The month has ended. The sales were strong, the P&L shows a profit, and there is nothing seriously off.
Check the restaurant’s account.
You didn’t get the number you were hoping for.
Restaurant owners may be dissatisfied with this because they believe that profits and cash flow should be exactly the same. However, they aren’t. It’s not true. P&L is a gauge of financial performance. On the other hand, the bank account is a representation of when money moves in and out.
Understanding the difference can allow owners to change their perspective on restaurant finances.
Consider what happens during an ordinary week. The customers pay for food. It is important to pay employees. Food and drinks are issued. Rent is close to being paid. Credit card payments are timed. Sales tax is collected however it’s also the responsibility.
The purchase for next week has already started.
If you are only looking at the amount of revenue or the final profits, then you’ll not be able to see a lot of the activity.
Prime Cost could be the Key to the Clue
When the profitability of restaurants starts to change in the negative direction, food, drink, and labor costs deserve consideration.
Prime cost is made up of the price of goods and labor. The Bookkeeping Chefs’ provided instructions place the main cost between 60% and 65 percent of revenue for many establishments. They also stress daily monitoring, not waiting until the end of the month.
Effective management of prime costs requires less focusing on a single percentage and more attention to the earlier movement.
Imagine that the restaurant normally does well, but this week, there’s at a higher percentage. Maybe overtime increased. Perhaps beverage costs were steady However, food expenses increased. The operator may review menus or waste, portion sizes along with vendor invoices and purchasing if the food portion is higher.
The percentage is crucial. It is in the activities in restaurants.
A weekly report makes the conversation possible, while everyone will be able to recall what occurred.
The details are more difficult to remember two or three days later.
Then the Vendor Bills Show Up
Restaurants can purchase ingredients one week and pay for them next week. This is the reason that understanding profit alone isn’t the answer to every cash issue.
Vendor invoices must be received, tracked and paid. In a busy operation with many suppliers, doing this by hand can be its own administrative workload.
Automating accounts payable can streamline this process, which reduces tedious tasks such as managing payments and bills. The user can have more precise information about the obligations that haven t hit their bank accounts by utilizing connected bookkeeping systems.
This is because the bank’s balance as an individual can appear more healthy than the restaurant’s real-time position.
It is possible that there are $80,000 in your account as of right now. This number can mean something different in the event that it is affected by other elements like rent or payroll, vendors, and other obligations for the coming days.
That leads naturally to cash flow forecasting.
What will happen with our money after we’ve received the cash we’ve been expecting and have fulfilled all of our obligations?
This distinction is crucial when deciding on whether or not this is the right week to make an additional purchase or replace equipment, or to maintain the liquidity.
The cash you received may Not Be Yours
The example of sales tax is a good one.
A restaurant receives cash from its customers, which eventually must be disposed of according to tax requirements. When these money are thought of as put together with operating cash, it can provide a false perception of the amount of money that is available for spending.
Consistent records support the tax compliance of sales while giving the manager a better understanding of the restaurant’s financials.
It is for this reason that restaurant accounting works better when financial responsibility isn’t treated as separate islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted due to purchases from vendors. Payroll affects the amount of cash available and also the labor percentage. Cash availability is affected by the sales tax. P&Ls track financial performance, while forecasting allows management to examine the future.
The pieces are linked.
Bookkeeping Chef can help bring the pieces together by providing restaurant-specific reports and system integrations. Outsourced bookkeeping can help operators who do not want to work all night reconciling their financial information.
It’s the final part that is important.
Restaurant owners should never stop reading their books simply because they’re handled by someone else. Owners should be given information which will allow them to be aware of what’s happening.
Don’t assume that the P&L is wrong if the bank account appears to be in good shape, but the P&L indicates that the restaurant earned money.
Find out what transpired between you and your partner.
This question will teach you far more about your restaurant than any other number could by itself.
