The month is finished. Sales were excellent, and the P&L shows a profit and nothing appears to be seriously off.
You should then check the restaurant’s bank account.
The number doesn’t match what you expected.
Restaurant owners can find this disconnect frustrating as they believe cash flow and profits should be identical. But they don’t. A P&L evaluates the financial performance of a firm over a specified period of time, while an account in a bank shows the actual timing of money going into and out of he business.
Understanding the difference will change the way that a restaurant’s owner considers their financials.
Check out what happens in a normal week. Customers pay for meals. Employees have to be paid. Food and beverages are handed out. Rent is on the verge of being due. Credit card deposits come with their own schedules. The sales tax collected has an obligation.
The shopping for the week ahead has already started.
Concentrating on revenue or the final profit figure isn’t a good way to assess the full scope of what happens.
The key may lie in the price of the best.
When the profitability of restaurants starts to change in the negative direction, food, beverage and labor costs need attention.
Prime cost is made up from both goods and labor. The Bookkeeping Chefs’ provided guidelines place the primary cost between 60 and 65 percent of revenue for many establishments. They also stress weekly monitoring instead of waiting until the month ends.
Effective prime cost management is less about worrying about one particular percentage, and more about recognizing changes earlier.
Imagine that the restaurant’s results are typically within a certain range However, this week, it grew. Perhaps overtime has is up. Perhaps the cost of beverages was stable However, food expenses increased. The manager can review menus, waste, portion sizes, vendor invoices, and purchasing if the food percentage is higher.
The percentage is what matters. The answer is found in the restaurant’s activity.
Weekly reports allow the discussion to continue while everyone is still aware of what’s transpired.
The details are much more difficult for you to remember two or three days later.
When the vendor invoices arrive
A restaurant may purchase ingredients this week but have to pay for these items in the future. This is due to the fact that understanding profits alone does not solve all cash problems.
Vendor invoices have to be received and tracked. Manually completing this task in a busy business with many suppliers can become a huge administrative burden.
Automating accounts payable can streamline the process by reducing the time spent on tasks that are repetitive, such as managing payments and bills. Owners can have an accurate picture of obligations that haven t hit their bank accounts through integrated bookkeeping systems.
It’s helpful because, when looked at as a whole the restaurant’s financial position may appear to be more stable than its actual financial situation.
It could be that there is $80,000 in the bank account at present. This number could mean something different if payroll, rent and vendors commitments will consume a substantial portion of it over the next several days.
That leads naturally to cash flow forecasting.
The most appropriate question to ask yourself is “What will happen to our cash once we receive the money and have fulfilled the commitments we’ve identified?”
This is an important distinction to make when deciding on the appropriateness of the best time to make an additional purchase to replace equipment or keep liquidity.
And Some of the Cash Wasn’t Really Yours
Sales tax illustrates this in particular.
A restaurant collects money from customers which must be disposed of according to tax requirements. If these funds are coupled with the normal operating cash, then the bank balance could be misleading about the amount of cash available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
It is for this reason that restaurant accounting is more efficient in situations where financial responsibilities aren’t separated from other responsibilities.
Prime cost affects margin. COGS (cost of goods sold) and future payments are affected due to purchases made by vendors. Payroll can affect the percentage of labor and cash. Cash flow is impacted by the sales tax. P&Ls are used for recording financial performance. Forecasting can also be useful for management.
The pieces connect.
Bookkeeping Chef incorporates restaurant-specific reporting through system integrations. For business owners who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services will handle the bulk of accounting tasks without having to remove the owner from the financial conversation.
The last point is important.
It’s not for owners of restaurants to stop looking at the books because somebody else handles them. It’s to provide owners with data in a way which helps them comprehend what is happening.
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 is not accurate.
Ask about the events that occurred between them.
Answering this question can reveal more about the restaurant’s reputation than the number.