The month is over. Sales were solid, the P&L is in profit and nothing appears to be seriously off.
Then, you should check the restaurant’s bank account.
This number isn’t exactly the one you’d expected.
This gap can be a source of frustration for restaurant owners since they believe that profit and cash on hand should speak the same truth. However, they aren’t. It’s not true. P&L is a measure of financial performance. On the other hand, the bank account is a record of when money moves in and out.
Knowing the differences can help owners change their view of the financials of their restaurant.
Take a look at what goes on in a typical week. Customers pay for meals. Employees are required to be paid. You will receive invoices with the delivery of food and drinks. Rent is getting closer. Deposits to credit cards are timed. Sales tax is collected however it’s also the responsibility.
The shopping for the week ahead has already started.
When you look only at revenue and the end-profit number, it is easy to miss out on the vast amount of activity.
The clue could be hidden in the Prime Cost
If the restaurant’s profitability begins to shift in the negative direction, the food, beverages and labor costs need the attention of restaurant owners.
Cost of selling goods with labor is the main cost. Bookkeeping Chef’s provided guidance places primary costs between 60% to 65 percent for most restaurants and emphasizes monitoring on a weekly basis as opposed to waiting until the end the month.
Effective prime cost management is less about focusing on one particular percentage, and more about spotting changes earlier.
Let’s say that typically, the restaurant is performing at a high level, but this week, it’s more of a percent. Perhaps overtime was increased. Perhaps the cost of beverages was stable However, food expenses increased. An increase in the percentage of food consumed could lead the business owner to examine purchasing, waste management, portions and menu mix, or vendor bills.
The percentage raised the question. The answer is found in the restaurant’s activity.
Weekly reports allow this conversation to take place while everyone is still aware of the events that have occurred.
Two or three weeks later After that, the details become harder to understand.
The Vendor’s Bills Arrive
Restaurants can purchase ingredients the week before and pay for them the next. This explains why profits alone won’t be able to answer every cash question.
Vendor invoices need to be accepted and logged. This can take a lot of work in an operation that has numerous suppliers.
Automating accounts payable simplifies the process, cutting down on the time spent on tasks that are repetitive, such as managing bills and payment details. Connected bookkeeping systems can also give the owner a clearer image of the obligations that haven’t yet been paid into the bank account.
This is because the bank’s balance as a whole can appear healthier than the restaurant’s actual near-term position.
There is currently $80,000 on the account. It could mean something different when you consider that rent, payroll and vendors commitments will consume a substantial portion of it over the next several days.
That leads naturally to cash flow forecasting.
Instead of asking “How much cash do we have?” the better question becomes “What will transpire with our cash after the money we’re expecting to receive and our obligations that we already know about?”
This distinction is essential when deciding the appropriateness of the right week to make an additional purchase to replace equipment or maintain the liquidity.
You may not be legally entitled to the full amount you thought.
Sales tax highlights this point particularly well.
Restaurants receive money from their customers, which they have to then handle according to their tax obligations. If these funds are combined with operating cash, they can give a false impression of the amount of money that is available for spending.
The consistent recording system allows restaurants comply with sales tax laws as well as giving a clear image of their financial condition.
This is a reason why restaurant accounting is better when financial responsibilities aren’t considered as distinct islands.
Prime cost affects margin. COGS and future payments are affected by the purchase of vendor products. Payroll affects both labor percentage and cash. Sales tax influences the availability of cash. P&Ls report financial performance, and forecasting lets management examine the future.
Connect the pieces.
Bookkeeping Chef combines restaurant-specific reports along with system integrations. For those who don’t wish to spend their nights manually reconciling financial records, outsourcing bookkeeping services can take care of most of the accounting work without removing the proprietor from the financial discussion.
The last point is vital.
Restaurant owners shouldn’t be able to stop studying the literature just because they are handled by another. Owners should be given information that will help them to understand what’s happening.
If the P&L shows that the establishment is earning money however, the balance in the bank feels unbalanced, don’t assume the P&L may be inaccurate.
What transpired between the two?
This question will reveal more about your business than any number.