The month ended. Sales were solid, the P&L shows a profit, and nothing appears to be terribly to be wrong.
Make sure to check the restaurant’s account.
The number may not be exactly what you’d hoped for.
Restaurant owners might be frustrated by this because they believe that profits and cash flow should be exactly the same. They are not. A P&L examines the performance of the business’s finances over a certain time period, whereas a bank account shows the exact timing of money flowing into and out of the company.
Understanding the difference will help restaurant owners adjust their views on the restaurant’s finances.
Imagine what happens on a typical workday. Customers pay for meals. Employers must be paid. Food and beverages are delivered with invoices attached. Rent is approaching. Deposits to credit cards are timed. The tax on sales is an obligation.
Already the shopping spree for next week have started.
Looking only at revenue or the end-of-year profit number does not take into account a lot of the activity.
The answer could be hidden in the prime cost
If restaurant profitability begins to decline, the cost of food, beverages and labour costs must be taken in the equation.
Cost of selling goods with labor is the prime cost. The Bookkeeping Chefs’ provided guidance places the prime cost between 60 and 65 percent of revenue for many restaurants. They also emphasize weekly monitoring instead of waiting until the month ends.
Effective prime cost management involves not focusing on one percent and more being aware of early changes.
Imagine that the restaurant’s efficiency is typically within a certain range however this week, it grew. Perhaps overtime was increased. The cost of drinks could have remained the same, whereas food prices increased. An increase in the percentage of food items could lead the operator to review buying, waste, menu mix portions or invoices from vendors.
The percentage is what matters. The restaurant’s activity is the answer.
Weekly reports make this conversation possible and everyone remembers the events.
The details will be more difficult for you to recall two or three days later.
Then the Vendor Bills Arrive
A restaurant may purchase ingredients this week but pay for these items in the future. This is due to the fact that understanding profits alone does not resolve all cash-related issues.
Vendor invoices must be received and logged. Doing this manually in a busy business with many suppliers can be a massive 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 account by using automated bookkeeping systems that are connected.
This is important since a bank balance viewed as an individual can appear more healthy than the restaurant’s real-time position.
There may be $80,000 sitting in the account as of today. It could mean something different in the event that payroll, rent and vendors as well as other obligations consume a significant portion of it over the next few days.
Cash flow forecasting is a normal outcome.
What will happen with our cash after we’ve gotten the amount we’ve hoped for and have met our obligations?
It is crucial to understand the difference when deciding if this week is the best moment to upgrade equipment, purchase additional items or save liquid funds.
The cash you received may Not be Yours
The example of sales tax is a good example.
The money that restaurant owners receive from customers is eventually going to need to be handled in line with the tax requirements. When these dollars are mentally put together with operating cash, it can give a false impression of the money available to spend.
The consistent records help ensure sales tax compliance as well as giving the manager a better view of the restaurant’s finances.
This is the reason that restaurant accounting can be more effective in situations where financial responsibilities aren’t separated from other responsibilities.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. Cash and labor percentage are affected by payroll. Cash availability is impacted by the sales tax. P&Ls can be used to document financial performance. Forecasting can also be useful for managers.
The pieces are interconnected.
Bookkeeping Chef assists in bringing these elements together, using restaurant-specific reports as well as system integrations. For those who don’t wish to spend their nights manually reconciling financial data, specialized outsourcing of bookkeeping can take on large portions of the accounting burden while removing the business owner from the financial conversation.
The last section is very important.
It’s not the aim of restaurant owners to cease checking their accounts because someone else does. It’s to provide owners with data in a way that will help them understand what’s going on.
If the P&L indicates that the establishment is profitable however the balance of the bank seems unbalanced, don’t assume that the P&L is not accurate.
Ask them about what transpired between them.
This question will teach you something more about the food you serve than either number can alone.