The month has ended. The sales were good, the P&L is in profit and there’s nothing that appears to be to be terribly off.
Check the restaurant’s account.
The number you received isn’t what you’d hoped for.
For owners of restaurants, this gap can be frustrating as profits and cash available feel as though they should have the same meaning. They aren’t. It’s not true. P&L is a metric of financial performance. On the other hand, the bank account is a reflection of how much money is moved in and out.
Understanding the differences can help owners change their view of the financials of their restaurant.
Imagine what might happen during a typical workday. Food is paid for by customers. Employees must be paid. You will receive invoices along with the delivery of food and drinks. Rent is due. The time of debits to credit cards is different. Sales tax is collected however it is responsibilities.
Already, the next week’s purchases have started.
Concentrating on revenue or the ending profit number misses much of that activity.
The Secret Could Be Hidden in the Prime Cost
When restaurant profitability starts moving in the negative direction, then food, drinks and labor costs need the attention of restaurant owners.
Cost of the goods sold with labor is the main cost. Bookkeeping Chef’s guidelines place the cost of goods sold at 60%-65 percent for most restaurants, and emphasizes weekly monitoring rather than waiting until the end the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Let’s say that a restaurant typically performs at or near its goal However, this week’s number is higher. Maybe overtime increased. Maybe beverage costs were stable as food costs rose. A higher food percentage might prompt the owner to examine purchasing, waste, menu mix portions and vendor invoices.
The percentage raises questions. The restaurant’s activity is the answer.
A weekly report can make that conversation possible while everyone still remembers what happened.
The details are more difficult to recall the next day or two.
When the vendor bills arrive
Restaurants may purchase ingredients the week before and pay for them next week. It’s due to this fact that analyzing profits alone will not address all cash issues.
Invoices from vendors need to be received, tracked and paid. Doing this manually in an office with many suppliers can result in a significant administrative burden.
Automating accounts payable helps to streamline the process, reducing the need to handle bills in a repetitive manner and payment details. The bookkeeping system that is connected to the internet can give the user a better picture of obligations that haven’t yet been paid into the account of the bank.
It’s important because a bank balance viewed in isolation may appear to be healthier than the restaurant’s actual near-term position.
It is possible that you’ve got $80,000 in your account at the moment. This amount could be interpreted differently in the event that it is affected by other elements like rent as well as payroll, vendors and other obligations over the coming days.
This leads to the cash flow forecasting.
The most important question to ask is “What will happen to our cash once we receive the money and have met the obligations we’ve made?”
This distinction is crucial when deciding whether this is the right week to buy an additional purchase to replace equipment or keep the liquidity.
And Some of the Cash Wasn’t Really Yours
Sales tax illustrates the point in particular.
The money a restaurant receives from its customers will eventually have to be handled in line with the tax requirements. If those funds are associated with operating cash, the bank balance may create a false sense of the money there to be spent.
Regularly maintained records help restaurants to comply with the sales tax laws while also giving a clear view of their financial position.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant are not separated.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll can affect the percentage of labor and cash. Cash availability is impacted by the sales tax. P&Ls track financial performance, while forecasting lets management examine the future.
Connect the pieces.
Bookkeeping Chef can help bring the pieces together by providing restaurant-specific reports as well as system integrations. Outsourced bookkeeping services that are specifically tailored to your needs are an ideal alternative for businesses that don’t have the time to manually reconcile financial data. They will take care of a lot of the accounting duties but without taking the owner away from the financial discussion.
The last part is important.
Restaurant owners shouldn’t be able to stop reading the books, regardless of whether they’re being handled by someone else. Owners must be provided with information which will allow them to understand what’s happening.
If the P&L indicates that the restaurant is profitable but the bank balance feels insufficient, don’t believe that the P&L may be inaccurate.
Ask about the events that occurred between them.
This one question could teach you far more about your restaurant than a single number could by itself.