The month ended. The month has ended.
Check the bank account of the restaurant.
This number isn’t exactly what you expected.
For restaurant owners, that gap can be frustrating as profit and available cash seem to have the same meaning. However, they aren’t. A P&L is a measure of financial performance over a period in time, whereas the bank account is a reflection of the time frame of money going into and out the business.
Understanding the differences can allow owners to change their views on the restaurant’s finances.
Imagine what could happen during an ordinary week. Customers pay for meals. Employers must be paid. Food and beverages are delivered with invoices. Rent is close to being paid. Credit card payments are timed. Sales tax is collected however it’s also an obligation.
The purchase for next week has already begun.
If you focus solely on revenues and the numbers at the end of profits, it is easy to overlook a great deal of activity.
Prime Cost Could Hold the Key to the Solution
The cost of food, drinks and labour costs are worth taking a closer review when the profitability of a restaurant begins to decline.
Cost of selling goods with labor is the prime cost. The Bookkeeping Chef’s guidance puts the prime cost at between 60% to 65 percent of revenues for a variety of restaurants, focusing on the importance of monitoring weekly rather than waiting until the final day of each month.
It is much more crucial to be able to spot changes earlier than worrying about the exact percentage.
If the restaurant typically achieves its goals, but this week, it’s at a higher percent. Perhaps overtime was increased. The cost of drinks could have remained the same, whereas the food expenses increased. The higher proportion of food could cause the owner to consider examining purchases, waste management, portions and menu mix or vendor costs.
The percentage raises the question. The underlying restaurant activity provides the answer.
The reason this conversation can be relived is because everyone can still remember what transpired.
The details are more difficult for you to recall after a couple of days.
The Vendor’s bills arrive
Restaurants may buy ingredients this week, but then pay for these items later. This is due to the fact that understanding profits alone does not answer all cash issues.
Vendor invoices should be recieved and logged. This could be lots of work for an organization that has numerous suppliers.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Bookkeeping systems that are connected can give the owner a clearer view of any obligations that haven’t yet been paid into the account of the bank.
It’s important because the bank’s balance in isolation can look healthier than the restaurant’s actual near-term position.
It could be that there is $80,000 in the account today. It could mean something different depending on other factors such as rent as well as payroll, vendors and other obligations for the next few days.
That leads naturally to cash flow forecasting.
Instead of asking “How much cash do we have?” the better question is “What is likely to happen to our cash after the money we hope to receive and the obligations we know about?”
The distinction can matter when deciding if it is a suitable week to repair equipment, make an additional purchase, or to preserve the liquidity.
You may not have been rightfully entitled to all the money you thought.
The example of sales tax is a great one.
A restaurant receives money from customers which must be disposed of in accordance with tax regulations. If the money is mentally mixed with operating cash, then the bank balance could give an inaccurate impression of the amount of money available.
Regularly maintained records allow restaurants to comply with sales taxes and provide management a complete picture of their financial situation.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant do not have to be considered separately.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted by purchases made by vendors. The percentage of labor and cash are affected by payroll. Cash flow is affected by sales tax. The P&L tracks financial performance, forecasting can help management look ahead.
The pieces join.
Bookkeeping Chef utilizes restaurant-specific reporting as well as system integrations to connect the pieces. Specialized outsourced bookkeeping services are an ideal alternative for those who aren’t able to reconcile their financial information. They can take care of much of the accounting work but without taking the owner away from financial discussions.
It’s the very last one that counts.
The goal isn’t for restaurant owners to stop looking at their accounts because somebody else handles them. It’s crucial that the owners get information so they know what’s going on.
If the P&L shows that the restaurant is profitable but the bank balance feels insufficient, don’t believe the P&L must be incorrect.
Ask what happened between them.
This question will tell you more about your business than any number.