The month has come to an end. The month is finished.
Then, you should check the restaurant’s bank account.
You didn’t get the number you expected.
Restaurant owners may find this disconnect frustrating since they believe cash flow and profits ought to be identical. They are not. A P&L evaluates the financial performance over a period, while the bank account represents the timing of money actually being moved into and out of the company.
Understanding the difference can alter the way a restaurant’s manager is able to view their financials.
Take a look at what happens during an normal week. Food is paid for by customers. Employees need to be paid. Food and drinks are sent. Rent is on the way. The time of credit card transactions is different. Sales tax is collected however it’s also a responsibility.
The buying for next week has already begun.
If you just look at the revenue or the final profit, then you will not be able to see a lot of this action.
The key to the answer may lie in the cost of prime.
Food, beverages and labor costs are worth taking a closer examine when restaurant profitability begins to fall.
Prime cost consists of both goods and labor. The Bookkeeping Chef’s guidance puts prime cost at roughly 60% to 65 percent of revenues for a variety of establishments, and emphasizes weekly monitoring rather than waiting until the close of the month.
It is crucial for you to recognize changes early than obsessing about the exact percentage.
Imagine that the restaurant’s efficiency is generally within its target However, this past week it increased. Perhaps the overtime rate has increased. Perhaps the cost of beverages remained steady however food prices soared. The higher proportion of food could prompt the manager to look at buying, waste management portions and menu mix or even vendor invoices.
The percentage is what matters. The answer is found in the restaurant’s activity.
A weekly report can make that conversation possible while everyone still remembers what happened.
The details will be more difficult to remember two or three days later.
The Vendor Bills are then delivered.
Restaurants can purchase ingredients one week and pay for them next week. This is the reason knowing the profit isn’t enough to answer all cash questions.
Vendor invoices must be recorded, received and tracked before being paid. In a busy operation with many suppliers, doing this by hand can be the company’s own administrative task.
Automating accounts payable can help organize the process, reducing the need to handle bills in a repetitive manner and payment details. Bookkeeping systems that are integrated allow owners to have a better image of their obligations even though they haven’t yet been paid.
This is important since a bank’s balance when seen as an individual can appear more healthy than the restaurant’s actual short-term position.
There might be $80,000 in the account right now. This amount could mean something different when you consider that rent, payroll and vendors commitments consume a significant portion over the next several days.
This naturally leads to the process of forecasting cash flows.
Instead of asking “How many dollars of cash are we carrying?” the better question becomes “What will transpire with our cash after the money we’re expecting to receive and our obligations that we already know about?”
The distinction could be important when deciding whether this is a comfortable week to replace equipment, an additional purchase, or to preserve cash.
The money you receive may Not be Yours
The sales tax illustrates this especially well.
Restaurants take money from their clients, which they deal with according to the tax requirements. If these funds are grouped with ordinary operating cash, the bank balance may create a false sense of the money available for spending.
Records that are consistent support sales tax compliance as well as giving the management a better picture of the financials of the restaurant.
Restaurant accounting is more effective when the financial obligations of each restaurant do not have to be treated separately.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted through purchases made by vendors. Payroll affects both labor percentage and cash. Cash flow is affected by the sales tax. P&Ls can be used to document the financial performance. Forecasting is also beneficial for managers.
The pieces are joined.
Bookkeeping Chef utilizes restaurant-specific reporting and system integrations to help put all the pieces together. 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.
It’s the very last one that’s important.
The goal isn’t for restaurant owners to simply stop looking at their accounts because somebody else handles them. Owners should receive information that helps them comprehend what’s happening.
So if the P&L indicates that the restaurant made money but the bank account feels extremely tight, don’t assume one of the numbers could be wrong.
Find out what transpired between you and your spouse.
The answer to this question will reveal more about the restaurant, more than just an identifying number.