The month is over. The sales were good, the P&L indicates a profit and there’s nothing that appears to be suspiciously incorrect.
Make sure to check the restaurant’s account.
The number may not be what you expected.
Restaurant owners, this gap can be frustrating as profits and cash flow appear to have the same meaning. They are not. A P&L examines how well the company’s financials have performed over a certain time, while your bank account shows the time frame of money being moved into and out of the business.
Knowing the differences could help restaurant owners shift their perspective on restaurant finances.
Take a look at what happens during an ordinary week. Customers pay for meals. Employees need to be paid. The invoices for food and drinks are issued. Rent is on the way. Deposits to credit cards are timed. Taxes on sales have been collected, but the money is subject to an obligation.
The buying for next week has already started.
When you concentrate on revenue or the number of dollars earned at the end it’s easy to miss a the vast amount of activity.
The Secret Could Be Hidden in Prime Cost
If restaurant profitability begins to decrease, costs of food, beverages and labor costs must be taken in the equation.
Cost of selling goods with labor is a major cost. Bookkeeping Chef’s guidelines place prices for the prime cost at around 60% to 65% for many restaurant and stresses weekly monitoring as opposed to staying until the end of the month.
Effective prime cost management involves less focus on a single percentage and more attention to the any early movements.
Imagine that the restaurant’s results are usually within the range of its goals however this week, it grew. Perhaps overtime was added. Perhaps the cost of beverages was stable while food costs grew. The chef may look over menus, waste, portion sizes as well as vendor invoices and purchasing if the proportion of food is greater.
The percentage raises a concern. The answer is found in the restaurant’s activity.
A weekly report can make an opportunity for conversation while everyone will be able to recall what occurred.
The details are harder to remember the next day or two.
When the vendor bills arrive
Restaurants can purchase ingredients one week and pay for them next week. Because of this, it is the case that analyzing profits alone will not address all cash issues.
Vendor invoices should be recieved and tracked. Manually completing this task in an organization with a lot of suppliers could become an enormous administrative burden.
Automating the account payable process can help organize this by reducing the repeated handling of payments and bills. The user can have an accurate picture of debts that haven’t landed in their bank account by using the bookkeeping software that is connected to.
This is beneficial, as the bank’s balance may appear more healthy than the restaurant’s actual situation in the near future.
There could be $80,000 in the account as of today. The figure of $80,000 is little if vendors, rent or payroll make an enormous amount over the coming days.
That leads naturally to cash flow forecasting.
The most appropriate question to ask yourself is “What happens to our cash once we have received the funds and have fulfilled our obligations that we know?”
This distinction is essential in determining which is the appropriate week to purchase an additional item to replace equipment or maintain the liquidity.
The Cash Was Never Yours
Sales tax illustrates the point particularly well.
Restaurants collect money from their customers, which they must be able to manage in accordance with the tax requirements. If those dollars are mentally placed in the same category as operating cash, the balance in the bank may create a false sense of the money there to be spent.
Consistent record keeping helps restaurants comply with sales tax laws and also giving a clear image of their financial condition.
Restaurant accounting is more effective when the financial responsibilities of each restaurant are separated.
Prime cost affects margin. COGS and future payments are affected by purchases made by vendors. Payroll has an impact on both the labor percentage as well as cash. Cash flow is impacted by the sales tax. The P&L shows financial performance, while forecasting helps management look ahead.
The pieces are joined.
Bookkeeping Chef helps bring these elements together, using restaurant-specific reports as well as system integrations. If you don’t want to work all night reconciling financial data, specialized outsourced bookkeeping services will handle the bulk of accounting tasks without removing the proprietor from the financial conversation.
This last aspect is crucial.
Restaurant owners should not stop reading the books, regardless of whether they’re being handled by another. Owners should be provided with data in a way that will help them understand what’s going on.
So if the P&L says the restaurant made cash, yet the bank account seems to be a bit insecure, don’t believe that one of the numbers must be incorrect.
What transpired between the two?
The answer to this question will give you more insight into the restaurant’s reputation than the name.