The month is over. Sales were solid, the P&L shows a profit and there’s nothing that appears to be seriously to be wrong.
You should then check the bank account of the restaurant.
The number isn’t what you expected.
Restaurant owners, this is a problem because the cash flow and profit appear to tell the same story. They don’t. A P&L is a measure of how well the company’s financials have performed over a certain time and your bank account shows the actual timing of money being moved into and out of the business.
Understanding the difference will change how a restaurant’s owner is able to view their financials.
Consider what happens during an normal week. Customers pay for meals. Employees need to be paid. You will receive invoices along with drinks and food deliveries. Rent is due. The timing of debits to credit cards is different. The tax on sales is an obligation.
Meanwhile, next week’s purchasing has already begun.
Looking just at revenue or the end-of-year profit number isn’t a good way to assess the full scope of what happens.
Prime Cost could be the Key to the Answer
If restaurant profits begin to move in the wrong direction, the food, beverages, and labor costs deserve the attention of restaurant owners.
Cost of sales combined with labor is a major cost. Bookkeeping Chef’s provided guidance places prime costs at approximately 60% to 65 percent for a wide range of restaurants and stresses weekly monitoring instead of waiting until the end the month.
It is much more crucial to be able to detect any changes in the early stages rather than worrying about the exact percentage.
Imagine that the restaurant usually performs close to its target, but this week’s percentage is higher. Perhaps the overtime rate is up. Perhaps beverage costs were steady, but food costs increased. An increase in the percentage of food items could cause the manager to look at purchase, waste, menu mix portions or vendor invoices.
The percentage is the most important. The activities that underlie the restaurant provide the answer.
A weekly report can make this conversation possible and everyone is still able to remember what happened.
The details will be more difficult to remember two or three days later.
The Vendor’s Bills Arrive
Restaurants may buy ingredients the week before and pay for them the next. This timing helps to explain the reason why profit alone isn’t enough to answer all cash related questions.
Vendor invoices must be received and tracked. In a busy operation with many suppliers, doing this manually can become an administrative task.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. These bookkeeping systems are also able to provide the owner with a clearer image of the obligations that haven’t yet been paid into the account of the bank.
It’s useful because, considered as a whole the restaurant’s financial position might appear to be better than its actual short-term financial position.
There might be $80,000 in the account as of today. The figure of $80,000 means tiny if rental, vendors or payroll are to take up a significant portion of the account in the coming days.
Forecasting cash flow is a natural result.
Instead of asking “How much cash do we have?” the better question becomes “What is going to transpire with our cash after the money we expect to receive and the obligations we are already aware about?”
The distinction can matter when deciding if it is a suitable week to upgrade equipment, make an extra purchase, or keep liquid funds.
The Cash Was Never Yours
The example of sales tax is a good example.
Restaurants take money from their clients, which they be able to manage according to the tax requirements. If these cash-flows are grouped together with operating cash, they can make a false impression about the amount of money that is available for spending.
The consistent recording system allows restaurants to comply with the sales tax laws and also providing a realistic view of their financial position.
Accounting for restaurants is more efficient when the financial obligations of each restaurant are not considered separately.
Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll has an impact on the amount of cash available and also the labor percentage. Cash flow is affected by the sales tax. P&Ls track financial performance, while forecasting lets management look ahead.
The pieces are joined.
Bookkeeping Chef integrates restaurant-specific reporting and system integrations. Outsourced bookkeeping is a great option for owners who do not wish to be tasked with reconciling their financial information.
It’s the final part that matters.
It’s not our goal for restaurant owners to cease checking their books because someone does. It’s crucial that the owners are informed so that they know the situation.
If the P&L shows that the establishment is earning money however the balance of the bank seems too tight, don’t think that the P&L could be wrong.
Ask them about what transpired between them.
This one question could teach you more about your restaurant than any number be on its own.