The month is now over. The month has ended.
Verify the restaurant’s bank account.
It wasn’t the number you would have expected.
This gap is a problem for restaurant owners as they feel that profit and cash flow should speak the same truth. They aren’t. It’s not true. P&L is a metric of financial performance, while the bank account is a reflection of when money moves in and out.
Understanding the difference can alter the way that a restaurant’s owner considers their financials.
Check out what goes on in a typical week. The customers pay for food. Employees must be paid. Deliveries of food and beverages arrive with invoices. Rent is on the verge of being due. Credit card transactions come with their own schedules. Sales tax is collected however it is the responsibility.
The purchase for next week has already begun.
If you are only looking at the amount of revenue or the final income, then you’ll overlook a significant portion of the activity.
The clue could be hidden in the Prime Cost
Food, beverages and labor costs are worth taking a closer examine when restaurant profitability begins to go downhill.
Together, the cost of the goods sold and labor make up prime cost. The bookkeeping chef’s guideline places the cost of goods sold at 60%-65 percent of the revenue for many restaurants, focusing on daily monitoring, rather than waiting until the final day of the month.
It is much more crucial to be able to spot the changes before they occur rather than obsessing over a specific percentage.
Imagine that the restaurant’s results are usually within the range of its goals However, this past week, it grew. Perhaps overtime was added. Maybe beverage costs were stable, but food costs increased. A higher percentage of food might prompt the operator to look at purchasing, waste management, menu mix and portions, or vendor bills.
The percentage raises a concern. The answer is found in the activity of the restaurant.
Weekly reports allow this discussion to occur while everyone is still aware of what has happened.
Three or four weeks later The details are much harder to reconstruct.
Once the vendor invoices are received
Restaurants can purchase ingredients in one week, and then pay for them the next. That timing helps explain why understanding profit alone doesn’t answer all cash questions.
Vendor invoices must be received and logged. This can take quite a task in an operation that has several suppliers.
Automating accounts payable speeds up this process, which reduces tedious tasks such as managing bills and payment details. Systems for bookkeeping that are linked can give owners a better view of their obligations, even if they haven’t yet been paid.
It’s helpful because, when taken as a whole the bank balance of a restaurant may appear to be more stable than its actual short-term financial position.
Today, there may be an amount of $80,000 in the account. It could be different in the event that it is affected by other factors such as rent, payroll, vendors and other obligations in the next few days.
That leads naturally to cash flow forecasting.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What could occur to our cash after the cash we anticipate to receive and the obligations we already know about?”
The distinction is important in determining if this is a suitable week to upgrade equipment, make an extra purchase, or keep liquid funds.
It is possible that you weren’t legally entitled to the full amount you believed.
Sales tax highlights this especially well.
A restaurant receives cash from its customers, which eventually has to be managed in accordance with tax regulations. If these dollars are mentally added to cash flow, the bank balance may give an inaccurate impression of the amount of money available.
Regularly maintained records allow restaurants to comply with sales tax regulations while also providing the management a realistic view of their finances.
This is the reason that restaurant accounting is more efficient when financial obligations aren’t separated from other responsibilities.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Cash and labor percentage are affected by the payroll. Sales tax impacts the availability of cash. P&Ls are used to track financial performance. Forecasting is also helpful for management.
Connect the pieces.
Bookkeeping Chef integrates restaurant-specific reporting and system integrations. Specialized outsourced bookkeeping services can be a good alternative for those who don’t have time to reconcile their financial data. They will take care of a lot of the accounting work while removing the proprietor from discussions about finances.
The last point is vital.
The aim isn’t to get restaurant owners to stop looking at their books since someone else handles them. Owners must be provided with information that helps them be aware of what’s happening.
Don’t be fooled into thinking that the P&L is correct if your accounts appear to be in a good state, yet the P&L shows the restaurant has made money.
Find out what transpired between them.
That question can teach you far more about your restaurant than either number can be on its own.