The month has ended. The sales were excellent, the P&L reported a profit and there was nothing that appeared to be seriously in error.
Make sure you check the account of the restaurant.
The number is not what you would have expected.
Restaurant owners may find it difficult to reconcile this issue because they believe that cash flow and profits ought to be exactly the same. They don’t add in. It’s not true. P&L is a gauge of financial performance, while the bank account is a reflection of how much money is moved in and out.
Knowing the difference could change the way a restaurant owner examines the financials of a restaurant.
Imagine what might happen during the typical week. The customers pay for food. Paying employees is necessary. Food and beverages are delivered with invoices attached. Rent is getting closer. Credit card deposits are also timed. Taxes on sales are collected but it’s responsibilities.
The purchase for next week has already begun.
If you only look at revenues or the final profit, then you will overlook a significant portion of this activity.
Prime Cost Could Hold the Key to the Solution
When the profitability of restaurants starts to change in the negative direction, then food, drinks as well as labor costs require consideration.
Together, cost of items sold and labor comprise the primary cost. The bookkeeping chef’s guideline places the primary cost at around 60%-65 percent of revenues for a variety of establishments, and emphasizes weekly monitoring rather than waiting until the closing of each month.
Effective cost management for primes involves not focusing on one percent and more noticing earlier movement.
Imagine that the restaurant normally performs near its target however this week it’s an increase in percent. Perhaps overtime was increased. Perhaps beverage costs remained stable however food prices soared. The operator may review menus and portions, waste or vendor invoices, as well as purchasing if the proportion of food is higher.
The percentage is the key. The underlying restaurant activity provides the answer.
Weekly reports allow for this conversation to be held while everyone is still aware of what’s transpired.
The details are harder to recall just a few days later.
Once the vendor invoices are received
Restaurants can purchase ingredients one week and pay for them the following week. Because of this, it is the case that analyzing profits alone will not resolve all cash-related issues.
Invoices from vendors have to be tracked, accepted and paid. This can be lots of work for an organization that has several suppliers.
Automating accounts payable simplifies the process, cutting down on repetitive tasks such as handling bills and payment details. The user can have more precise information about the debts that haven’t landed in their bank account through connected bookkeeping systems.
This is beneficial, as the balance of your bank account may seem healthier than a restaurant’s actual situation in the near future.
Today, there may be an amount of $80,000 in the account. The $80,000 figure means very small if the cost of rent, vendors or payroll are to take the majority of the coming days.
That leads naturally to cash flow forecasting.
The better question to ask yourself is “What will happen to our cash after we have received the funds and have fulfilled our obligations that we know?”
The distinction could be important in determining if this is an appropriate time to replace equipment, an extra purchase, or keep liquid funds.
And Some of the Cash Was Never Yours
The example of sales tax is a good example.
The money that a restaurant gets from its customers will eventually have to be handled in accordance of its tax obligations. If these dollars are mentally coupled with the normal operating cash, then the balance of the bank account could offer a false impression of the amount of cash available.
A consistent record-keeping system helps restaurants comply with sales tax laws while also giving a clear overview of their financial standing.
It is for this reason that restaurant accounting is more efficient when financial obligations aren’t considered as distinct islands.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Payroll affects both labor percentage as well as cash. Sales tax affects cash availability. The P&L shows financial performance, and forecasting assists management to look ahead.
The pieces are joined.
Bookkeeping Chef incorporates restaurant-specific reporting with system integrations. 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.
It’s the last thing that is important.
Restaurant owners shouldn’t be able to stop reading their books regardless of whether they’re being handled by someone else. Owners should be provided with data in a way that will help them understand the situation.
If the P&L says the restaurant made profits, but the account feels surprisingly insecure, don’t believe that one of the numbers must be wrong.
Find out what happened between you and your spouse.
The answer to this question will provide more information about the restaurant’s reputation than a number.