The month has ended. Sales were solid, the P&L is in profit and nothing appears to be terribly off.
Make sure to check the restaurant’s account.
It wasn’t the number you were hoping for.
Restaurant owners can be frustrated by this because they believe that cash flow and profits should be exactly the same. They aren’t. The P&L is a gauge of financial performance. In contrast, the bank account is a representation of how much money is moved in and out.
Understanding the difference will change the way that a restaurant’s owner is able to view their financials.
Check out what happens in a normal week. Customers pay for meals. Employees have to be paid. Food and beverages are delivered with invoices attached. Rent is coming up. The time of the credit card deposit is different. Sales tax is collected but it comes with an obligation.
The next week’s buying has already started.
When you concentrate on revenue or the number of dollars earned at the end, it is easy to miss out on a great deal of activity.
Prime Cost Could Hold the Key to the Solution
If restaurant profitability begins to fall, costs of food, beverages and labor costs must be taken into the equation.
The prime cost is comprised of both the cost of items and labour. The Bookkeeping Chefs’ instructions place the main cost between 60-65 percent of the revenues for a variety of establishments. They also suggest the importance of weekly monitoring rather than waiting until the end of the month.
Effective prime cost management involves less focus on a single percentage and more attention to the early movement.
Imagine that the restaurant’s results are generally within its target However, this past week, it was higher. Perhaps the overtime rate was increased. Maybe the costs for beverages were stable however food costs increased. A higher percentage of food could lead the operator to review the menu, purchases, waste, mix, portions or invoices from vendors.
The percent raises the issue. The activity of the restaurant itself provides the answer.
Weekly reports make this conversation possible and everyone remembers the events.
The details are much more difficult for you to recall the next day or two.
The Vendor’s Bills are Received
The restaurant pays later for the ingredients it purchases. This timing helps to explain the reasons why profit alone isn’t enough to answer all cash questions.
Vendor invoices must be received and logged. In a busy business with numerous suppliers, doing that manually could become the company’s own administrative task.
Automating the accounts payable process can assist in coordinating this process through reducing the repetition of bills and payments. Systems for bookkeeping that connect will give the owners a clear image of their obligations even if they haven’t yet been paid.
This is useful, because the bank balance can appear more healthy than the restaurant’s real near-term situation.
Today, there may be an amount of $80,000 in the account. This amount could mean something different if payroll, rent, vendors, and other commitments consume a significant portion over the next several days.
That leads naturally to cash flow forecasting.
What happens to our money after we’ve received the amount we’ve hoped for and have met our obligations?
The distinction can matter when deciding whether this is a comfortable week to repair equipment, make an additional purchase, or to preserve the liquidity.
and some of the cash Wasn’t Really Yours
Sales tax illustrates the point in particular.
Restaurants take money from their clients, which they deal with in accordance with their tax obligations. If the money is mentally combined with normal cash flow, the balance of the bank account could give an inaccurate impression of the amount of cash available.
Regularly maintained records allow restaurants to comply with sales tax requirements while providing the management a realistic view of their finances.
It is for this reason that restaurant accounting functions better in situations where financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected by the purchases made by vendors. Payroll can affect both cash and labor percentage. Cash availability is impacted by the sales tax. The P&L documents financial performance while forecasting aids management in looking ahead.
The pieces join.
Bookkeeping Chef makes use of restaurant-specific reports as well as system integrations to connect the pieces. For business owners who don’t want to work all night reconciling financial information, outsourced bookkeeping services will handle much of the accounting workload without removing the owner from financial conversations.
It’s the last thing that matters.
Restaurant owners shouldn’t stop studying the literature even if they’re managed by another. It’s for owners to receive the information they need in a format which helps them comprehend the situation.
Don’t think that the P&L is wrong if the bank account appears to be in good shape, but the P&L indicates that the restaurant has generated money.
Find out what transpired between them.
This question will reveal more about your business than any other number.