The month is finished. The sales were good, the P&L indicates a profit and there is nothing suspiciously incorrect.
Then, you should check the bank account of the restaurant.
You didn’t get the call you were hoping for.
Restaurant owners may be dissatisfied with this as they believe cash flow and profits must be identical. They don’t. The P&L is a measurement of financial performance, whereas the bank account is a record of when money moves into and out.
Understanding the difference can alter the way a restaurant owner views their finances.
Check out what goes on in a typical week. The customers pay for food. The payment of employees is essential. Food and beverages are handed out. Rent is on the verge of being due. The time of debits to credit cards is different. Sales tax is collected, but it is responsibilities.
The purchasing for the coming week has already started.
Looking only at revenue or the ending profit number does not take into account a lot of the activity.
The key may lie in the cost of prime.
Food, beverage and labour costs are worth taking a closer at when profitability in restaurants begins to fall.
Prime cost is made up of the price of products and labor. The bookkeeping chef’s guideline places the primary cost at around 60% to 65 percent of revenues for a variety of establishments, and emphasizes weekly monitoring rather than waiting until the close of the month.
It is much more crucial to be able detect the changes before they occur rather than obsessing over the exact percentage.
Imagine that the restaurant’s results are usually close to its goal however this week, it was higher. Perhaps overtime was added. The cost of drinks could have remained the same while food prices increased. Operators may examine menus, waste, portion sizes or vendor invoices, as well as buying if the percentage of food is greater.
The percentage is crucial. The restaurant’s activity is the answer.
A weekly report makes this conversation possible and everyone remembers the events.
The details will be more difficult to recall just a few days later.
Then the Vendor Bills Arrive
Restaurants may purchase ingredients one week and pay for them the next. It’s due to this fact that understanding profits alone does not resolve all cash-related issues.
Vendor invoices must be recorded, received then tracked and finally paid. This is quite a task in an organization that has several suppliers.
Automating accounts payable can streamline the process, cutting down on tedious tasks such as managing bills and payment details. Systems for bookkeeping that are linked will give the owners a clear picture of obligations, even if they’ve not yet been paid.
It’s beneficial because, when looked at as a whole the restaurant’s financial position may appear to be healthier than its actual financial position.
It could be that you have $80,000 on your account as of right now. The $80,000 amount is little if vendors, rent, or payroll will take up a large portion over the coming days.
This leads naturally to the process of forecasting cash flows.
The most important question to ask yourself is “What will happen to our money after we receive the money and have met the obligations that we know?”
The distinction could be important in determining if this is a comfortable week to upgrade equipment, make an extra purchase, or keep cash.
The Cash Was Never Really Yours
Sales tax highlights this point in particular.
Restaurants receive money from their customers, which they then handle according to their tax obligations. If the money is mentally placed in the same category as operating cash, the bank balance could create a false impression of what’s available for spending.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Restaurant accounting is more efficient when the financial obligations of each restaurant are not handled separately.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll can affect both the percentage of labor and cash. Sales tax impacts the availability of cash. P&Ls are used for recording financial performance. Forecasting is also beneficial to management.
Connect the pieces.
Bookkeeping Chef makes use of restaurant-specific reports as well as system integrations to bring those pieces together. For those who don’t wish to stay up all night reconciling financial information, outsourcing of bookkeeping can take on much of the accounting workload without having to remove the owner from financial conversations.
It’s the very last one that’s important.
It’s not for restaurant owners to stop looking at their books since someone else is handling them. It’s essential that owners are informed so that they know what’s going on.
Don’t believe that the P&L is correct if your bank account seems tight but the P&L indicates that the restaurant has made money.
Find out what transpired between you and your spouse.
This will reveal more about your company than any number.