The month is now over. The sales were decent, the P&L had a profit, and there was no sign of anything that appeared to be seriously off.
You should then check the bank account of the restaurant.
You didn’t get the call you were hoping for.
Restaurant owners might find this disconnect frustrating, as they believe that cash flow and profits must be the same. However, they aren’t. A P&L is a measure of the financial performance of a firm over a certain time period, whereas an account in a bank shows the exact time of money entering and leaving the business.
Understanding the difference can alter the way a restaurant owner is looking at the restaurant’s financials.
Have a look at what happens during a normal week. Customers pay for meals. Employees must be paid. Food and drinks deliveries arrive with invoices attached. Rent is coming up. Credit card transactions have their own timing. Sales tax is an obligation.
On the other hand, the next week’s shopping has already begun.
If you are only looking at revenues or the final income, then you’ll overlook a significant portion of this action.
Prime Cost could be the Key to the Solution
Food, drink and labour costs are worth a closer review when the profitability of a restaurant begins to fall.
The prime cost is comprised from both items and labour. Bookkeeping Chef’s guidelines place primary costs between 60% to 65 percent for a wide range of restaurants and focuses on weekly monitoring as opposed to staying until the end of the month.
It is much more crucial to be able to spot any changes in the early stages rather than worrying about certain percentages.
Imagine that the restaurant’s performance usually close to its goal However, this past week it increased. Maybe overtime was boosted. Perhaps beverage costs remained stable but food costs increased. Operators may examine menus, waste, portion sizes or vendor invoices, as well as purchasing if the food percentage is higher.
The percentage raises the question. The restaurant’s activity is the answer.
The reason this conversation can be relived is because everyone can still remember what happened.
A few weeks later after that, the details become harder to decipher.
The Vendor Bills are then delivered.
The restaurant is expected to pay in the future for the ingredients it buys. This timing helps to explain how profit alone will not be enough to answer every cash question.
Vendor invoices should be recorded, received as well as tracked until they are paid. This is quite a task in the case of a business with several suppliers.
Automation of accounts payable streamlines the process, cutting down on tedious tasks such as managing bills and payment details. These bookkeeping systems are also able to provide the user with a more clear image of the obligations that haven’t yet hit the account of the bank.
It’s useful because, looked at as a whole a restaurant s bank balance could appear to be more healthy than its actual short-term financial situation.
There may be $80,000 sitting in the account right now. 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.
That leads naturally to cash flow forecasting.
What happens to the money we have received after we’ve received the money that we expect and fulfilled all our obligations?
It is essential to be aware of the difference before deciding if this week is the best time to replace equipment or purchase additional items or to conserve the cash flow.
and some of the cash Was Never Yours
The example of sales tax is a good one.
Restaurants receive money from customers that eventually will need to be dealt with according to its tax obligations. If these funds are associated with operating cash, the bank balance could create a false impression of what is available for spending.
Regularly updated records ensure the tax compliance of sales while giving management a more realistic perspective of the restaurant’s financials.
This is one reason why restaurant accounting is better when financial responsibilities aren’t considered as distinct islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected by the purchases from vendors. Payroll has an impact on the amount of cash available and also the labor percentage. Sales tax influences cash availability. The P&L documents financial performance and forecasting assists management to look ahead.
The pieces join.
Bookkeeping Chef can help bring these pieces together with restaurant-focused reports as well as system integrations. Bookkeeping outsourcing can benefit operators who do not want to be tasked with reconciling their financial information.
The last part is important.
Restaurant owners shouldn’t stop studying the literature simply because they’re handled by another. Owners should receive information that can help them understand what’s happening.
Don’t be fooled into thinking that the P&L is not correct if the bank account appears to be in good shape, but the P&L indicates that the restaurant has earned money.
Ask about the events that occurred between them.
This one question could teach you more about your restaurant than any other number could be on its own.