The month has ended. The sales were great and the P&L had a profit, and there was no sign of anything to be terribly off.
Make sure to check the restaurant’s account.
It wasn’t the number you were hoping for.
Restaurant owners may find this disconnect frustrating as they believe cash flow and profits ought to be exactly the same. These two things don’t match in. A P&L measures the financial performance of a company over a specified time period, whereas accounts in banks show the exact timing of money going into and out of the company.
Understanding the difference could alter the way an owner considers restaurant financials.
Imagine what goes on during the typical week. Food is paid for by customers. Employees have to be paid. Food and drinks deliveries arrive with invoices attached. Rent is approaching. Credit card deposits are also timed. Sales tax has been collected, but that money has a responsibility.
Already the purchases for the week ahead have begun.
If you just look at revenues or the final income, then you’ll not be able to see a lot of this action.
Prime Cost could be the Key to the Clue
Food, drink and labour cost are all worth a close at when profitability in restaurants begins to fall.
Cost of sales combined with labor is the prime cost. The Bookkeeping Chefs’ provided instructions place the main cost between 60 and 65% of revenues for many restaurants. They also stress weekly monitoring instead of waiting until the end of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant’s performance usually within the range of its goals However, this week, it grew. Maybe the number of overtime hours increased. Perhaps, the costs for beverages remained constant however food prices soared. Operators may examine menus, waste, portion sizes, vendor invoices, and purchasing if the food percentage is greater.
The percentage raises questions. The activity of the restaurant itself provides the answer.
A weekly report can make the conversation possible, while everyone still remembers what happened.
After two or three weeks, it becomes much more difficult to reconstruct the particulars.
The Vendor Bills are then delivered.
A restaurant might purchase its ingredients in the week ahead, but pay for these items later. It’s due to this fact that analyzing profits alone will not answer all cash issues.
Vendor invoices should be recieved and tracked. Manually completing this task in a busy business with many suppliers could become an enormous administrative burden.
Accounts payable automation helps organize the process, reducing the need to handle bills in a repetitive manner and payment information. Systems for bookkeeping that are linked to accounting systems can provide owners with a clear understanding of their obligations, even if they haven’t yet been paid.
It’s beneficial because, when viewed as a whole, the restaurant’s financial position could appear to be more healthy than its actual short-term financial position.
It could be that you have $80,000 on your account at the moment. The $80,000 amount is small if the cost of rent, vendors or payroll make up a large portion over the next few days.
That leads naturally to the process of forecasting cash flows.
What will happen with the money we have received after we’ve received the cash we’ve been expecting and have fulfilled all of our obligations?
This is a crucial distinction when deciding which is the appropriate week to buy an additional purchase, replace equipment, or maintain the liquidity.
The money you receive may Not be Yours
The example of sales tax is an excellent one.
A restaurant collects money from customers that eventually has to be managed according to tax requirements. If the funds are combined with normal cash flow, the balance in a bank can offer a false impression of the amount of money available.
The consistent recording system allows restaurants comply with sales tax laws while also providing an accurate view of their financial position.
Restaurant accounting is more effective when the financial obligations of each restaurant do not have to be separated.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. Payroll is a factor that affects both the labor and cash percentage. Sales tax impacts cash availability. P&Ls track financial performance, while forecasting lets management look ahead.
The pieces are joined.
Bookkeeping Chef helps bring these pieces together using restaurant-specific reports as well as system integrations. Bookkeeping outsourcing can benefit users who don’t want to work all night reconciling their financial records.
The last point is important.
Restaurant owners should never stop studying the literature simply because they’re handled by another. Owners should be given information that can help them know what’s going on.
So if the P&L states that the restaurant has made profits, but the account feels extremely tight, don’t presume that one of the numbers could be wrong.
Find out what transpired between them.
The answer to that question will reveal far more about your restaurant than any number be on its own.