The month has come to an end. The month is finished.
Make sure to check the restaurant’s account.
You didn’t get the number you were hoping for.
This can be very frustrating for restaurant owners since they think that profit and cash availability should be the same. 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 the time when money flows in and out.
Knowing the difference can change the way that a restaurant’s owner thinks about their finances.
Have a look at what happens in a normal week. Customers pay for meals. Employees have to be paid. You will receive invoices along with the delivery of food and drinks. Rent is coming up. The time frame for credit card deposits is different. Sales tax has been collected, but the money is subject to an obligation.
Already the shopping spree for next week have started.
When you look only at revenue and the end-profit number, it is easy to miss out on lots of activities.
The Clue May Be Hiding in Prime Cost
When restaurant profitability starts moving in the negative direction, the food, beverages, and labor costs deserve focus.
Prime cost consists of both products and labor. The Bookkeeping Chefs’ provided guidance places the prime cost between 60-65 percent of revenue for many establishments. They also recommend regular monitoring of the week instead of waiting until the month ends.
Effective cost management for primes involves less focus on a single percent, and more paying attention to early changes.
Imagine that the restaurant’s performance is usually within the range of its goals, but this past week, it was higher. Perhaps the overtime rate has increased. Maybe the costs for beverages were stable while food costs grew. An increase in the percentage of food items could cause the manager to look at the menu, purchases, waste, mix, portions or invoices from vendors.
The percentage is the most important. The answer lies in the restaurant’s activity.
Weekly reports make the conversation possible, while everyone still remembers what happened.
After two or three weeks, it becomes more difficult to reconstruct the specifics.
The Vendor Bills are then delivered.
Restaurants may purchase ingredients during a week and pay for them next week. This is a reason for understanding profit alone doesn’t answer every cash-related question.
Vendor invoices should be recieved and logged. Doing this manually in an environment with many suppliers can result in a significant administrative burden.
Automating the accounts payable process can streamline this process by reducing the time-consuming handling of payments and bills. Bookkeeping systems that are connected allow owners to have a better image of their obligations even if they have not yet been paid.
It’s useful because, considered as a whole the balance of a restaurant’s bank account might appear to be better than its actual financial situation.
It is possible that there are $80,000 in your account at the moment. It could be interpreted differently when it is affected by other variables like rent or other expenses, such as payroll, vendors or other obligations for 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 will be the fate of our cash following the money we hope to receive and the obligations we already know about?”
This is an important distinction to make when deciding on whether or not this is the appropriate week to buy an additional purchase or replace equipment, or maintain the liquidity.
The Cash Wasn’t Really Yours
Sales tax highlights this point in particular.
Restaurants get money from customers, which they follow according to the tax requirements. If these funds are placed in the same category as operating money, the bank’s balance can create a misleading sense of what is in the bank to spend.
The consistent recording system allows restaurants comply with sales tax laws and also providing a realistic view of their financial position.
This is why it is that restaurant accounting can be more effective when financial obligations aren’t considered as distinct islands.
Prime cost affects margin. COGS and future payment are affected by the purchase of vendor products. Payroll and cash availability are affected by the payroll. Cash flow is affected by sales tax. P&Ls are used to track financial performance. Forecasting is also beneficial to management.
Connect the pieces.
Bookkeeping Chef assists in bringing these pieces together with restaurant-focused reports and system integrations. Outsourced bookkeeping is a great option for operators who do not want to be tasked with reconciling their financial information.
The last sentence is vital.
It’s not the intention of restaurant owners to stop examining their books because somebody does. It’s crucial that the owners have access to information so that they know what’s going on.
If the P&L indicates that the establishment is earning money however, the balance in the bank feels unbalanced, don’t assume the P&L could be wrong.
What was the difference between them?
The answer to this question will reveal more about the restaurant than just the number.