The month is finished. Sales were solid, the P&L indicates a profit and there is nothing to be seriously wrong.
It is recommended to check the restaurant’s bank account.
You didn’t get the call you would have expected.
Restaurant owners, this gap can be frustrating as the cash flow and profit seem to have the same meaning. But they don’t. A P&L evaluates the financial performance of a business for a particular time period, whereas a bank account shows the exact timing of money entering and leaving the company.
Understanding the difference can change the way an owner is looking at the restaurant’s financials.
Take a look at what happens during a normal week. Customers pay for meals. Paying employees is necessary. You will receive invoices with food and beverage deliveries. Rent is getting closer. The timing of debits to credit cards differs. Sales tax is collected, but it comes with the responsibility.
In the meantime, next week’s purchase has already started.
Looking just at revenue or the ending profit number isn’t a good way to assess the full scope of what happens.
Prime Cost could be the key to the answer
If the profitability of restaurants begins to decrease, food, beverage and labor expenses should be taken into the equation.
Cost of goods sold combined with labor is the main cost. The Bookkeeping Chefs’ advice places the cost of goods sold between 60-65% of revenues for many establishments. They also recommend the importance of weekly monitoring rather than waiting until the month ends.
Effective cost management for primes is less about focusing on the exact percentages and more about recognizing changes early.
Imagine that the restaurant normally does well, however this week it’s at a higher percentage. Perhaps overtime was added. The cost of drinks could have remained the same while the food expenses increased. A higher percentage of food could make the supervisor think about reviewing buying, waste, menu mix, portions, or vendor invoices.
The percentage raises questions. The answer lies in the underlying activities in restaurants.
Weekly reports allow this conversation to take place as everyone is conscious of the events that have occurred.
Three or four weeks later after that, the details become harder to reconstruct.
When the vendor bills arrive
Restaurants may buy ingredients one week and pay for them next week. This is a way to explain the reasons why profit alone isn’t enough to answer every cash question.
Invoices from vendors have to be tracked, received and paid. In a business that has many suppliers, doing this manually could become the company’s own administrative task.
Automating accounts payable can help organize this process by reducing the need to handle bills in a repetitive manner and payment information. The user can have more precise information about the obligations that haven’t yet landed on their bank accounts by utilizing the bookkeeping software that is connected to.
It’s helpful because, when considered as a whole the restaurant’s financial position may appear to be more stable than its actual short-term financial situation.
There may be $80,000 sitting in the account today. The figure of $80,000 means little if vendors, rent, or payroll will take up a large portion over the next few days.
This is the natural progression to the process of forecasting cash flows.
What happens to our money after we’ve received the amount we’ve hoped for and fulfilled all our obligations?
This is an important distinction to make when deciding on whether or not this is the right week to make an additional purchase or replace equipment, or to maintain liquidity.
And Some of the Cash Was Never Really Yours
Sales tax highlights this point particularly well.
Restaurants receive money from customers and has to be managed according to its tax obligations. If these funds are associated with operating cash, the balance of the bank can create a misleading sense of the money there to be spent.
Consistent records help restaurants comply with sales taxes and provide management a complete picture of their financials.
This is one reason why restaurant accounting is more efficient when financial obligations aren’t viewed as separate entities.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll is a factor that affects the percentage of labor and cash. Sales tax affects cash availability. P&Ls track financial performance, while forecasting allows management to look ahead.
The pieces are linked.
Bookkeeping Chef incorporates restaurant-specific reporting with system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.
The last part is important.
It’s not the aim of restaurant owners to stop examining their books because somebody does. Owners must be provided with information which will allow them to understand what’s happening.
If the P&L indicates that the restaurant is profitable but the bank balance seems insufficient, don’t believe that the P&L could be wrong.
Find out what transpired between them.
Answering this question can tell you more about the restaurant, more than just the number.