The month has ended. Sales were solid, the P&L shows a profit and nothing appears to be seriously off.
Make sure to check the restaurant’s account.
You didn’t get the call you had hoped for.
For restaurant owners, this gap can be frustrating as profit and available cash seem like they should be the same. However, they aren’t. The P&L is a gauge of financial performance, while the bank account is a record of when money moves into and out.
Understanding the different aspects can allow owners to change their perception of restaurant financials.
Have a look at what goes on in a typical week. Customers pay for meals. The employees must be paid. Food and drinks are sent. Rent is getting closer. Deposits to credit cards are timed. Sales tax is collected however it’s also responsibilities.
Already, the next week’s purchases have begun.
Focusing on revenue only or the ending profit number misses much of that activity.
The answer could be hidden in prime cost
If the restaurant’s profitability starts to fall, cost of food, drinks and labor costs must be taken into consideration.
The prime cost is comprised from both goods and labor. Bookkeeping Chef’s guidelines place primary costs between 60% to 65 percent for a wide range of restaurants and stresses weekly monitoring as opposed to staying until the end of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant normally is performing at a high level, but this week, it’s more of a percent. Maybe overtime was boosted. Maybe beverage costs were stable while food costs jumped. The operator may review menus as well as waste, portions sizes as well as vendor invoices and purchasing if the food percentage is greater.
The percentage raises questions. The answer lies in the activity in the restaurant.
The reason this conversation can be relived is because everyone will be able to remember what happened.
Three or four weeks later After that, the details become more difficult to understand.
Then the Vendor Bills Arrive
A restaurant might purchase its ingredients in the week ahead, but pay for them later. This is a way to explain why profit alone is not enough to answer all cash related questions.
Invoices from vendors have to be tracked, accepted and paid. Manually completing this task in a busy business with many suppliers could become an enormous administrative burden.
Automating accounts payable speeds up the process by reducing routine tasks like handling invoices and payment information. Systems for bookkeeping that are linked to accounting systems can provide owners with a clear image of their obligations even though they haven’t yet been paid.
It’s advantageous because, taken as a whole the restaurant’s financial position may appear to be healthier than its actual short-term financial situation.
There could be $80,000 in the bank account at present. The $80,000 figure means very little if rent, vendors, or payroll will take up a significant portion of the account in the coming days.
Forecasting cash flow is a common outcome.
The most important question to ask is “What will happen to our cash once we have received the funds and have fulfilled the obligations we have made?”
This is an important distinction to make in determining the appropriateness of the right week to purchase an additional item or replace equipment, or keep liquidity.
The Money You Received Could Not Be Yours
Sales tax illustrates this particularly well.
Restaurants take money from their clients, which they be able to manage according to the tax requirements. If these funds are placed in the same category as operating cash, the balance in the bank may create a false sense of the amount in the bank to spend.
A consistent record-keeping system helps restaurants to comply with the sales tax laws, while providing a complete overview of their financial standing.
Accounting for restaurants is more efficient when the financial obligations of each restaurant are not considered separately.
Prime cost affects margin. COGS (cost of goods sold) and future payments are affected by the purchases made by vendors. Payroll can affect both the percentage of labor and cash. Sales tax influences the availability of cash. P&Ls are used to track financial performance. Forecasting can be helpful for management.
The pieces are interconnected.
Bookkeeping Chef helps bring these pieces together with restaurant-focused reports as well as system integrations. Outsourced bookkeeping is a great option for those who don’t want to be tasked with reconciling their financial information.
It’s the last part that is important.
It’s not the aim of restaurant owners to stop examining their accounts because someone else does. Owners should be given information that helps them know what’s going on.
If the P&L states that the restaurant has made money but the bank account is feeling a little tight, don’t assume some of the figures must be off.
Find out what transpired between you and your partner.
This question will tell you more about your company than any number.