The month has come to an end. The sales were good and the P&L was profitable and there was no sign of anything that appeared to be terribly incorrect.
Check the restaurant’s bank account.
The number you received wasn’t what you expected.
Restaurant owners may find it difficult to reconcile this issue as they believe cash flow and profits ought to be the same. However, they aren’t. A P&L is a measure of financial performance over a period and the bank account reflects the time frame of money flowing into and out of the business.
Knowing the differences will help restaurant owners adjust their views on the restaurant’s finances.
Think about what happens in an normal week. Customers pay for food. Employees must be paid. The invoices for food and drinks are issued. Rent is due. Credit card deposits have their own timing. Sales tax is collected, however that money has a responsibility.
In the meantime, next week’s purchase has already begun.
If you are only looking at the amount of revenue or the final profits, then you’ll not be able to see a lot of this process.
The key may lie in the price of the best.
If restaurant profits begin to move in the wrong direction, the food, beverages as well as labor costs require the attention of restaurant owners.
Cost of the goods sold with labor is the primary cost. Bookkeeping Chef’s guidelines place prime costs at approximately 60%-65% for many restaurant, and emphasizes weekly monitoring instead of waiting until the end the month.
Effective cost management for primes is less about worrying about a single percentage and more about spotting changes earlier.
Imagine that the restaurant usually performs within its targets However, this week’s number increases. Perhaps the overtime rate went up. The price of drinks may have remained the same, whereas food costs increased. An increase in the percentage of food consumed might prompt the operator to look at purchases, waste management, portions and menus, or vendor costs.
The percentage raises questions. The answer lies in the underlying activity in the restaurant.
The reason this conversation can be relived is because everyone will be able to remember the events that transpired.
The details will be more difficult for you to recall two or three days later.
When the vendor bills arrive
The restaurant is expected to pay in the future for the ingredients it purchases. This explains why profit alone is not enough to answer all cash-related questions.
Invoices from vendors have to be accounted for, tracked and paid. This could be a lot of work in an organization with numerous suppliers.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that are linked will give the owners a clear picture of obligations, even though they haven’t yet been paid.
It’s advantageous because, taken as a whole the bank balance of a restaurant may appear to be more stable than its actual financial situation.
There could be a possibility that you have $80,000 on your account at the moment. It could be interpreted differently when it is affected by other elements like rent or other expenses, such as payroll, vendors or other obligations over the coming days.
Cash flow forecasting is a common outcome.
What will happen with our money after we’ve received the funds we’ve expected and met all of our obligations?
The distinction is important when deciding whether this is a suitable week to repair equipment, make an additional purchase, or to preserve the liquidity.
The money you receive may Not be Yours
The sales tax example is a good example.
Restaurants get money from customers, which they deal with according to their tax obligations. If the money is mentally mixed with operating cash, then the balance of the bank account could provide an inaccurate picture of how much cash is available.
Consistent record keeping helps restaurants comply with sales tax laws and also providing a realistic picture of their financial situation.
This is a reason why restaurant accounting is more efficient in situations where financial responsibility isn’t seen as separate islands.
Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Payroll is a factor that affects both cash and labor percentage. Sales tax influences the availability of cash. P&Ls are used for recording the financial performance. Forecasting is also helpful to management.
Connect the pieces.
Bookkeeping Chef incorporates restaurant-specific reporting through system integrations. Outsourced bookkeeping is a great option for users who don’t want to work all night reconciling their financial records.
It’s the last part that matters.
Restaurant owners shouldn’t stop reading their books even if they’re managed by another. It’s essential that owners get information so they can understand the situation.
If the P&L indicates that the restaurant is profitable but the bank balance seems too tight, don’t think that the P&L could be wrong.
Find out what transpired between them.
This will reveal more about your business than any number.