The month has ended. The month is over.
Verify the restaurant’s bank account.
You didn’t get the number you expected.
Restaurant owners might find it difficult to reconcile this issue, as they believe that cash flow and profits must be exactly the same. They are not. It’s not true. P&L is a metric of financial performance. In contrast, the bank account is a reflection of when money moves into and out.
Understanding the differences could help restaurant owners shift their views on the restaurant’s finances.
Imagine what might happen during the typical week. Customers pay for food. Employees must be paid. Invoices will be sent out with drinks and food deliveries. Rent is getting closer. Credit card deposits come with their own schedules. Sales tax is collected, but it’s responsibilities.
Already the purchases for the week ahead have started.
When you concentrate on revenue or the number of dollars earned at the end, it is easy to miss out on lots of activities.
The Clue May Be Hiding in the Prime Cost
If restaurant profits begin to move in the wrong direction, the food, beverages and labor expenses require the attention of restaurant owners.
Together, cost of goods sold and the labor cost comprise the primary cost. The Bookkeeping Chefs’ guidance places the prime cost between 60% and 65 percent of the revenues for a variety of restaurants. They also suggest regular monitoring of the week instead of waiting until the end of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant normally achieves its goals, however this week it’s an increase in percent. Maybe the number of overtime hours has increased. Perhaps beverage costs were steady However, food expenses increased. Operators may examine menus or waste, portion sizes as well as vendor invoices and buying if the percentage of food is higher.
The percentage is a source of concern. The answer lies in the restaurant’s activity.
Weekly reports allow this discussion to occur even though everyone is aware of what has happened.
After a period of two to three weeks, it is much more difficult to reconstruct particulars.
The Vendor’s bills arrive
Restaurants might purchase food items one week and pay for them next week. This timing helps to explain the reasons why profit alone isn’t enough to answer all cash questions.
Invoices from vendors need to be accounted for, tracked and paid. In a busy business with numerous suppliers, doing that manually can turn into the company’s own administrative task.
Automating the process of paying bills can streamline this process by reducing the repeated handling of payments and bills. The bookkeeping system that is connected to the internet can give the owner a clearer picture of debts that haven’t yet reached the bank account.
It’s helpful because, when looked at as a whole the restaurant’s financial position might appear to be better than its actual short-term financial situation.
There could be $80,000 in the account today. The $80,000 amount is small if the cost of rent, vendors or payroll are to take up a large portion over the coming days.
This is the natural progression to the process of forecasting cash flows.
The most appropriate question to ask yourself is “What happens to our money after we receive the money and have met our obligations that we know?”
It is crucial to understand what the distinction is when deciding if this week is an ideal opportunity to replace equipment, buy additional products or to conserve the cash flow.
The money you receive may Not be Yours
The sales tax illustrates this particularly well.
Restaurants collect money from their customers, which they have to follow according to the tax requirements. If these cash-flows are grouped together with operating cash, it can provide a false perception of the money available to spend.
Consistent records help restaurants comply with sales taxes and provide the management a realistic view of their financial situation.
Accounting for restaurants is more efficient when the financial obligations of each restaurant are separated.
Prime cost affects margin. COGS and future payments are affected by purchases made by vendors. Payroll affects both the labor and cash percentage. Taxes on sales affect the availability of cash. P&Ls report financial performance, and forecasting lets management examine the future.
The pieces are linked.
Bookkeeping Chef makes use of restaurant-specific reports as well as system integrations to connect the pieces. Specialized outsourced bookkeeping services are an ideal alternative for businesses that don’t have the time to reconcile their financial information. They can handle a large portion of the accounting duties but without taking the owner away from the financial discussion.
The last part is important.
Restaurant owners shouldn’t be able to stop going through the manuals regardless of whether they’re being handled by another. It’s essential that owners are informed so that they can understand what’s going on.
If the P&L shows that the restaurant is earning money however, the balance in the bank feels insufficient, don’t believe the P&L could be wrong.
What happened between the two?
The answer to this question will give you more insight into the restaurant’s location than a number.