The month is over. The sales were good, the P&L indicates a profit and there’s nothing that appears to be to be terribly incorrect.
Check the bank account of the restaurant.
The number isn’t the one you’d expected.
Restaurant owners, this gap can be frustrating as the cash flow and profit seem to provide the same information. They don’t add with each other. A P&L examines the financial performance of a firm over a specific period of time, while a bank account shows the exact timing of money moving into and out of the company.
Understanding the difference could alter the way a restaurant owner is looking at the restaurant’s financials.
Have a look at what happens during a normal week. Food is paid for by customers. Employees need to be paid. Food and drinks deliveries arrive with invoices attached. Rent is due. Deposits made with credit cards come with their own schedules. The tax on sales is an obligation.
The buying for next week has already started.
Focusing on revenue only or the number of profits at the end leaves out a lot of the work.
The clue may be hidden in the cost of prime.
If restaurant profits begin to decrease, food, beverage and labor costs must be taken into consideration.
Together, the cost of the items sold and labor are the main costs. Bookkeeping Chef’s guidelines place primary costs between 60% to 65% for many restaurant and focuses on weekly monitoring instead of waiting until the end the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
If the restaurant is performing close to its target however, this week’s rate increases. Perhaps overtime has is up. Perhaps the cost of beverages remained steady but food costs increased. A higher proportion of food could prompt the manager to look at purchasing, waste management, portions and menu mix or vendor bills.
The percentage is the most important. The answer lies in the activity of the restaurant.
A weekly report can make an opportunity for conversation while everyone remembers the events.
After a few weeks After that, the details become harder to reconstruct.
When the vendor bills arrive
The restaurant will be able to pay later for the ingredients it purchases. This explains why profit alone is not enough to answer all cash-related questions.
Invoices from vendors need to be tracked, accepted and paid. In a highly-competitive business with many suppliers, doing this manually can become an administrative task.
Automating the account payable process can help organize this by reducing the repetitive handling of payments and bills. The account owner will have better insight into the debts that haven’t landed in their bank accounts through the bookkeeping software that is connected to.
This is advantageous, since the bank’s balance could seem healthier than a restaurant’s real near-term situation.
There could be $80,000 in the bank account at present. It could be different when it is affected by other elements like rent as well as payroll, vendors and other obligations that will be due in the coming days.
Cash flow forecasting is a natural result.
The most important question to ask is “What happens to our funds after we receive the money and have fulfilled our obligations we’ve made?”
It is important to know the difference between them when deciding whether this week is an ideal time to replace equipment, buy more items or save liquid funds.
The Cash You Received May Not Be Yours
The sales tax illustrates this point particularly well.
Restaurants collect money from their customers, which they then handle according to their tax obligations. If these dollars are mentally coupled with the normal operating cash, then the bank balance may give an inaccurate impression of the amount of money available.
The consistent records help ensure the tax compliance of sales while giving the management a better picture of the financials of the restaurant.
This is one reason restaurant accounting works better when financial obligations aren’t viewed as separate islands.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted by the purchases from vendors. Payroll and cash availability are affected by payroll. Cash flow is impacted by the sales tax. The P&L tracks financial performance, forecasting can help management look ahead.
The pieces join.
Bookkeeping Chef helps bring the pieces together by providing restaurant-specific reports and system integrations. For operators who don’t want to spend their nights manually reconciling financial records, outsourcing bookkeeping services can take care of most of the accounting work without removing the proprietor from the financial discussion.
It’s the last thing that’s important.
It’s not for restaurant owners to simply stop looking at their books since they are handled by someone else. Owners should receive information that helps them comprehend what’s happening.
Don’t think that the P&L is wrong if the bank account seems tight but the P&L indicates that the restaurant has made money.
Find out what happened between you and your spouse.
The answer to this question will reveal more about the restaurant’s reputation than an identifying number.