The month is finished. The sales were decent and the P&L had a profit, and there was nothing to be seriously off.
It is recommended to check the bank account of the restaurant.
You didn’t get the number you were hoping for.
For restaurant owners, this is a problem because the cash flow and profit appear to be the same. They don’t add together. It’s not true. P&L is a measure of financial performance. In contrast, the bank account is a reflection of the time when money flows in and out.
Understanding the different aspects could help restaurant owners shift their perception of restaurant financials.
Check out what happens in a normal week. Customers pay for meals. Employees are required to be paid. Food and drinks deliveries arrive with invoices attached. Rent is coming up. Credit card deposits are subject to their own timetable. Sales tax is collected but it’s also responsibilities.
The purchase for next week has already begun.
If you focus solely on revenues and the numbers at the end of profits it’s easy to overlook lots of activities.
The Clue May Be Hiding in Prime Cost
When the profitability of restaurants starts to change in the wrong direction, the food, beverages and labor expenses require consideration.
Cost of selling goods with labor is a major cost. The Bookkeeping Chef’s guidance puts prime costs at approximately 60% to 65 percent for most restaurants and emphasizes monitoring on a weekly basis rather than waiting until the end the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant’s performance usually within the range of its goals However, this past week it increased. Perhaps overtime was also increased. Maybe beverage costs were stable while food costs jumped. An increase in the percentage of food consumed could cause the owner to review buying, waste management portions and menu mix, or vendor bills.
The percentage raised the question. The answer lies in the activity of the restaurant.
A weekly report can make the conversation possible, while everyone still remembers what happened.
The details are more difficult for you to remember the next day or two.
Then, the Vendor Bills arrive.
Restaurants may purchase ingredients one week and pay for them next week. This is the reason profits alone won’t be able to answer every cash question.
Vendor invoices need to be recorded, received then tracked and finally paid. This can be a lot of work in an organization that has several suppliers.
Automating accounts payable speeds up this process, which reduces repetitive tasks such as handling invoices and payment information. The account owner will have more precise information about the obligations that haven’t yet landed on their bank accounts through automated bookkeeping systems that are connected.
This is important since an account balance seen in isolation may appear to be healthier than the restaurant’s real-time position.
It might be that there are $80,000 in your account at the moment. The $80,000 amount is little if vendors, rent or payroll take the majority of the next few days.
Cash flow forecasting is a natural result.
What happens to the money we have received after we’ve received the cash we’ve been expecting and have fulfilled all of our obligations?
The difference can be crucial in deciding if this is an appropriate time to replace equipment, an extra purchase, or keep the liquidity.
A portion of the Cash Wasn’t Really Yours
The sales tax illustrates this point very well.
Restaurants get money from customers, which they deal with according to the tax requirements. If these funds are combined with normal operating cash, then the bank balance could provide an inaccurate picture of the amount of cash available.
Regularly maintained records help restaurants to comply with the sales tax laws while also providing a realistic view of their financial position.
Accounting for restaurants is more efficient when the financial obligations of each restaurant do not have to be considered separately.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Cash and labor percentage are affected by payroll. Sales tax affects the availability of cash. P&Ls keep track of financial performance and forecasting lets management take a look ahead.
The pieces link.
Bookkeeping Chef is a restaurant-specific report that integrates along with system integrations. Bookkeeping outsourcing can be beneficial to owners who do not wish to stay up all night reconciling their financial information.
The last point is important.
Restaurant owners shouldn’t stop going through the manuals even if they’re managed by someone else. Owners must be provided with information which will allow them to know what’s going on.
If the P&L indicates that the establishment is profitable however, the balance in the bank feels too tight, don’t think the P&L is not accurate.
Ask what happened between them.
This question can tell you more about your company than any other number.