The month has ended. The month is finished.
You should then check the restaurant’s bank account.
This number isn’t exactly what you expected.
For restaurant owners, this gap can be frustrating as profits and cash flow appear to be the same. They don’t. A P&L is a measure of financial performance over a period, while the bank account represents the timing of money actually moving in and out of the company.
Understanding the difference can change the way a restaurant owner is looking at the restaurant’s financials.
Have a look at what goes on in a typical week. Customers pay for food. Employees are required to be paid. Invoices for food and drinks are sent. Rent is due. Credit card transactions have their own timing. Sales tax is collected, but it’s also responsibilities.
On the other hand, the next week’s shopping has already started.
If you are only looking at the amount of revenue or profit, then you will not be able to see a lot of the activity.
Prime Cost Could Hold the Key to the Clue
If the profitability of restaurants begins to decrease, cost of food, drinks and labor costs must be taken into consideration.
Cost of goods sold combined with labor is the main cost. The Bookkeeping Chefs’ provided guidelines place the primary cost between 60-65 percent of the revenue for many establishments. They also stress the importance of weekly monitoring rather than waiting until the end of the month.
It is essential to be able to detect the changes before they occur rather than obsessing over a specific percentage.
Imagine that the restaurant usually performs within its targets however, this week’s rate is higher. Perhaps overtime was went up. Maybe beverage costs were stable but food costs increased. A higher food percentage might make the supervisor think about reviewing buying, waste, menu mix portions, or vendor invoices.
The percentage raises questions. The answer lies in the activity of the restaurant.
A weekly report can make an opportunity for conversation while everyone remembers the events.
After a few weeks, the details become much harder to reconstruct.
The Vendor’s Bills Are Received
Restaurants can purchase ingredients one week and pay for them the next. Because of this, it is the case that understanding profits alone can not answer all cash issues.
Vendor invoices need to be accepted and logged. In a busy operation with numerous suppliers, doing that manually can turn into its own administrative workload.
Automating accounts payable can help organize the process, reducing the need to handle bills in a repetitive manner and payment information. Systems for bookkeeping that are linked will give the owners a clear image of their obligations even if they haven’t yet been paid.
It’s important because a bank balance viewed as a whole can appear healthier than the restaurant’s actual near-term position.
The current balance could be $80,000 on the account. It could mean something different in the event that payroll, rent and vendors commitments will consume a substantial portion over the next few days.
This leads naturally to the process of forecasting cash flows.
Instead of asking “How many dollars of cash are we carrying?” the better question becomes “What could be the fate of our cash following the money we’re expecting to receive and the obligations we are already aware about?”
The distinction is important when deciding whether this is a comfortable week to upgrade equipment, make an additional purchase, or to preserve liquidity.
A portion of the Cash Was Never Yours
The sales tax example is an excellent one.
A restaurant collects money from customers that eventually has to be managed according to its tax obligations. If these cash-flows are placed in the same category as operating cash, they can make a false impression about the money available to spend.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
It is for this reason that restaurant accounting is more efficient when financial obligations aren’t considered as distinct islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected due to purchases from vendors. The percentage of labor and cash are affected by the payroll. Cash flow is impacted by the sales tax. The P&L documents financial performance forecasting can help management look ahead.
The pieces are linked.
Bookkeeping Chef uses restaurant-focused reporting and system integrations to integrate these pieces. If you don’t want to work all night reconciling financial data, specialized outsourcing of bookkeeping can take on most of the accounting work without removing the owner of the financial discussions.
That last part matters.
The aim isn’t to get restaurant owners to simply stop looking at their books since someone else is handling them. It’s important that the owners receive information so they are aware of what’s happening.
So if the P&L says the restaurant made money but the bank account is feeling a little tight, don’t presume that one of the numbers must be wrong.
Find out what transpired between you and your spouse.
This question will teach you far more about your restaurant than a single number could on its own.