The month is finished. The sales were great and the P&L had a profit, and there was nothing that appeared to be terribly in error.
Make sure to check the restaurant’s account.
The number isn’t the one you’d expected.
Restaurant owners may find it difficult to reconcile this issue, as they believe that profits and cash flow should be the same. They don’t add in. A P&L measures financial performance over a time, while the bank account represents the actual timing of money being moved into and out of the company.
Understanding the difference can alter how a business owner considers restaurant financials.
Imagine what happens on a typical week. Customers pay for food. The employees must be paid. You will receive invoices for food and beverage deliveries. Rent is close to being paid. Credit card payments are subject to their own timetable. Taxes on sales have been collected, but that money is subject to an obligation.
Already the shopping spree for next week have started.
Looking just at revenue or the final profit figure isn’t a good way to assess the full scope of what happens.
The Key to the Mystery Could Be Hidden in the Prime Cost
When the profitability of restaurants starts to change in the wrong direction, the food, beverages as well as labor costs require consideration.
Together, the cost of the products sold and labor are the main costs. The bookkeeping chef’s guideline places prime cost at roughly 60%-65 percent of the total revenue for many restaurants, while emphasizing the importance of monitoring weekly rather than waiting until the close of the month.
Effective management of prime costs is less about worrying about one percentage point and more about recognizing changes in the early stages.
Imagine that the restaurant’s efficiency is usually within the range of its goals, but this past week, it was higher. Perhaps the overtime rate went up. Maybe beverage costs were stable However, food expenses increased. An increase in the percentage of food items could cause the manager to look at the menu, purchases, waste, mix, portions or vendor invoices.
The percentage is the most important. The answer is found in the activity of the restaurant.
Weekly reports allow for this discussion to occur even though everyone is aware of the events that have occurred.
Two or three weeks later After that, the details become harder to reconstruct.
The Vendor’s Bills Arrive
A restaurant could purchase the ingredients this week but have to pay for these items in the future. This explains why knowing the profit isn’t enough to answer every cash question.
Vendor invoices should be recorded, received then tracked and finally paid. Manually completing this task in an environment with many suppliers can become a huge administrative burden.
Automating the process for accounts payable can help organize this by reducing the repeated handling of bills and payments. Systems for bookkeeping that are linked to accounting systems can provide owners with a clear picture of obligations, even if they’ve not yet been paid.
This is advantageous, since the bank’s balance could seem healthier than a restaurant’s real near-term situation.
There may be $80,000 sitting in the account as of today. This number could mean something different when you consider that rent, payroll, vendors, and other commitments consume a significant portion over the next few days.
Cash flow forecasting is a common outcome.
The better question to ask yourself is “What happens to our cash once we receive the money and have met the commitments we’ve identified?”
The difference can be crucial in determining if this is the right time to replace equipment, an extra purchase, or keep liquidity.
And Some of the Cash Was Never Really Yours
The sales tax illustrates this particularly well.
The money that restaurant owners receive from customers will eventually have to be dealt with in accordance with its tax obligations. If the funds are mixed with cash flow, the balance of the bank account could be misleading about the amount of money available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
This is a reason why restaurant accounting is more efficient when financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll and cash availability are affected by payroll. Cash flow is impacted by the sales tax. P&Ls report financial performance, and forecasting lets management examine the future.
The pieces link.
Bookkeeping Chef assists in bringing these pieces together with restaurant-focused reports and system integrations. For operators who don’t want to be slavishly reconciling financial records, outsourcing bookkeeping services can take care of much of the accounting workload without removing the proprietor from financial conversations.
The last point is vital.
The aim isn’t to get restaurant owners to simply stop looking at their accounts because someone else is handling them. Owners should be given information that can help them comprehend what’s happening.
If the P&L shows that the establishment is profitable however, the balance in the bank feels too tight, don’t think that the P&L is not accurate.
Find out what happened between you and your partner.
Answering this question can tell you more about the restaurant, more than just an identifying number.