The month is over. Sales were excellent, and the P&L shows a profit, and there’s nothing that appears to be to be seriously to be wrong.
After that, you can check the restaurant’s bank account.
This number isn’t exactly what you’d hoped for.
For restaurant owners, this is a problem because the cash flow and profit feel as though they should provide the same information. But they don’t. A P&L examines the financial performance of a company over a specified period of time, while an account in a bank shows the exact timing of funds entering and leaving the business.
Understanding the difference can alter the way that a restaurant’s owner thinks about their finances.
Imagine what might happen during a typical workday. The customers pay for food. Employees must be paid. The invoices for food and drinks are sent. Rent is approaching. The credit card deposit is also timed. The tax on sales is an obligation.
The purchase for next week has already begun.
Looking just at revenue or the final profit figure leaves out a lot of the work.
Prime Cost could be the key to the answer
When restaurant profitability starts moving in the wrong direction, food, beverage and labor costs need attention.
Prime cost is made up of both items and labour. The Bookkeeping Chef’s guidance puts the cost of goods sold at 60%-65 percent for a variety of restaurants and focuses on weekly monitoring instead of staying until the end of of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Suppose the restaurant normally performs in line with its goals However, this week’s number is higher. Perhaps overtime was is up. Perhaps the cost of beverages was stable However, food expenses increased. A higher food percentage might prompt the owner to examine the menu, purchases, waste, mix, portions and vendor invoices.
The percentage raises questions. The answer lies in the restaurant’s activity.
This conversation is possible because everyone can still remember what happened.
The details are much more difficult to remember the next day or two.
The Vendor’s bills arrive
Restaurants may buy ingredients one week and pay for them the next. This can help explain why profit alone is not enough to answer all cash questions.
Vendor invoices have to be received and tracked. This can be a lot of work in an operation that has several suppliers.
Automating the process of paying bills can streamline this process by reducing the repeated handling of bills and payments. Systems for bookkeeping that connect can give owners a better picture of obligations, even if they haven’t yet been paid.
It’s useful because, looked at as a whole the balance of a restaurant’s bank account may appear to be healthier than its actual short-term financial situation.
There is currently an amount of $80,000 in the account. This number could mean something different when you consider that rent, payroll, vendors, and other commitments will consume a substantial part of it in the next few days.
This leads naturally to cash flow forecasting.
What happens to the money we have received after we’ve received the funds we’ve expected and have fulfilled all of our obligations?
It is essential to be aware of what the distinction is when deciding if this week is the ideal time to replace equipment, purchase more products, or conserve liquidity.
A portion of the Cash Wasn’t Yours at All
Sales tax illustrates the point especially well.
Restaurants collect money from customers which needs to be handled in accordance with its tax obligations. If these dollars are mentally coupled with the normal operating cash, then the bank balance could be misleading about how much money is available.
The consistent recording system allows restaurants to comply with the sales tax laws while also providing a complete picture of their financial situation.
This is a reason why restaurant accounting can be more effective when financial obligations aren’t viewed as separate entities.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted through purchases made by vendors. Payroll affects the percentage of labor and cash. Sales tax affects cash availability. The P&L shows financial performance, forecasting can help management look ahead.
The pieces are connected.
Bookkeeping Chef integrates restaurant-specific reporting through system integrations. Outsourced bookkeeping can help users who don’t want to spend the night manually reconciling their financial data.
It’s the final part that is important.
Restaurant owners should not stop studying the literature regardless of whether they’re being handled by another. It is important that owners receive information so they are aware of the situation.
If the P&L indicates that the restaurant made money but the bank account feels surprisingly tight, don’t presume that one of the numbers must be incorrect.
Ask about the events that occurred between them.
This question will reveal more about your business than any number.
