The month ended. The month is done.
Make sure to check the restaurant’s account.
It wasn’t the number you were hoping for.
Restaurant owners can find it difficult to reconcile this issue since they believe cash flow and profits ought to be the same. However, they aren’t. A P&L measures the performance of the business’s finances over a specified time period, whereas a bank account shows the exact timing of money moving into and out of the business.
Understanding the difference can change how a business owner is looking at the restaurant’s financials.
Have a look at what goes on in a typical week. Customers pay for food. Employees must be paid. Invoices for food and drinks are sent. Rent is coming. The time frame for credit card transactions is different. Sales tax is collected, but the money has a responsibility.
On the other hand, the next week’s shopping has already started.
Focusing on revenue only or the final profit figure isn’t a good way to assess the full scope of what happens.
Prime Cost Could Hold the key to the answer
If restaurant profits begin to move in the wrong direction, then food, drinks and labor expenses require consideration.
Prime cost is made up of both products and labor. Bookkeeping Chef’s guidelines place primary costs between 60%-65% for many restaurant and emphasizes monitoring on a weekly basis as opposed to staying until the end of of the month.
Effective prime cost management is not about focusing on a single percentage and more about noticing movement early.
Let’s say that a restaurant typically performs in line with its goals, but this week’s percentage rises. Perhaps overtime was added. The price of drinks may remain the same, while food costs rose. A higher percentage of food could cause the manager to look at the menu, purchases, waste, mix portions, or vendor invoices.
The percentage raises the question. The activity of the restaurant itself provides the answer.
A weekly report can make the conversation possible, while everyone will be able to recall what occurred.
After two or three weeks, it is much more difficult to reconstruct particulars.
The Vendor Bills are then delivered.
A restaurant might purchase its ingredients this week, but then pay for the ingredients later. It’s due to this fact that analyzing profits alone will not resolve all cash-related issues.
Vendor invoices should be recorded, received then tracked and finally paid. This can take an enormous task for an operation that has numerous suppliers.
Automating the accounts payable process can assist in coordinating this process through reducing the repetition of bills and payments. The account owner will have an accurate picture of obligations that haven’t yet landed on their bank accounts through integrated bookkeeping systems.
This is useful, because the bank balance can appear healthier than a restaurant’s real near-term situation.
There is currently $80,000 on the account. The figure of $80,000 means little if rent, vendors or payroll are to take up a large portion over the next few days.
This is the reason for cash flow forecasting.
The most appropriate question to ask yourself is “What will happen to our cash after we receive it and have fulfilled the obligations we have made?”
The difference can be crucial when deciding whether this is an appropriate time to replace equipment, make an addition purchase, or maintain liquidity.
The cash you received may Not be Yours
The sales tax illustrates this particularly well.
Restaurants receive cash from its customers, which eventually will need to be dealt with according to tax requirements. When these dollars are mentally combined with operating cash, it could provide a false perception of the cash available for spending.
The consistent recording system allows restaurants comply with sales tax laws, while providing a complete overview of their financial standing.
This is the reason that restaurant accounting is more efficient when financial obligations aren’t thought of as separate entities.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll has an impact on both the labor percentage and cash. Sales tax influences the availability of cash. The P&L tracks financial performance, while forecasting helps management look ahead.
The pieces are interconnected.
Bookkeeping Chef is a restaurant-specific report that integrates 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.
The last part is important.
The idea isn’t for restaurant owners to simply stop looking at their books simply because someone else handles them. Owners need to be informed that helps them understand what’s happening.
When the P&L reports that the restaurant earned cash, yet the bank account feels extremely tight, don’t assume one of the numbers could be off.
Find out what transpired between you and your spouse.
This one question could teach you far more about your restaurant than any number on its own.