The month has come to an end. The sales were good, the P&L shows a profit and there’s nothing that appears to be to be terribly wrong.
Make sure to check the restaurant’s account.
The number you received isn’t exactly what you’d hoped for.
Restaurant owners may be dissatisfied with this as they believe cash flow and profits ought to be exactly the same. But they don’t. The P&L is a measure of financial performance, whereas the bank account is a representation of the time when money flows in and out.
Understanding the difference will change how a restaurant’s owner considers their financials.
Check out what goes on in a typical week. Customers pay for meals. The payment of employees is essential. Invoices for food and beverages are handed out. Rent is getting closer. The time frame for credit card deposits differs. Sales tax has been collected, however that money comes with an obligation.
On the other hand, the next week’s shopping has already started.
When you look only at revenue and the final profit figure, it is easy to overlook an abundance of activity.
The clue could be hidden in the Prime Cost
If restaurant profits begin to move in the wrong direction, the food, beverages and labor expenses require consideration.
Prime cost consists of both materials and labor. Bookkeeping Chef’s guidelines place the primary cost at around 60%-65 percent of revenues for a variety of restaurants, while focusing on regular monitoring instead of waiting until the end of the month.
Effective prime cost management involves not focusing on one percentage and more attention to the earlier movement.
Imagine that the restaurant’s results are usually within the range of its goals However, this past week, it grew. Perhaps overtime was increased. Perhaps the cost of beverages was stable however food costs increased. The chef may look over menus and portions, waste or vendor invoices, as well as buying if the percentage of food is greater.
The percentage raises questions. The answer lies in the activity of the restaurant.
A weekly report can make this conversation possible and everyone still remembers what happened.
After a few weeks The details are much harder to understand.
When the vendor bills arrive
Restaurants may buy ingredients in one week, and then make payments the following week. This is due to the fact that understanding profits alone does not address all cash issues.
Invoices from vendors need to be tracked, received and paid. In a highly-competitive business with multiple suppliers, managing that manually could become an administrative task.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Owners can have more precise information about the payments that haven’t been deposited into their bank account through the bookkeeping software that is connected to.
It’s important because the bank’s balance in isolation may appear to be healthier than the restaurant’s actual short-term position.
There could be $80,000 in the account right now. The $80,000 amount is tiny if rental, vendors, or payroll will take an enormous amount over the coming days.
This is the natural progression to the process of forecasting cash flows.
The best question to ask yourself is “What will happen to our cash after we receive the money and have met our obligations we’ve made?”
This is a crucial distinction when deciding on the appropriateness of the right week to make an extra purchase or replace equipment, or to maintain liquidity.
A portion of the Cash Wasn’t Really Yours
The sales tax illustrates this in particular.
A restaurant receives cash from its customers, which eventually has to be managed according to tax requirements. If those funds are associated with operating money, the bank’s balance could create a false impression of the money available for spending.
Regularly updated records ensure sales tax compliance while also giving management a more realistic picture of the financials of the restaurant.
This is the reason that restaurant accounting is more efficient when financial obligations aren’t separated from other responsibilities.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted by the purchases made by vendors. Payroll can affect both the percentage of labor as well as cash. Cash availability is impacted by sales tax. P&Ls can be used to document the financial performance. Forecasting is also beneficial for management.
Connect the pieces.
Bookkeeping Chef employs restaurant-specific reporting and system integrations that help bring those pieces together. Outsourced bookkeeping services that are specifically tailored to your needs are an excellent alternative for those who don’t have the time to reconcile their financial information. They can take care of much of the accounting work while removing the proprietor from the financial conversation.
The last point is vital.
It’s not the goal for restaurant owners to not check their books because someone does. Owners should receive information that can help them know what’s going on.
Don’t think that the P&L is not correct if the bank account seems tight but the P&L confirms that the restaurant earned money.
Find out what transpired between you and your spouse.
That question can teach you far more about your restaurant than a single number could be on its own.