The month is over. The sales were excellent, the P&L showed a profit and there was no sign of anything that appeared to be terribly off.
Check the restaurant’s account.
The number doesn’t match what you expected.
Restaurant owners might find this disconnect frustrating since they believe cash flow and profits ought to be exactly the same. But they don’t. The P&L is a metric of financial performance. In contrast, the bank account is a record of when money moves in and out.
Understanding the different aspects can allow owners to change their views on the restaurant’s finances.
Look at the typical week. Customers pay for meals. It is important to pay employees. Food and drinks are issued. Rent is close to being paid. Credit card transactions have their own timing. Sales tax is collected, however that money is a legal obligation.
Already the purchases for the week ahead have begun.
If you focus only on the amount of revenue or the final profits, then you’ll be missing a lot of this action.
The clue could be hidden in the Prime Cost
If restaurant profitability begins to fall, cost of food, drinks and labor expenses should be taken into consideration.
Prime cost is made up of the price of goods and labor. The Bookkeeping Chefs’ instructions place the main cost between 60 and 65 percent of the revenues for a variety of restaurants. They also recommend weekly monitoring instead of waiting until the end of the month.
Effective primary cost management requires not focusing on one percentage and more attention to the earlier movement.
Imagine that the restaurant’s results are usually close to its goal, but this past week, it went up. Perhaps the overtime rate increased. Maybe beverage costs were stable However, food expenses increased. An increase in the percentage of food consumed might prompt the operator to consider examining the purchase, waste management, portions and menu mix or even vendor invoices.
The percentage is the key. The underlying restaurant activity provides the answer.
Weekly reports allow this discussion to occur while everyone is still aware of what’s transpired.
Three or four weeks later The details are much more difficult to decipher.
Once the vendor invoices are received
Restaurants may buy ingredients one week and pay for them the next. This is a way to explain how profit alone will not be enough to answer all cash related questions.
Vendor invoices must be recorded, received as well as tracked until they are paid. In a busy operation with many suppliers, doing this manually could become the company’s own administrative task.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The account owner will have more precise information about the debts that haven’t landed in their bank accounts by utilizing integrated bookkeeping systems.
It’s useful because, taken as a whole the bank balance of a restaurant could appear to be more healthy than its actual short-term financial situation.
Today, there may be $80,000 on the account. This amount could mean something different if rent, payroll, vendors, and other commitments will consume a substantial portion of it over the next several 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 fulfilled all our obligations?
It is essential to be aware of the difference before deciding if this week is the best time to replace equipment, buy more items, or conserve liquid funds.
The Cash Was Never Yours
The sales tax example is a good example.
A restaurant receives cash from its customers, which eventually will need to be dealt with in accordance with tax regulations. If the funds are combined with normal operating cash, then the bank balance may provide an inaccurate picture of the amount of cash available.
Records that are consistent support sales tax compliance as well as providing management with a more accurate view of the restaurant’s finances.
It is for this reason that restaurant accounting is more efficient when financial responsibilities don’t are treated as separate islands.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted through purchases made by vendors. Payroll is a factor that affects the percentage of labor and cash. Taxes on sales affect cash availability. The P&L tracks financial performance, forecasting can help management look ahead.
The pieces join.
Bookkeeping Chef assists in bringing these pieces together with restaurant-focused reports as well as system integrations. Bookkeeping outsourcing can be beneficial to owners who do not wish to spend the night manually reconciling their financial records.
It’s the very last one that is important.
Restaurant owners should not stop reading their books simply because they’re handled by someone else. Owners should be provided with details in a manner that allows them to understand the situation.
Don’t assume that the P&L is wrong if the bank account appears to be in good shape, but the P&L indicates that the restaurant made money.
Ask what happened between them.
This question will teach you something more about the food you serve than any number alone.