because a meaningful share of what you buy carries no VAT. A restaurant is usually in a payment position, not a refund position.
The entertainment exception works in your favour. Input VAT on entertainment is normally denied — but where a vendor's enterprise is the continuous or regular supply of entertainment, the denial does not apply. So a restaurant claims input VAT on its food, drink, kitchen equipment and crockery.
The trap: that exception covers entertainment supplied in the course of the enterprise. The owner's family meal at their own restaurant, and the staff year-end party, remain denied. Keep them separately coded — SARS looks for exactly this. See the expenses you can never claim VAT on.
Note the threshold change. Compulsory VAT registration rose to R2.3 million on 1 April 2026. A café that registered under the old R1 million threshold and turns over R1.6 million now has a genuine decision about deregistering — and for a consumer-facing business, that is worth modelling properly. See should you deregister for VAT.
Tips and gratuities
Tips paid directly to staff, in cash or through a tronc distributed among staff, are generally not the restaurant's income and not subject to VAT in the restaurant's hands.
Service charges added to the bill by the restaurant are the restaurant's income, subject to VAT, and if paid on to staff, subject to PAYE as remuneration.
The distinction matters and is fact-specific. How your POS handles tips, whether they route through the business bank account, and how they reach staff all affect the treatment. Get your specific arrangement reviewed rather than assuming — this is a routine SARS query area for hospitality.
Payroll specifics
High turnover and variable hours make payroll heavier than headcount suggests.
Check the National Minimum Wage hourly, not monthly. R30.23 an hour from 2 March 2026. Variable-hours staff are where breaches happen, and one breach disqualifies your entire ETI claim for that month.
ETI is often significant in hospitality, because the workforce skews young and wages fall in the R2,500 to R7,500 band where the incentive is largest. Four qualifying employees is R72,000 a year. See the Employment Tax Incentive explained.
Check for a bargaining council. Parts of the hospitality sector are covered by sectoral determinations setting wages above the national minimum.
Cash control
Where cash is a meaningful share of takings, the controls matter more than the accounting.
Daily banking, with the slip matched to the Z-report
Two people counting and banking where possible
Void and comp reports reviewed by someone who was not on shift
Stock counts by someone other than the person ordering
Regular reconciliation of POS to bank, not just at month-end
Segregation of duties is difficult in a small operation, but the alternative is a control gap that is invisible until it is large.
Frequently asked questions
What food cost percentage should a restaurant have? Broadly 25% to 32% for a coffee shop or café, 28% to 35% for casual dining, and 30% to 38% for fine dining. Beverage cost in a bar typically runs 18% to 25%. Calculate it as opening stock plus purchases less closing stock, divided by food sales.
What is prime cost in a restaurant? Food cost percentage plus labour percentage. Under 60% is healthy, above 65% is difficult, and above 70% the business is usually losing money. It is the most diagnostic single number in restaurant accounting because it covers the two costs you control day to day.
Do restaurants charge VAT in South Africa? Yes, at the standard 15% on prepared food and beverages, regardless of whether the raw ingredients would be zero-rated. Because some ingredients purchased are zero-rated, restaurants generally have lower input VAT relative to purchases than other industries.
Can a restaurant claim input VAT on food and drink? Yes. Although input VAT on entertainment is normally denied, the denial does not apply where the vendor's enterprise is the continuous or regular supply of entertainment. The owner's own meals and staff functions remain denied and should be coded separately.
How are tips taxed in a South African restaurant? Tips paid directly to staff are generally not the restaurant's income and not subject to VAT in its hands. Service charges added to the bill by the restaurant are its income, subject to VAT, and subject to PAYE if paid on to staff. The treatment is fact-specific and should be reviewed.
Why don't my POS sales match my bank deposits? Because of card settlement timing, merchant fees deducted before deposit, cash banked on different days, voids and comps, staff meals, and delivery platform settlements net of commission. A daily or weekly reconciliation from POS gross sales through to bank is the only way to see the variance.
How should I account for delivery platform commission? Record the gross sale and the commission as a separate expense rather than netting them off. Netting hides the true cost of the channel and distorts your food cost percentage. Calculate food cost by channel, because a dish that works in-house can be loss-making after 30% commission.
Numbers fast enough to act on
In a restaurant, a two-point drift in food cost costs real money within weeks. Annual financial statements tell you about it eleven months late.
Smartbook works with food businesses on monthly management accounts showing food cost, labour percentage and prime cost against prior months — plus POS-to-bank reconciliation, payroll with ETI claimed, and VAT.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Benchmark ranges are typical industry observations and vary considerably by format and location. The VAT treatment of tips and service charges is fact-specific — have your arrangement reviewed. General guidance, not advice on your circumstances.
Primary sources: SARS — Value-Added Tax · SARS — VAT 411 Guide for Entertainment, Accommodation and Catering · SARS — Employment Tax Incentive · SARS — Budget 2026 FAQs