The month is finished. The month is done.
Check the restaurant’s account.
You didn’t get the call you would have expected.
Restaurant owners may be frustrated by this, as they believe that profits and cash flow should be exactly the same. They aren’t. A P&L evaluates the the financial performance of a company over time and the bank account represents the timing of money actually moving in and out of the business.
Knowing the difference can change the way a restaurant owner thinks about their finances.
Imagine what goes on during a typical workday. The customers pay for food. Employees must be paid. You will receive invoices along with drinks and food deliveries. Rent is on the verge of being due. The time frame for debits to credit cards differs. Sales tax is collected but it is the responsibility.
The shopping for the week ahead has already started.
If you focus only on the amount of revenue or the final profits, you’ll not be able to see a lot of this process.
The Clue May Be Hiding in the Prime Cost
If the restaurant’s profitability begins to shift in the negative direction, then food, drinks, and labor costs deserve consideration.
Cost of the goods sold with labor is the prime cost. Bookkeeping Chef’s provided guidance places prime costs at approximately 60%-65 percent for a variety of restaurants and emphasizes monitoring on a weekly basis instead of waiting until the end the month.
It is much more crucial for you to recognize any changes in the early stages rather than worrying about the exact percentage.
Imagine that the restaurant’s efficiency is usually close to its goal however this week it increased. Perhaps overtime was added. The price of drinks may have remained the same while the food expenses increased. A higher proportion of food could lead the business owner to review purchases, waste management, portions and menu mix or vendor costs.
The percent raises the issue. The restaurant’s activity is the answer.
Weekly reports allow this conversation to be held in the midst of everyone being aware of what’s happened.
After a few weeks After that, the details become more difficult to understand.
Once the vendor invoices are received
The restaurant will be able to pay an additional time for the items it buys. This explains why understanding profit alone doesn’t answer all cash questions.
Vendor invoices need to be accepted and tracked. In a busy business with numerous suppliers, doing that manually can turn into the company’s own administrative task.
Automating accounts payable simplifies this process, which reduces the time spent on tasks that are repetitive, such as managing payments and bills. Bookkeeping systems that are integrated to accounting systems can provide owners with a clear view of their obligations, even if they’ve not yet been paid.
This is advantageous, since the balance of your bank account may seem healthier than a restaurant’s actual financial situation.
It is possible that there are $80,000 in your account at the moment. The figure of $80,000 is small if the cost of rent, vendors or payroll take an enormous amount over the coming days.
That leads naturally to cash flow forecasting.
What happens to our money after we’ve received the funds we’ve expected and fulfilled all our obligations?
The distinction could be important when deciding whether this is a suitable week to repair equipment, make an additional purchase, or preserve liquid funds.
And Some of the Cash Was Never Yours
Sales tax illustrates this particularly well.
Restaurants collect money from customers which needs to be handled according to its tax obligations. If these funds are placed in the same category as operating cash, the bank balance can create a misleading sense of what’s there to be spent.
Consistent records help restaurants comply with sales taxes and provide management an accurate view of their financials.
It is for this reason that restaurant accounting can be more effective in situations where financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted by purchases made by vendors. Payroll can affect the amount of cash available and also the labor percentage. Cash availability is affected by the sales tax. The P&L documents financial performance while forecasting aids management in looking ahead.
The pieces connect.
Bookkeeping Chef helps bring these pieces together using restaurant-specific reports and system integrations. Specialized outsourced bookkeeping services can be a good option for operators who aren’t able to reconcile their financial data. They will take care of a lot of the accounting work but without taking the owner away from financial discussions.
It’s the very last one that’s important.
The aim isn’t to get restaurant owners to stop looking at their accounts because someone else is handling them. Owners must be provided with information that can help them comprehend what’s happening.
If the P&L shows that the restaurant is profitable however the balance of the bank seems tight, do not assume the P&L may be inaccurate.
Ask about the events that occurred between them.
This question will tell you more about your business than any other number.