The month is over. Sales were solid, the P&L indicates a profit and nothing is to be seriously incorrect.
It is recommended to check the restaurant’s bank account.
The number is not the one you were expecting.
For owners of restaurants, this disconnection can be a source of frustration because profit and available cash feel as though they should have the same meaning. They aren’t. A P&L evaluates the the financial performance of a company over time in time, whereas the bank account represents the time frame of money flowing into and out of the business.
Knowing the differences could help restaurant owners shift their perspective on restaurant finances.
Consider what happens during an ordinary week. The customers pay for food. It is important to pay employees. The invoices for food and drinks are sent. Rent is on the way. Credit card payments come with their own schedules. Sales tax is collected, but it is the responsibility.
Meanwhile, next week’s purchasing has already begun.
When you concentrate on revenues and the numbers at the end of profits, it is easy to overlook the vast amount of activity.
The Secret Could Be Hidden in Prime Cost
When the profitability of restaurants starts to change in the negative direction, food, beverage and labor expenses require attention.
Cost of goods sold combined with labor is the main cost. The Bookkeeping Chefs’ instructions place the main cost between 60-65 percent of the revenues for a variety of restaurants. They also stress weekly monitoring instead of waiting until the month ends.
Effective cost management for primes involves less obsessing on a single percent, and more paying attention to early movement.
Let’s say that a restaurant typically performs in line with its goals, but this week’s percentage is higher. Perhaps the overtime rate was increased. Perhaps beverage costs remained stable as food costs rose. A higher proportion of food could lead the business owner to review the purchase, waste management, menu mix and portions, or vendor costs.
The percentage raises a question. It is in the restaurant activity.
The reason this conversation can be relived is because everyone will be able to remember what transpired.
The details will be harder to remember after a couple of days.
The Vendor’s Bills are Received
The restaurant will pay later for the food items it purchases. This is due to the fact that understanding profits alone can not address all cash issues.
Vendor invoices must be tracked, received and paid. Doing this manually in a busy business with many suppliers could become an enormous administrative burden.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The account owner will have an accurate picture of obligations that haven’t yet landed on their bank accounts by utilizing the bookkeeping software that is connected to.
It’s helpful because, when looked at as a whole the balance of a restaurant’s bank account may appear to be more stable than its actual financial position.
It is possible that you have $80,000 in your account at the moment. This number could mean something different if rent, payroll, vendors, and other obligations will consume a large portion of it over the next several days.
Cash flow forecasting is a natural result.
The most appropriate question to ask is “What will happen to our money after we receive it and have fulfilled the obligations we have made?”
This is an important distinction to make when deciding on the appropriateness of the appropriate time to make an extra purchase or replace equipment, or to maintain the liquidity.
The money you receive may Not be Yours
Sales tax illustrates this particularly well.
Restaurants receive money from their customers, which they must be able to manage in accordance with their tax obligations. If those funds are divided into operating cash, the bank balance could create a false impression of the money there to be spent.
A consistent record-keeping system helps restaurants to comply with the sales tax laws as well as providing a realistic view of their financial position.
This is the reason restaurant accounting is better in situations where financial responsibility isn’t seen as separate islands.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll and cash availability are affected by the payroll. Cash flow is impacted by sales tax. P&Ls report financial performance, and forecasting lets management look ahead.
Connect the pieces.
Bookkeeping Chef can help bring these elements together, using restaurant-specific reports as well as system integrations. For operators who don’t want to stay up all night reconciling financial data, specialized outsourced bookkeeping services will handle the bulk of accounting tasks while removing the business owner of the financial discussions.
It’s the last thing that’s important.
It’s not the goal for restaurant owners to cease checking their books because somebody does. It’s essential that owners receive information so they know what’s going on.
Don’t believe that the P&L is not correct if the accounts appear to be in a good state, yet the P&L indicates that the restaurant generated money.
What was the difference between them?
The answer to that question will reveal something more about the food you serve than any other number could alone.