The month is over. The month is finished.
Check the restaurant’s bank account.
It wasn’t the number you would have expected.
Restaurant owners might be dissatisfied with this as they believe profits and cash flow should be identical. They don’t add in. A P&L is a measure of the financial performance of a firm over a specific period of time, while a bank account shows the exact time of money moving into and out of the company.
Knowing the difference could change the way that a proprietor considers restaurant financials.
Think about what happens in an ordinary week. Customers pay for food. Employees need to be paid. You will receive invoices along with the delivery of food and drinks. Rent is getting closer. Credit card payments are subject to their own timetable. Taxes on sales have been collected, but that money is a legal obligation.
The purchase for next week has already started.
When you concentrate on revenue or the number of dollars earned at the end it’s easy to miss out on a great deal of activity.
Prime Cost Could Hold the key to the answer
Food, beverage and labour costs are worth a closer examine when restaurant profitability begins to go downhill.
Cost of the goods sold with labor is the primary cost. Bookkeeping Chef’s supplied guidance places prime cost at roughly 60% to 65 percent of the total revenue for many establishments, and emphasizes weekly monitoring rather than waiting until the close of each month.
Effective cost management for primes is less about worrying about the exact percentages and more about being able to spot changes quickly.
Imagine that the restaurant’s results are usually within the range of its goals, but this past week it increased. Perhaps overtime has increased. The cost of beverages could be the same as food prices increased. The operator may review menus and portions, waste as well as vendor invoices and buying if the percentage of food is higher.
The percentage raised the question. It is in the underlying food service activity.
This is possible due to the fact that everyone will be able to remember what transpired.
The details are more difficult for you to remember the next day or two.
The Vendor’s bills arrive
Restaurants can purchase ingredients in one week, and then pay for them the next. This is a way to explain why profit alone is not enough to answer every cash question.
Vendor invoices must be recorded, received and tracked before being paid. In a busy operation with many suppliers, completing that by hand can be an administrative burden.
Automating accounts payable can streamline this process, which reduces tedious tasks such as managing payments and bills. The bookkeeping system that is connected to the internet can provide the owner with a clearer picture of obligations which haven’t yet deposited into the bank account.
It’s advantageous because, looked at as a whole the restaurant’s financial position could appear to be more healthy than its actual short-term financial position.
It is possible that you have $80,000 on your account at the moment. This number could mean something different if payroll, rent vendors, or other commitments consume a significant portion over the next several days.
This leads to the cash flow forecasting.
Instead of asking “How much cash do we have?” the better question is “What could occur to our cash after the money we expect to receive and the obligations we are already aware about?”
The difference can be crucial in determining if this is a suitable week to upgrade equipment, make an additional purchase, or preserve cash.
The Cash Was Never Really Yours
Sales tax illustrates this in particular.
A restaurant collects money from customers which will need to be dealt with according to its tax obligations. If these funds are combined with normal cash flow, the balance of the bank account could offer a false impression of how much cash is available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
This is a reason why restaurant accounting is more efficient when financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected by the purchases made by vendors. Payroll is a factor that affects the percentage of labor and cash. Sales tax affects cash availability. P&Ls are used to track financial performance. Forecasting is also helpful for management.
Connect the pieces.
Bookkeeping Chef makes use of restaurant-specific reports as well as system integrations to connect the pieces. 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 having to remove the owner from financial conversations.
The final part is crucial.
It’s not the aim of restaurant owners to not check their books just because someone does. It’s important that the owners get information so they understand the situation.
Don’t believe that the P&L is incorrect if the bank account appears to be in good shape, but the P&L confirms that the restaurant made money.
What was the difference between them?
This will reveal more about your business than any other number.