The month has ended. Sales were excellent, and the P&L shows a profit, and nothing appears to be seriously off.
Check the restaurant’s account.
The number you received isn’t exactly what you’d hoped for.
Restaurant owners can find this disconnect frustrating because they believe that profits and cash flow should be exactly the same. However, they aren’t. It’s not true. P&L is a gauge of financial performance, whereas the bank account is a reflection of when money moves into and out.
Understanding the different aspects could help restaurant owners shift their views on the restaurant’s finances.
Consider what happens during an ordinary week. The customers pay for food. Employees must be paid. Food and beverages are delivered with invoices. Rent is getting closer. Credit card deposits are subject to their own timetable. Sales tax collected is an obligation.
The purchase for next week has already begun.
Looking just at revenue or the ending profit number leaves out a lot of the work.
The Clue May Be Hiding in the Prime Cost
The cost of food, drinks and labour costs merit a closer review when the profitability of a restaurant begins to go downhill.
Prime cost consists of both materials and labor. The Bookkeeping Chefs’ instructions place the main cost between 60-65% of revenues for many establishments. They also emphasize regular monitoring of the week instead of waiting until the end of the month.
It is much more crucial for you to recognize changes earlier than worrying about certain percentages.
Imagine that the restaurant usually performs close to its target, but this week’s percentage increases. Maybe the number of overtime hours has increased. Maybe beverage costs were stable however food prices soared. A higher percentage of food might prompt the operator to examine purchases, waste management, portions and menus, or vendor bills.
The percentage raises questions. The answer lies in the restaurant’s activity.
Weekly reports allow for this conversation to be held in the midst of everyone being aware of what’s transpired.
A few weeks later after that, the details become harder to understand.
Then the Vendor Bills Show Up
The restaurant will pay an additional time for the items it purchases. Because of this, it is the case that understanding profits alone can not solve all cash problems.
Invoices from vendors need to be tracked, accepted and paid. In a highly-competitive business with numerous suppliers, doing that manually could become its own administrative workload.
Automating accounts payable helps to streamline this process by reducing the need to handle bills in a repetitive manner and payment details. The owner can get more precise information about the obligations that haven t hit their bank accounts through automated bookkeeping systems that are connected.
It’s beneficial because, when considered as a whole the balance of a restaurant’s bank account may appear to be healthier than its actual short-term financial situation.
It could be that you’ve got $80,000 in your account at the moment. This amount could mean something different in the event that it is affected by other elements like rent as well as payroll, vendors and other obligations that will be due in the coming days.
That leads naturally to cash flow forecasting.
The best question to ask yourself is “What happens to our funds after we have received the funds and have fulfilled the obligations we’ve made?”
It is crucial to understand the difference between them when deciding whether this week is an ideal time to replace equipment, purchase additional items or save the cash flow.
It is possible that you weren’t legally entitled to the full amount you thought.
Sales tax illustrates the point in particular.
The money restaurants receive from their customers will eventually need to be managed in accordance with the tax requirements. If these funds are grouped together with operating cash, they can provide a false perception of the amount of money that is available for spending.
Regularly updated records ensure sales tax compliance as well as giving management a more realistic understanding of the restaurant’s financials.
This is one reason why restaurant accounting can be more effective when financial responsibilities aren’t treated as separate entities.
Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll affects the amount of cash available and also the labor percentage. Sales tax affects the availability of cash. P&Ls are used to record financial performance. Forecasting can be helpful for managers.
Connect the pieces.
Bookkeeping Chef uses restaurant-focused reporting as well as system integrations to integrate these pieces. Outsourced bookkeeping is a great option for owners who do not wish to be tasked with reconciling their financial records.
This last aspect is crucial.
It’s not our goal for restaurant owners to stop examining their books just because someone does. Owners should be provided with the information they need in a format that allows them to understand what’s going on.
If the P&L indicates that the establishment is profitable however the balance of the bank seems unbalanced, don’t assume that the P&L may be inaccurate.
Find out what transpired between you and your spouse.
This question will tell you more about your company than any other number.
