The month is over. The sales were decent, the P&L had a profit, and there was nothing to be seriously incorrect.
Check the restaurant’s bank account.
The number isn’t exactly what you’d hoped for.
Restaurant owners, this is a problem because profit and available cash feel as though they should provide the same information. They don’t add up. A P&L is a measure of how well the company’s financials have performed over a certain time and the bank account is a reflection of the time frame of money being moved into and out of the company.
Understanding the difference will change the way that a restaurant’s owner views their finances.
Think about what happens in an normal week. Customers pay for meals. Employees have to be paid. You will receive invoices for meals and beverages delivered. Rent is on the verge of being due. Deposits made with credit cards come with their own schedules. The sales tax collected has an obligation.
The buying for next week has already begun.
If you just look at the revenue or the final profit, then you will be missing a lot of this action.
The key may lie in prime cost
If the profitability of restaurants begins to decline, the cost of food, beverages and labour expenses should be taken into the equation.
The prime cost is comprised of both products and labor. The Bookkeeping Chefs’ provided instructions place the main cost between 60 and 65% of revenues for many restaurants. They also emphasize weekly monitoring instead of waiting until the month ends.
Effective cost management for primes involves less focus on a single percent and more noticing earlier movement.
Let’s say that a restaurant typically performs at or near its goal however, this week’s rate rises. Perhaps overtime was went up. Perhaps the cost of beverages was stable however food costs increased. A higher percentage of food could cause the manager to look at purchasing, waste, menu mix portions and vendor invoices.
The percentage raises a concern. The answer is found in the activity of the restaurant.
A weekly report can make that conversation possible while everyone still remembers what happened.
The details are much harder to recall two or three days later.
The Vendor’s bills arrive
Restaurants may buy ingredients this week but have to pay for the items later. This is due to the fact that understanding profits alone does not answer all cash issues.
Vendor invoices have to be received and tracked. In a highly-competitive business with many suppliers, completing that by hand can be the company’s own administrative task.
Automating accounts payable speeds up this process, reducing routine tasks like handling bills and payment details. Connected bookkeeping systems can also provide the user with a more clear picture of debts that haven’t yet been paid into the account of the bank.
It’s useful because, looked at as a whole the restaurant’s financial position may appear to be more stable than its actual financial situation.
There might be $80,000 in the account as of today. The amount could be different depending on other factors like rent as well as payroll, vendors and other obligations that will be due in the next few days.
Cash flow forecasting is a natural outcome.
What happens to our money after we’ve received the amount we’ve hoped for and have fulfilled all of our obligations?
This distinction is essential when deciding whether this is the best time to buy an additional purchase to replace equipment or keep the liquidity.
It is possible that you weren’t eligible for all the money you believed.
Sales tax highlights this especially well.
The money restaurants receive from their patrons will eventually have to be managed in accordance with its tax obligations. If the money is mentally grouped with ordinary operating cash, the bank balance could create a false impression of the amount there to be spent.
Consistent record keeping helps restaurants comply with sales tax laws while also providing a realistic picture of their financial situation.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant do not have to be considered separately.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Both labor and cash percentages are affected by payroll. Cash flow is impacted by sales tax. P&Ls report financial performance, and forecasting lets management examine the future.
The pieces are joined.
Bookkeeping Chef is a restaurant-specific report that integrates along 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.
The goal isn’t for restaurant owners to not look at the books because somebody else handles them. It’s essential that owners receive information so they can understand what’s going on.
So if the P&L indicates that the restaurant made money but the bank account feels surprisingly tight, don’t presume that one of the numbers must be incorrect.
Ask them about what transpired between them.
The answer to that question will reveal more about your restaurant than any number by itself.
