The month is over. The month is done.
You then check the bank account of the restaurant.
You didn’t get the number you would have expected.
This gap is a problem for restaurant owners as they feel that profit and cash available should be the same. They don’t. The P&L is a measurement of financial performance. In contrast, the bank account is a record of the time when money flows in and out.
Understanding the difference can change the way an owner considers restaurant financials.
Imagine what could happen on a typical week. Customers pay for meals. Employers must be paid. Food and drinks are issued. Rent is due. The time of credit card transactions is different. The sales tax collected has an obligation.
Already the shopping spree for next week have begun.
Looking only at revenue or the end-of-year profit number leaves out a lot of the work.
Prime Cost could be the Key to the Answer
The cost of food, drinks and labour costs merit a closer examine when restaurant profitability begins to decrease.
Cost of sales combined with labor is the main cost. Bookkeeping Chef’s supplied guidance places the cost of goods sold at 60%-65 percent of revenues for a variety of restaurants, focusing on weekly monitoring rather than waiting until the close of each month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Let’s say that typically, the restaurant is performing at a high level, but this week, there’s an increase in percent. Perhaps the overtime rate was increased. Perhaps the cost of beverages was stable However, food expenses increased. A higher proportion of food may lead the operator to review the menu, purchases, waste, mix portions and vendor invoices.
The percentage is a source of concern. The activity of the restaurant itself provides the answer.
A weekly report makes an opportunity for conversation while everyone remembers the events.
A few weeks later The details are much more difficult to understand.
Once the vendor invoices are received
A restaurant could purchase the ingredients this week but pay for them in the future. This timing helps to explain how profit alone will not be enough to answer all cash related questions.
Vendor invoices have to be received and tracked. In the course of manual processing, an organization with a lot of suppliers could become an enormous administrative burden.
Automating the account payable process can streamline this process through reducing the repetition of payments and bills. Bookkeeping systems that are integrated allow owners to have a better image of their obligations even if they haven’t yet been paid.
It’s helpful because, when viewed as a whole, a restaurant s bank balance might appear to be better than its actual financial position.
There might be $80,000 in the bank account at present. This number could mean something different in the event that payroll, rent, vendors, and other commitments will consume a substantial amount over the next several days.
Forecasting cash flow is a natural result.
The most appropriate question to ask yourself is “What will happen to our cash once we receive the money and have fulfilled our obligations we’ve made?”
The difference can be crucial when deciding whether this is a suitable week to replace equipment, make an extra purchase, or keep liquidity.
The cash you received may Not be Yours
Sales tax illustrates this in particular.
Restaurants take money from their customers, which they must then handle in accordance with the tax requirements. If these funds are grouped with ordinary operating cash, the bank balance may create a false sense of the amount there to be spent.
Records that are consistent support the tax compliance of sales while providing management with a more accurate perspective of the restaurant’s financials.
Accounting for restaurants is more efficient when the financial responsibilities of each restaurant are not separated.
Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll and cash availability are affected by payroll. Cash flow is affected by the sales tax. P&Ls are used for recording financial performance. Forecasting is also helpful to management.
The pieces are joined.
Bookkeeping Chef can help bring the pieces together by providing restaurant-specific reports as well as system integrations. For business owners who don’t want to be slavishly reconciling financial information, outsourced bookkeeping services will handle much of the accounting workload without removing the owner from financial conversations.
The last point is vital.
Restaurant owners shouldn’t be able to stop studying the literature just because they are handled by another. It’s important that the owners have access to information so that they understand what’s going on.
If the P&L indicates that the establishment is earning money but the bank balance feels too tight, don’t think that the P&L could be wrong.
Find out what transpired between you and your partner.
This question can tell you more about your business than any number.