The month has ended. The sales were good and the P&L showed a profit and there was no sign of anything that appeared to be terribly incorrect.
Check the restaurant’s bank account.
The number doesn’t match what you’d expect.
Restaurant owners might be frustrated by this as they believe cash flow and profits ought to be the same. Both of them don’t match with each other. It’s not true. P&L is a measure of financial performance, while the bank account is a record of the time when money flows in and out.
Knowing the difference could change how a business owner is looking at the restaurant’s financials.
Imagine what could happen on a typical workday. Customers pay for meals. Employees must be paid. You will receive invoices with the delivery of food and drinks. Rent is nearing. Deposits to credit cards are timed. The sales tax collected has an obligation.
Already the purchases for the week ahead have started.
If you focus solely on revenue or the number of dollars earned at the end it’s easy to overlook the vast amount of activity.
The answer could be hidden in the prime cost
The cost of food, drinks and labour cost are all worth a close look when restaurant profitability starts to decline.
Together, the cost of the products sold and labor comprise the primary cost. Bookkeeping Chef’s provided guidance places prime costs at approximately 60%-65 percent for most restaurants and stresses weekly monitoring rather than waiting until the end the month.
Effective management of prime costs requires less focusing on a single percent, and more paying attention to early changes.
Suppose that normally the restaurant achieves its goals, but this week, there’s at a higher percent. Maybe overtime has increased. The cost of drinks could remain the same, while the food expenses increased. A higher percentage of food could lead the operator to review purchasing, waste, menu mix portions or vendor invoices.
The percentage is crucial. The activity of the restaurant itself provides the answer.
The reason this conversation can be relived is because everyone can still remember the details of what transpired.
A few weeks later After that, the details become more difficult to reconstruct.
When the vendor invoices arrive
The restaurant will be able to pay an additional time for the items it purchases. This is a reason for that understanding profit alone isn’t the answer to every cash question.
Vendor invoices need to be accepted and logged. Doing this manually in an environment with many suppliers can be a massive administrative burden.
Automating the process for accounts payable will help to organize the process through reducing the repetition of payments and bills. The owner can get better insight into the payments that haven’t been deposited into their bank accounts through the bookkeeping software that is connected to.
That’s useful because a bank balance viewed in isolation may appear to be healthier than the restaurant’s actual near-term position.
In the present, there could be $80,000 on the account. The amount could be different when it is affected by other variables like rent as well as payroll, vendors and other obligations over the coming days.
Forecasting cash flow is a common outcome.
The most appropriate question to ask is “What happens to our funds after we receive it and have met our obligations that we know?”
This distinction is crucial when deciding on the appropriateness of the best time to purchase an additional item or replace equipment, or preserve liquidity.
and some of the cash Wasn’t Yours at All
Sales tax illustrates the point in particular.
The money that a restaurant gets from its customers is eventually going to need to be handled in line of its tax obligations. If those dollars are mentally placed in the same category as operating money, the bank’s balance may create a false sense of the amount available for spending.
The consistent records help ensure the tax compliance of sales while giving the management a better picture of the financials of the restaurant.
This is a reason why restaurant accounting is more efficient in situations where financial responsibility isn’t seen as distinct islands.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Payroll and cash availability are affected by payroll. Cash availability is impacted by sales tax. P&Ls are used for recording financial performance. Forecasting can be helpful for management.
Connect the pieces.
Bookkeeping Chef utilizes restaurant-specific reporting as well as system integrations to bring those pieces together. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.
That last part matters.
It’s not the aim of restaurant owners to cease checking their books just because someone else does. Owners need to be informed that can help them be aware of what’s happening.
Don’t be fooled into thinking that the P&L is not correct if the accounts appear to be in a good state, yet the P&L indicates that the restaurant earned money.
Ask them about what transpired between them.
That question can teach you much more about the restaurant than any other number could be on its own.