The month ended. The sales were good, the P&L shows a profit and there’s nothing that appears to be to be terribly incorrect.
You should then check the restaurant’s bank account.
The number doesn’t match what you expected.
Restaurant owners may be dissatisfied with this, as they believe that cash flow and profits must be exactly the same. But they don’t. A P&L evaluates the financial performance over a period and your bank account shows the time frame of money flowing into and out of the business.
Understanding the different aspects can help owners change their perspective on restaurant finances.
Have a look at the typical week. The customers pay for food. Employers must be paid. Food and drinks deliveries arrive with invoices. Rent is on the way. Deposits made with credit cards have their own timing. Sales tax has been paid, but that cash comes with an obligation.
The next week’s buying has already begun.
Concentrating on revenue or the final profit figure leaves out a lot of the work.
The Secret Could Be Hidden in Prime Cost
When the profitability of restaurants starts to change in the negative direction, food, drink as well as labor costs require attention.
Cost of the goods sold with labor is the prime cost. Bookkeeping Chef’s provided guidance places primary costs between 60% to 65 percent for a wide range of restaurants, and emphasizes weekly monitoring instead of staying until the end of the month.
It is essential to be able to detect changes earlier than worrying about a specific percentage.
Imagine that the restaurant’s efficiency is typically within a certain range However, this past week, it went up. Perhaps the overtime rate was increased. Maybe beverage costs were stable However, food expenses increased. A higher proportion of food might prompt the operator to examine purchasing, waste management, portions and menu mix, or vendor costs.
The percentage raised the question. The answer is found in the activity of the restaurant.
A weekly report makes the conversation possible, while everyone will be able to recall what occurred.
The details are much more difficult for you to remember just a few days later.
Then the Vendor Bills Arrive
The restaurant is expected to pay in the future for the ingredients it purchases. This is due to the fact that understanding profits alone does not resolve all cash-related issues.
Vendor invoices should be recieved and logged. In a highly-competitive business with many suppliers, completing that manually can become its own administrative workload.
Automating the process of paying bills helps manage this process by eliminating the need to handle bills in a repetitive manner and payment information. These bookkeeping systems are also able to give the user a better view of any obligations that haven’t yet reached the bank account.
This is beneficial, as the balance of your bank account may appear to be healthier than the restaurant’s current situation.
Today, there may be an amount of $80,000 in the account. It could be different if it is impacted by other factors such as rent or payroll, vendors, and other obligations that will be due in the next few days.
This leads to the cash flow forecasting.
Instead of asking “How much cash do we have?” the better question becomes “What could transpire with our cash after the money we’re expecting to receive and the obligations we know about?”
This is a crucial distinction in determining the appropriateness of the appropriate week to purchase an additional item to replace equipment or keep the liquidity.
You might not have been entitled to all the money you thought.
The sales tax example is a great one.
Restaurants take money from their customers, which they have to then handle in accordance with the tax requirements. If the money is mentally associated with operating cash, the bank balance can give a false idea of what is available for spending.
Records that are consistent support sales tax compliance while also giving the manager a better view of the restaurant’s finances.
It’s for this reason that restaurant accounting works better when financial responsibility isn’t separated from other responsibilities.
Prime cost affects margin. COGS and future payments are affected by vendor purchases. Both labor and cash percentages are affected by payroll. Cash flow is affected by the sales tax. The P&L tracks financial performance, and forecasting assists management to look ahead.
The pieces are connected.
Bookkeeping Chef combines restaurant-specific reports along with system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.
The last part is important.
Restaurant owners shouldn’t be able to stop reading their books regardless of whether they’re being handled by someone else. Owners should be provided with details in a manner that helps them understand what’s going on.
If the P&L says the restaurant made money but the bank account feels extremely tight, don’t presume that one of the numbers could be incorrect.
Find out what transpired between you and your spouse.
Answering this question can give you more insight into the restaurant’s reputation than the number.