The month is over. The month is done.
Check the bank account of the restaurant.
The number you received wasn’t what you were hoping for.
For restaurant owners, that disconnection can be a source of frustration because the cash flow and profit seem to provide the same information. But they don’t. A P&L is a measure of the performance of the business’s finances over a certain period of time, while it is a bank account that shows the exact time of money moving into and out of he business.
Understanding the difference could help restaurant owners shift their views on the restaurant’s finances.
Look at what goes on in a typical week. Customers pay for meals. Employees must be paid. You will receive invoices along with food and beverage deliveries. Rent is on the way. Credit card deposits have their own specific timing. Sales tax collected is an obligation.
The buying for next week has already begun.
If you focus solely on revenue or the number of dollars earned at the end, it is easy to miss out on lots of activities.
Prime Cost Could Hold the Key to the Clue
If restaurant profits begin to move in the wrong direction, then food, drinks as well as labor costs require the attention of restaurant owners.
Together, cost of items sold and labor together make up the bulk of the cost. The Bookkeeping Chefs’ provided guidance places the prime cost between 60 and 65 percent of the revenues for a variety of restaurants. They also stress regular monitoring of the week instead of waiting until the end of the month.
Effective management of prime costs is less about worrying about the exact percentages and more about being able to spot changes early.
Imagine that the restaurant’s results are generally within its target However, this past week, it was higher. Perhaps the overtime rate also increased. Perhaps the cost of beverages was stable, but food costs increased. A higher food percentage might make the supervisor think about reviewing the menu, purchases, waste, mix, portions, or vendor invoices.
The percentage raises questions. The answer lies in the restaurant’s activity.
Weekly reports make that conversation possible while everyone still remembers what happened.
The details are much more difficult to remember after a couple of days.
After the vendor bills are paid
The restaurant will be able to pay later for the food items it purchases. This explains why understanding profit alone doesn’t answer every cash issue.
Vendor invoices have to be recorded, received then tracked and finally paid. The manual process of completing this task in an organization with a lot of suppliers can become a huge administrative burden.
Automating accounts payable can streamline the process by reducing repetitive tasks such as handling bills and payment details. These bookkeeping systems are also able to provide the owner with a clearer view of any obligations that haven’t yet reached the bank account.
This is beneficial, as the bank’s balance could appear more healthy than the restaurant’s real near-term situation.
In the present, there could be an amount of $80,000 in the account. It could mean something different in the event that payroll, rent vendors, or other obligations will consume a large portion of it over the next few days.
Cash flow forecasting is a normal outcome.
What happens to our cash once we’ve received the cash we’ve been expecting and met all of our obligations?
This is a crucial distinction in determining whether or not this is the best time to make an additional purchase or replace equipment, or maintain the liquidity.
The cash you received may Not Be Yours
Sales tax illustrates this particularly well.
Restaurants receive money from their customers, which they be able to manage according to the tax requirements. If those funds are divided into operating money, the bank’s balance can create a misleading sense of the money available for spending.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
This is the reason that restaurant accounting can be more effective when financial responsibilities don’t are treated as separate islands.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. Payroll can affect both the percentage of labor and cash. Cash flow is impacted by sales tax. The P&L shows financial performance, while forecasting aids management in looking ahead.
The pieces are connected.
Bookkeeping Chef makes use of restaurant-specific reports as well as system integrations to bring those pieces together. For those who don’t wish to be slavishly reconciling financial records, outsourced bookkeeping services will handle large portions of the accounting burden without removing the owner from financial conversations.
It’s the last part that counts.
It’s not our goal for restaurant owners to stop checking their books because somebody else does. Owners should be given 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 seems tight but the P&L confirms that the restaurant earned money.
Find out what transpired between you and your partner.
The answer to that question will reveal something more about the food you serve than either number can by itself.