The month has ended. Sales were solid, the P&L indicates a profit and there is nothing suspiciously incorrect.
After that, you can check the bank account of the restaurant.
The number you received isn’t what you would have expected.
Restaurant owners may find this disconnect frustrating since they believe cash flow and profits should be exactly the same. However, they aren’t. A P&L is a measure of the financial performance of a business over a specific period of time, while accounts in banks show the exact timing of money flowing into and out of the company.
Understanding the difference can alter the way that a proprietor looks at restaurant finances.
Consider what happens during an ordinary week. The customers pay for food. It is important to pay employees. You will receive invoices with meals and beverages delivered. Rent is close to being paid. Deposits made with credit cards have their own timing. Taxes on sales have been collected, but the money comes with an obligation.
On the other hand, the next week’s shopping has already begun.
If you focus only on the amount of revenue or the final profits, you’ll not be able to see a lot of this action.
The Secret Could Be Hidden in the Prime Cost
If the restaurant’s profitability starts to decrease, cost of food, beverages and labour costs must be taken in consideration.
Cost of the goods sold with labor is the primary cost. The Bookkeeping Chefs’ instructions place the main cost between 60% and 65% of revenues for many restaurants. They also suggest regular monitoring of the week instead of waiting until the end of the month.
Effective management of prime costs requires less obsessing on a single percent and more being aware of earlier movement.
Suppose the restaurant normally performs at or near its goal however, this week’s rate rises. Perhaps overtime was added. Maybe beverage costs were stable but food costs increased. A higher percentage of food could cause the manager to look at buying, waste, menu mix, portions or vendor invoices.
The percentage is the key. The answer is found in the restaurant’s activity.
Weekly reports allow for the discussion to continue in the midst of everyone being aware of the events that have occurred.
After a period of two to three weeks, it becomes much more difficult to reconstruct specifics.
After the vendor bills are paid
The restaurant will be able to pay later for the food items it buys. This timing helps to explain the reasons why profit alone isn’t enough to answer all cash-related questions.
Invoices from vendors must be tracked, accepted and paid. This could be lots of work for the case of a business with many suppliers.
Automating the process for accounts payable can help organize this by reducing the time-consuming handling of bills and payments. Bookkeeping systems that are integrated can give owners a better understanding of their obligations, even though they haven’t yet been paid.
This is important since the bank’s balance in isolation may appear to be healthier than a restaurant’s current position.
Today, there may be an amount of $80,000 in the account. This number could mean something different in the event that payroll, rent, vendors, and other obligations consume a significant portion over the next few days.
That leads naturally to cash flow forecasting.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What is likely to occur to our cash after the cash we anticipate to receive and the obligations we are already aware about?”
This distinction is essential when deciding which is the appropriate time to purchase an additional item to replace equipment or keep liquidity.
You might not have been entitled to all the money you thought.
Sales tax illustrates this in particular.
The money restaurant owners receive from customers will eventually need to be handled in accordance with the tax requirements. If those dollars are mentally grouped with ordinary operating cash, the balance in the bank can create a misleading sense of the amount available for spending.
Regularly maintained records help restaurants to comply with the sales tax laws as well as giving a clear image of their financial condition.
It’s for this reason that restaurant accounting works better when financial obligations aren’t treated as separate islands.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted due to purchases from vendors. Payroll can affect both the labor and cash percentage. Cash flow is impacted by the sales tax. The P&L tracks financial performance, while forecasting aids management in looking ahead.
The pieces are connected.
Bookkeeping Chef incorporates restaurant-specific reporting through system integrations. Bookkeeping outsourcing can be beneficial to those who don’t want to be tasked with reconciling their financial information.
It’s the very last one that’s important.
It’s not for restaurant owners to not look at their accounts because somebody else handles them. Owners should be given information which will allow them to know what’s going on.
Don’t be fooled into thinking that the P&L is correct if your balance of the bank seems to be tight, however the P&L confirms that the restaurant generated money.
Ask about the events that occurred between them.
This one question could teach you much more about the restaurant than any number by itself.