What would it look like if Toast embedded accounting?

In 2023, there were 16.1 new restaurants in the U.S. for every 100,000 people, with new business listings on Yelp showing a remarkable 20% increase compared to 2022. This resurgence in the restaurant space, despite the steep declines experienced during the pandemic, signals a robust recovery in the food service industry.

These growing numbers only solidify that there are unprecedented opportunities for Toast, which has established itself as the platform of choice for many restaurants to operate, manage, and run their businesses.

Since its founding in 2011, Toast has evolved from a simple point-of-sale solution to become the central operating system for over 120,000 U.S. restaurants. The platform now offers comprehensive suites of products that enable businesses to streamline operations, grow their brands, and manage both front and back-office functions through integrated solutions covering operations, payroll, marketing, management, digital storefront, and supplier relationships.

The Power of Embedded Finance in Restaurant Operations

Toast's platform strength lies not only in its operational capabilities but also in its strategic integration of financial services. Through a report from Adyen and Boston Consulting Group, they found that 83% of Toast’s revenue comes from ‘financial technology solutions’ (FY 2023). And according to their General Manager, Michel Rbeiz, embedded finance solutions are a top priority for them; “Toast’s strategy is to provide vertically integrated products to support restaurants' end to end needs and help them thrive. By being integrated, we believe that we are uniquely positioned to solve for restaurants' technology and financial needs, including those faced by their employees and their owners…we see a large opportunity in embedded finance.” The company has successfully implemented three important embedded finance components into their platform for their restaurant customers: Payments, Payroll, and Capital.

Toast Payments: Streamlining Restaurant Transactions

Toast Payments stands out as a secure and reliable credit card solution built specifically for the unique needs of restaurants. Understanding the challenges faced by food service businesses, Toast has developed a transparent pricing structure with competitive rates on all transactions. This commitment to clarity extends to their no-hidden-fees policy and robust fraud prevention measures that result in significantly lower chargeback rates – up to three times lower than the industry average. Their embedded payments solution is particularly important in the restaurant industry, where delivery services and complex billing scenarios can often lead to disputed charges.

Toast Payroll: Empowering Efficient Operations

Toast Payroll and Team Management is an integrated solution that dramatically reduces the time-consuming burden of managing restaurant staff compensation. While traditional payroll methods can consume between 2-8 hours per pay period and are prone to costly errors, Toast enables restaurant owners to complete their entire payroll process in just minutes. Toast Payroll achieves this efficiency through deep integration with the platform itself, automatically capturing hours worked, tips earned, and wage rates in real-time. Restaurant operators benefit from simplified employee onboarding processes and streamlined payroll management, all accessible from the same platform they use to run their daily operations. This integration eliminates the need for double data entry and reduces the risk of manual errors that can lead to compliance issues or employee dissatisfaction. The system handles tip distribution, tax calculations, and compliance requirements automatically, making it easier for restaurants to maintain accurate records and stay in compliance with labor laws. By consolidating these crucial functions into one integrated system, Toast Payroll helps restaurant owners spend less time on administrative tasks and more time focusing on growing their business.

Toast Capital: Enabling Restaurant Growth

Understanding that access to capital is essential for restaurant growth and sustainability, Toast Capital provides eligible customers with quick access to loans ranging from $5,000 to $300,000 directly through their platform. This integration of lending services represents a significant advancement in how restaurants can access financial resources. Rather than navigating the complex landscape of traditional lending, restaurant owners can apply for funding within their Toast account in minutes, potentially receiving approval and funding the next business day. Customers also have flexible repayment options tied to their daily card sales.

The Critical Need for Embedded Accounting

The statistic that 30% of restaurants fail within their first year of operation underscores the precarious nature of the industry. At the heart of these failures often lies financial mismanagement, which manifests in various ways: poor visibility into business data, uncontrolled operational costs, inadequate cash flow management, high employee turnover, and inefficient resource allocation.

Despite Toast's significant advancements embedding finances into restaurant technology, a critical gap remains in their platform – comprehensive accounting. With money coming in, through payments and capital, and money going out, through payroll, there is an increasing need for a general ledger to keep track of everything and reconcile the transactions. This gap represents both a challenge and an opportunity for reducing restaurant failure rates through improved financial management.

Currently, restaurants must rely on third-party integrations or separate accounting solutions, creating a fragmented operational experience. Not only that, but Toast is sending their users outside of their platform giving revenue away and contributing to a disjointed user experience that they have no control over. 

The impact of this fragmentation is substantial and well-documented. According to research from Cornerstone Advisors, SMB owners, including restaurateurs, typically dedicate 20 hours per week to accounting tasks, with 62% identifying accounting as their most time-consuming back-office activity. The financial implications are equally significant, with the average SMB investing $11,000 annually in accounting services.

A fully integrated accounting solution would transform Toast's platform through automated financial workflows and invisible accounting processes. The system would handle daily sales reconciliation, expense categorization, and financial reporting automatically, while double-entry accounting would operate seamlessly in the background. This sophisticated automation would eliminate manual data entry and reconciliation tasks that traditionally consume hours of restaurant operators' time, allowing them to focus on core business operations instead of administrative tasks.

The comprehensive financial management system would unite all aspects of a restaurant's finances in one place, creating an unprecedented level of operational efficiency and giving restaurant owners what they are asking for — a one stop shop. A centralized general ledger would automatically generate financial statements and real-time profit and loss reports, while streamlined expense tracking and digital invoicing would simplify day-to-day financial operations. The integration would extend beyond basic bookkeeping to include advanced features like automated bank reconciliation, smart categorization of expenses, and real-time cash flow forecasting. This integration would create a single source of truth for all financial data, dramatically reducing the potential for errors and inconsistencies that often plague restaurants using multiple disconnected systems.

The Business Case for Embedded Accounting

Driving User Acquisition

The implementation of embedded finance, particularly embedded accounting, represents a competitive advantage in today's market. With less than 20% of the market currently addressed with embedded finance offerings, there is significant room for vertical platforms to expand their reach. Industry research from Cornerstone Advisors found that 79% of small businesses would prefer an industry-specific software provider that includes integrated accounting functions.

Increased Average Revenue Per User

Research from Adyen and Boston Consulting Group reveals that platforms offering embedded finance solutions can potentially grow their revenues by 3-4 times their current subscription income. This multiplier effect demonstrates the significant financial opportunity embedded accounting presents.

Reducing Customer Churn

With 30% of restaurants failing within their first year of operation, this staggering failure rate represents a direct threat to platform providers' customer retention. By integrating comprehensive accounting solutions directly into their platform, Toast could help restaurant owners better manage their finances, potentially reducing these failure rates and, consequently, platform churn.

Strengthening Customer Retention

Approximately 60% of small businesses currently utilize vertical SaaS offerings like Toast for their operations. While satisfaction levels are generally positive, three-quarters of these businesses are actively considering new platform options. The demand for integrated financial management and accounting services is clear: 44% of businesses express definite interest in obtaining these services from their current provider, with an additional 42% indicating potential interest.

Looking to the Future

The integration of embedded accounting would complete Toast's evolution from a basic POS provider to a truly comprehensive restaurant management platform. This development represents not just a natural progression of their service offering but a strategic response to the clear market demand for more integrated, automated financial solutions.

As the restaurant industry continues its digital transformation, the demand for unified platforms capable of handling everything from payment processing to financial reporting will only intensify. Toast's potential expansion into embedded accounting could establish new industry standards for restaurant technology platforms while further solidifying their position as a market leader.

The future of restaurant technology lies in comprehensive, integrated solutions that address all aspects of restaurant operations, from front-of-house management to back-office accounting. By closing the accounting gap in their platform, Toast has the opportunity to not only better serve their existing customer base but also to capture a larger share of the growing restaurant technology market.