The month is done. The month has ended.
Make sure to check the restaurant’s account.
You didn’t get the number you would have expected.
This gap is a problem for restaurant owners since they think that profit and cash available should tell the same tale. These two things don’t match together. It’s not true. P&L is a metric of financial performance, whereas the bank account is an indication of the time when money flows in and out.
Understanding the difference could help restaurant owners shift their views on the restaurant’s finances.
Imagine what could happen on a typical week. The customers pay for food. Employees have to be paid. Invoices for food and beverages are handed out. Rent is approaching. Credit card payments are timed. Sales tax is collected however it is a responsibility.
In the meantime, next week’s purchase 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
If the restaurant’s profitability begins to shift in the wrong direction, the food, beverages as well as labor costs require focus.
Cost of the goods sold with labor is the primary cost. The Bookkeeping Chef’s guidance puts prices for the prime cost at around 60% to 65 percent for most restaurants and emphasizes monitoring on a weekly basis instead of 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.
Let’s say that a restaurant typically performs at or near its goal however this week’s performance increases. Maybe overtime is up. Maybe beverage costs were stable while food costs grew. The operator may review menus, waste, portion sizes, vendor invoices, and purchasing if the proportion of food is greater.
The percentage raises a question. The answer is found in the activity of the restaurant.
Weekly reports allow this conversation to be held as everyone is conscious of what has happened.
A few weeks later, the details become much harder to decipher.
After the vendor bills are paid
Restaurants may buy ingredients this week, but then pay for these items later. This is the reason knowing the profit isn’t enough to answer every cash question.
Vendor invoices need to be accepted and tracked. In the course of manual processing, an office with many suppliers can become a huge administrative burden.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The account owner will have an accurate picture of debts that haven’t landed in their bank account through automated bookkeeping systems that are connected.
It’s useful because, looked at as a whole the restaurant’s financial position may appear to be healthier than its actual short-term financial situation.
It could be that you’ve got $80,000 in your account right now. It 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 naturally leads to the process of forecasting cash flows.
What happens to our money after we’ve received the cash we’ve been expecting and met all of our obligations?
This distinction is essential when deciding on which is the appropriate time to purchase an additional item to replace equipment or to maintain the liquidity.
and some of the cash Was Never Really Yours
Sales tax illustrates the point in particular.
Restaurants collect cash from its customers, which eventually needs to be handled in accordance with tax regulations. If these dollars are mentally added to cash flow, the balance in a bank can give an inaccurate impression of the amount of money available.
Consistent record keeping helps restaurants to comply with the sales tax laws, while providing an accurate view of their financial position.
It is for this reason that restaurant accounting works better when financial responsibilities don’t are treated as separate islands.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll impacts both labor percentage as well as cash. The availability of cash is influenced by the sales tax. P&Ls record financial performance while forecasting lets management see the future.
The pieces are linked.
Bookkeeping Chef uses restaurant-focused reporting and system integrations that help bring those pieces together. For business owners who don’t want to spend their nights manually reconciling financial data, outsourced bookkeeping services will handle most of the accounting work without removing the owner from financial conversations.
The last sentence is vital.
Restaurant owners shouldn’t be able to stop going through the manuals even if they’re managed by another. It’s important that the owners receive information so they understand the situation.
If the P&L indicates that the restaurant made cash, yet the bank account seems to be a bit tight, don’t presume that one of the numbers could be incorrect.
Find out what transpired between you and your spouse.
That question can teach you far more about your restaurant than either number can on its own.