The month has come to an end. Sales were excellent, and the P&L indicates a profit and nothing is seriously incorrect.
Check the bank account of the restaurant.
The number isn’t the one you’d expected.
This gap can be a source of frustration for restaurant owners as they think that profit and cash on hand should tell the same tale. They don’t. A P&L measures financial performance over a period and the bank account reflects the timing of money actually flowing into and out of the company.
Understanding the difference can alter the way that a proprietor looks at restaurant finances.
Imagine what could happen on an average week. Food is paid for by customers. Employees must be paid. The invoices for food and drinks are issued. Rent is due. Credit card transactions are subject to their own timetable. Sales tax is collected however it comes with responsibilities.
The next week’s buying has already started.
Concentrating on revenue or the end-of-year profit number leaves out a lot of the work.
Prime Cost Could Hold the key to the answer
When the profitability of restaurants starts to change in the wrong direction, the food, beverages as well as labor costs require the attention of restaurant owners.
Cost of the goods sold with labor is a major cost. Bookkeeping Chef’s guidelines place the primary cost at around 60% to 65% of revenue for many restaurants, while focusing on the importance of monitoring weekly rather than waiting until the closing of the month.
Effective primary cost management requires less focus on a single percent and more being aware of early changes.
Imagine that the restaurant’s performance is generally within its target However, this past week, it was higher. Perhaps overtime has went up. Perhaps beverage costs were steady while food costs grew. A higher percentage of food might prompt the operator to consider examining buying, waste management portions and menus, or even vendor invoices.
The percent raises the issue. It is in the underlying restaurant activity.
Weekly reports allow for this discussion to occur even though everyone is aware of the events that have occurred.
Two or three weeks later after that, the details become harder to reconstruct.
After the vendor bills are paid
The restaurant will pay later for the food items it buys. Because of this, it is the case that knowing profits alone will not address all cash issues.
Invoices from vendors must be tracked, received and paid. Doing this manually in an environment with many suppliers can become a huge administrative burden.
Automating the process of paying bills helps manage this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that are linked can give owners a better picture of obligations, even though they haven’t yet been paid.
This is advantageous, since the bank’s balance may seem healthier than a restaurant’s current situation.
There may be $80,000 sitting in the account as of today. The $80,000 amount is tiny if rental, vendors or payroll make up a large portion over the next few days.
That leads naturally to cash flow forecasting.
What happens to the money we have received after we’ve received the amount we’ve hoped for and met all of our obligations?
The distinction could be important in determining if this is a suitable week to repair equipment, make an additional purchase, or preserve liquidity.
and some of the cash Wasn’t Really Yours
The example of sales tax is a good example.
Restaurants receive money from customers that eventually must be disposed of according to its tax obligations. If these cash-flows are placed in the same category as operating cash, it could provide a false perception of the money available to spend.
Consistent records help restaurants comply with sales tax requirements while providing management a complete picture of their financial situation.
This is why it is that restaurant accounting can be more effective when financial responsibilities don’t are separated from other responsibilities.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted by the purchases made by vendors. Payroll is a factor that affects both cash and labor percentage. Sales tax influences cash availability. P&Ls report financial performance, and forecasting allows management to see the future.
The pieces connect.
Bookkeeping Chef can help bring the pieces together by providing restaurant-specific reports and system integrations. Outsourced bookkeeping services that are specifically tailored to your needs can be a good alternative for those who don’t have the time to reconcile their financial data. They will take care of a lot of the accounting duties but without taking the owner away from the financial conversation.
The last section is very important.
Restaurant owners shouldn’t be able to stop going through the manuals just because they are handled by someone else. Owners should be given information which will allow them to understand what’s happening.
If the P&L indicates that the restaurant is earning money however, the balance in the bank feels too tight, don’t think the P&L is not accurate.
Ask what happened between them.
This question will teach you far more about your restaurant than any other number could be on its own.