The month is done. The month is done.
Make sure to check the restaurant’s account.
The number isn’t what you would have expected.
For restaurant owners, that gap can be frustrating as profit and available cash appear to have the same meaning. Both of them don’t match with each other. A P&L is a measure of the financial performance of a business over a certain period of time, while a bank account shows the actual timing of money going into and out of the company.
Understanding the difference could alter the way a restaurant owner is looking at the restaurant’s financials.
Consider what happens during an normal week. Customers pay for meals. Employees are required to be paid. Food and drinks deliveries arrive with invoices attached. Rent is coming. Credit card deposits are subject to their own timetable. Taxes on sales have been paid, but that cash comes with an obligation.
Already the shopping spree for next week have begun.
If you only focus on revenue and the end-profit number it’s easy to miss a a great deal of activity.
The Key to the Mystery Could Be Hidden in Prime Cost
Food, drink and labour costs merit a closer examine when restaurant profitability begins to go downhill.
The prime cost is comprised from both items and labour. The Bookkeeping Chef’s guidance puts the prime cost at between 60% to 65 percent of the revenue for many restaurants, while emphasizing regular monitoring instead of waiting until the close of the month.
Effective cost management for primes involves less focus on a single percent, and more paying attention to any early movements.
Let’s say that typically, the restaurant is performing at a high level, but this week, it’s more of a percent. Perhaps overtime has is up. Perhaps the cost of beverages was stable However, food expenses increased. A higher proportion of food could lead the business owner to consider examining the purchase, waste management, menu mix and portions, or vendor bills.
The percentage is the most important. The activities that underlie the restaurant provide the answer.
A weekly report makes this conversation possible and everyone remembers the events.
After a period of two to three weeks, it becomes more difficult to reconstruct the details.
When the vendor invoices arrive
Restaurants can purchase ingredients in one week, and then make payments the following week. This is the reason understanding profit alone doesn’t answer every cash issue.
Invoices from vendors need to be accounted for, tracked and paid. In a busy operation with many suppliers, completing that by hand can be an administrative task.
Automating the process for accounts payable can help organize this by reducing the repetitive handling of bills and payments. Systems for bookkeeping that are linked to accounting systems can provide owners with a clear picture of obligations, even if they haven’t yet been paid.
This is useful, because the balance of your bank account may appear more healthy than the restaurant’s actual financial situation.
The current balance could be an amount of $80,000 in the account. The figure of $80,000 means small if the cost of rent, vendors or payroll make the majority of the coming days.
That leads naturally to the process of forecasting cash flows.
The better question to ask yourself is “What will happen to our cash once we receive it and have met our obligations we have made?”
The distinction can matter in deciding if this is the right time to repair equipment, make an additional purchase, or to preserve liquidity.
And Some of the Cash Wasn’t Really Yours
The sales tax example is an excellent one.
The money restaurants receive from their customers is eventually going to need to be handled in accordance with the tax requirements. If those funds are grouped with ordinary operating cash, the bank balance can give a false idea of the amount there to be spent.
A consistent record helps restaurants stay in compliance with sales taxes and provide the managers a clear picture of their financial situation.
This is the reason that restaurant accounting functions better when financial responsibility isn’t thought of as separate entities.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected through purchases made by vendors. Payroll impacts both labor percentage as well as cash. Sales tax impacts the availability of cash. P&Ls track financial performance, while forecasting allows management to look ahead.
The pieces are interconnected.
Bookkeeping Chef helps bring these pieces together with restaurant-focused reports and 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.
That last part matters.
It’s not the goal for restaurant owners to not check their accounts because someone does. Owners must be provided with information that will help them to comprehend what’s happening.
If the P&L shows that the establishment is profitable however the balance of the bank seems unbalanced, don’t assume the P&L may be inaccurate.
Ask them about what transpired between them.
The answer to this question will reveal more about the restaurant’s reputation than the number.