The month is over. The sales were good, the P&L indicates a profit and nothing appears to be seriously incorrect.
Then, you should check the restaurant’s bank account.
The number you received isn’t the one you’d expected.
This gap is a problem for restaurant owners since they believe that profit and cash flow should speak the same truth. But they don’t. A P&L evaluates the performance of the business’s finances over a specific time period, whereas an account in a bank shows the exact timing of funds flowing into and out of the business.
Knowing the differences can allow owners to change their view of the financials of their restaurant.
Think about what happens in an normal week. The customers pay for food. The payment of employees is essential. Invoices for food and beverages are delivered. Rent is nearing. Deposits to credit cards are timed. Sales tax is an obligation.
The shopping for the week ahead has already started.
If you focus only on revenues or the final profits, then you’ll miss a lot of the activity.
Prime Cost could be the Key to the Clue
Food, beverage and labour costs are worth taking a closer look when restaurant profitability starts to fall.
Prime cost consists of both items and labour. Bookkeeping Chef’s provided guidance places primary costs between 60%-65 percent for a wide range of restaurants, and emphasizes weekly monitoring as opposed to waiting until the end the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant’s results are usually close to its goal However, this week it increased. Perhaps overtime was increased. Maybe beverage costs were stable however food prices soared. A higher proportion of food may prompt the owner to examine buying, waste, menu mix, portions, or vendor invoices.
The percentage is a source of concern. The activities that underlie the restaurant provide the answer.
The reason this conversation can be relived is because everyone can still remember what transpired.
The details will be more difficult to remember two or three days later.
The Vendor’s Bills are Received
The restaurant will pay in the future for the ingredients it buys. This explains the reasons why profit alone isn’t enough to answer all cash related questions.
Vendor invoices need to be accepted and logged. In a highly-competitive business with many suppliers, completing that manually can become an administrative task.
Automating accounts payable simplifies the process by reducing the time spent on tasks that are repetitive, such as managing bills and payment details. Owners 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 viewed as a whole, a restaurant s bank balance may appear to be more stable than its actual financial situation.
It is possible that there are $80,000 in your account at the moment. It could be different when it is affected by other elements like rent or other expenses, such as payroll, vendors or other obligations over the coming days.
This leads to the cash flow forecasting.
Instead of asking “How much cash do we have?” the better question becomes “What is going to happen to our cash after the cash we anticipate to receive and the obligations we already know about?”
The difference can be crucial when deciding if it is the right time to replace equipment, an additional purchase, or to preserve cash.
And Some of the Cash Wasn’t Yours at All
The sales tax example is a good one.
Restaurants collect cash from its customers, which eventually needs to be handled in accordance with its tax obligations. If these dollars are mentally coupled with the normal operating cash, then the bank balance could be misleading about how much cash is available.
Regularly maintained records help restaurants to comply with the sales tax laws as well as providing a realistic overview of their financial standing.
This is the reason that restaurant accounting can be more effective when financial responsibilities don’t are separated from other responsibilities.
Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Cash and labor percentage are affected by payroll. Cash availability is affected by the sales tax. P&Ls keep track of financial performance and forecasting allows management to look ahead.
The pieces are connected.
Bookkeeping Chef helps bring the pieces together by providing restaurant-specific reports and system integrations. Specialized outsourced bookkeeping services are a great alternative for those who aren’t able to reconcile their financial information. They will take care of a lot of the accounting tasks but without taking the owner away from financial discussions.
The last point is important.
Restaurant owners should never stop going through the manuals simply because they’re handled by another. It’s essential that owners receive information so they understand the situation.
If the P&L indicates that the establishment is profitable however the balance of the bank seems too tight, don’t think that the P&L must be incorrect.
What transpired between the two?
The answer to this question will reveal more about the restaurant’s reputation than a number.