The month has ended. The sales were excellent and the P&L showed a profit and there was nothing to be terribly off.
Check the restaurant’s account.
The number is not what you expected.
This gap can be a source of frustration for restaurant owners as they feel that profits and cash on hand should tell the same tale. However, they aren’t. A P&L examines the performance of the business’s finances over a specified time period, whereas accounts in banks show the exact timing of money entering and leaving he business.
Understanding the difference will change the way that a restaurant’s owner is able to view their financials.
Imagine what happens on the typical week. The customers pay for food. Paying employees is necessary. You will receive invoices with drinks and food deliveries. Rent is close to being paid. Credit card payments have their own timing. Sales tax has been collected, but that money is a legal obligation.
Meanwhile, next week’s purchasing has already begun.
Looking only at revenue or the number of profits at the end isn’t a good way to assess the full scope of what happens.
The answer could be hidden in the price of the best.
Food, drink and labour costs merit a closer look when restaurant profitability starts to fall.
Together, the cost of items sold and labor make up prime cost. The Bookkeeping Chefs’ advice places the cost of goods sold between 60% and 65 percent of the revenue for many restaurants. They also stress the importance of weekly monitoring rather than waiting until the month ends.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant normally performs near its target however this week it’s a higher percent. Perhaps the overtime rate is up. Maybe beverage costs were stable however food costs increased. The operator may review menus and portions, waste or vendor invoices, as well as buying if the percentage of food is higher.
The percentage raises a concern. The answer lies in the restaurant’s activity.
Weekly reports make an opportunity for conversation while everyone is still able to remember what happened.
Three or four weeks later after that, the details become more difficult to decipher.
The Vendor Bills are then delivered.
Restaurants may purchase ingredients in one week, and then make payments the following week. It’s because of this timing that analyzing profits alone will not address all cash issues.
Invoices from vendors have to be tracked, accepted and paid. This can be quite a task in an operation that has many suppliers.
Accounts payable automation helps organize this process by eliminating the need to handle bills in a repetitive manner and payment information. Owners can have more precise information about the obligations that haven t hit their bank accounts by utilizing automated bookkeeping systems that are connected.
That’s useful because the bank’s balance in isolation can look healthier than the restaurant’s actual near-term position.
Today, there may be $80,000 on the account. The figure of $80,000 is little if vendors, rent, or payroll will take up a significant portion of the account in the coming days.
Cash flow forecasting is a natural outcome.
The most important question to ask yourself is “What will happen to our funds after we receive the money and have fulfilled our commitments we’ve identified?”
This distinction is crucial when deciding on whether or not this is the right week to make an extra purchase to replace equipment or keep liquidity.
The cash you received may Not be Yours
Sales tax illustrates this especially well.
The cash a restaurant gets from its customers will eventually need to be handled in accordance with its tax obligations. If these funds are mixed with cash flow, the bank balance could provide an inaccurate picture of how much cash is available.
Consistent records help restaurants comply with sales taxes while giving the managers a clear picture of their financial situation.
It is for this reason that restaurant accounting works better when financial responsibility isn’t separated from other responsibilities.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll can affect both the percentage of labor as well as cash. Sales tax affects the availability of cash. The P&L records financial performance, while forecasting aids management in looking ahead.
The pieces are connected.
Bookkeeping Chef can help bring these elements together, using restaurant-specific reports as well as system integrations. Outsourced bookkeeping can help operators who do not want to stay up all night reconciling their financial data.
The last point is vital.
Restaurant owners shouldn’t be able to stop going through the manuals even if they’re managed by another. It is important that owners receive information so they are aware of the situation.
So if the P&L states that the restaurant has made cash, yet the bank account seems to be a bit tight, don’t assume one of the numbers must be off.
What transpired between the two?
This question will teach you more about your restaurant than any other number could on its own.