The month has ended. The sales were good, the P&L indicates a profit and nothing is to be seriously incorrect.
Check the bank account of the restaurant.
The number is not the one you were expecting.
Restaurant owners can find it difficult to reconcile this issue because they believe that cash flow and profits should be exactly the same. They aren’t. It’s not true. P&L is a gauge of financial performance, whereas the bank account is a record of when money moves in and out.
Understanding the difference can alter the way a restaurant owner examines the financials of a restaurant.
Imagine what might happen during an average week. Customers pay for meals. Employees have to be paid. Food and drinks are sent. Rent is on the way. Credit card payments are timed. Sales tax is collected however it is a responsibility.
The purchasing for the coming week has already begun.
If you focus solely on revenue or the number of dollars earned at the end, it is easy to miss out on an abundance of activity.
The key may lie in the prime cost
If restaurant profitability begins to decline, the cost of food, beverages and labour costs should be taken into the equation.
Together, cost of goods sold and labor make up prime cost. Bookkeeping Chef’s guidelines place the prime cost at between 60% to 65 percent of the total revenue for many restaurants, while emphasizing the importance of monitoring weekly rather than waiting until the closing of the month.
Effective primary cost management is less about focusing on one percentage point and more about being able to spot changes in the early stages.
If the restaurant is performing within its targets however this week’s performance increases. Perhaps overtime was increased. The price of drinks may have remained the same, whereas food prices increased. A higher proportion of food could lead the business owner to examine the purchase, waste management, portions and menu mix, or even vendor invoices.
The percentage is what matters. The activities that underlie the restaurant provide the answer.
This is possible due to the fact that everyone is able to recall the details of what transpired.
After a few weeks, the details become much harder to decipher.
The Vendor’s bills arrive
A restaurant may purchase ingredients this week but have to pay for the ingredients in the future. That timing helps explain why understanding profit alone doesn’t answer every cash issue.
Vendor invoices need to be accepted and tracked. Manually completing this task in an environment with many suppliers can become a huge administrative burden.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Owners can have more precise information about the obligations that haven’t yet landed on their bank accounts by utilizing integrated bookkeeping systems.
This is beneficial, as the balance of your bank account may appear healthier than a restaurant’s current situation.
There could be a possibility that there are $80,000 in your account at the moment. This amount could be interpreted differently in the event that it is affected by other variables like rent or other expenses, such as payroll, vendors or other obligations over the next few days.
This naturally leads to cash flow forecasting.
What will happen with the money we have received after we’ve received the funds we’ve expected and have fulfilled all of our obligations?
This is an important distinction to make when deciding on which is the right week to buy an additional purchase or replace equipment, or keep liquidity.
and some of the cash Was Never Yours
Sales tax highlights this point in particular.
Restaurants get money from customers, which they be able to manage according to their tax obligations. If the money is mentally combined with normal operating cash, then the bank balance may offer a false impression of the amount of money available.
Records that are consistent support the tax compliance of sales while giving the management a better perspective of the restaurant’s financials.
Accounting for restaurants is more efficient when the financial obligations of each restaurant are handled separately.
Prime cost affects margin. COGS and future payments are affected by the purchase of vendor products. Cash and labor percentage are affected by payroll. The availability of cash is influenced by sales tax. P&Ls record financial performance while forecasting allows management to take a look ahead.
The pieces are linked.
Bookkeeping Chef assists in bringing these pieces together with restaurant-focused reports and system integrations. Outsourced bookkeeping is a great option for operators who do not want to stay up all night reconciling their financial information.
That last part matters.
The goal isn’t for restaurant owners to stop looking at their books simply because somebody else handles them. It’s crucial that the owners receive information so they understand the situation.
Don’t believe that the P&L is incorrect if the bank account appears to be in good shape, but the P&L shows the restaurant has generated money.
Ask them about what transpired between them.
Answering this question can give you more insight into the restaurant, more than just a number.