The month is now over. The month is over.
Check the restaurant’s bank account.
You didn’t get the call you would have expected.
For restaurant owners, this disconnect can be frustrating because profit and available cash seem to tell the same story. But they don’t. It’s not true. P&L is a gauge of financial performance, while the bank account is an indication of when money moves into and out.
Knowing the difference can change the way a restaurant’s manager considers their financials.
Consider what happens during an normal week. Customers pay for meals. Paying employees is necessary. You will receive invoices along with meals and beverages delivered. Rent is due. The timing of debits to credit cards differs. Taxes on sales have been collected, but that money has a responsibility.
In the meantime, next week’s purchase has already started.
If you focus solely on revenue and the final profit figure, it is easy to miss a an abundance of activity.
The Key to the Mystery Could Be Hidden in Prime Cost
When restaurant profitability starts moving in the wrong direction, then food, drinks and labor costs need consideration.
Together, the cost of items sold and labor are the main costs. Bookkeeping Chef’s guidelines place the prime cost at between 60%-65 percent of the revenue for many restaurants, while emphasizing the importance of monitoring weekly rather than waiting until the close of the month.
Effective primary cost management is less about worrying about one particular percentage, and more about spotting changes early.
Suppose the restaurant normally performs at or near its goal however this week’s performance increases. Perhaps overtime has also increased. Perhaps the cost of beverages was stable However, food expenses increased. The chef may look over menus and portions, waste along with vendor invoices and purchasing if the food percentage is greater.
The percentage raises questions. The answer lies in the activity of the restaurant.
The reason this conversation can be relived is because everybody can remember what happened.
After two or three weeks, it is much more difficult to reconstruct particulars.
When the vendor bills arrive
A restaurant might purchase its ingredients in the week ahead, but pay for the ingredients in the future. It’s due to this fact that analyzing profits alone will not address all cash issues.
Invoices from vendors must be accounted for, tracked and paid. The manual process of completing this task in an organization with a lot of suppliers can result in a significant administrative burden.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Owners can have a clearer view of the payments that haven’t been deposited into their bank account by using integrated bookkeeping systems.
It’s useful because, looked at as a whole a restaurant s bank balance could appear to be more healthy than its actual short-term financial position.
It is possible that you have $80,000 on your account as of right now. The figure of $80,000 is little if vendors, rent, or payroll will take the majority of the next few days.
Cash flow forecasting is a normal outcome.
Instead of asking “How much cash do we have?” the better question is “What could happen to our cash after the money we expect to receive and the obligations we are already aware about?”
It is vital to recognize the difference between them when deciding whether this week is the ideal moment to upgrade equipment, buy more items, or conserve the cash flow.
You may not be legally entitled to the full amount you thought.
Sales tax illustrates this especially well.
Restaurants receive money from their clients, which they then handle in accordance with their tax obligations. If these dollars are mentally added to cash flow, the bank balance may offer a false impression of the amount of money available.
Regularly maintained records help restaurants comply with sales tax laws and also providing a realistic image of their financial condition.
Restaurant accounting is more efficient when the financial responsibilities of each restaurant are considered separately.
Prime cost affects margin. COGS and future payment are affected by the purchase of vendor products. Payroll has an impact on both cash and labor percentage. Cash flow is affected by sales tax. P&Ls track financial performance, while forecasting lets management see the future.
The pieces connect.
Bookkeeping Chef utilizes restaurant-specific reporting and system integrations that help connect the pieces. Specialized outsourced bookkeeping services are an excellent option for operators who don’t have the time to manually reconcile financial data. They can handle a large portion of the accounting work without removing the owner from discussions about finances.
This last aspect is crucial.
The goal isn’t for restaurant owners to stop looking at their books simply because somebody else handles them. Owners should be provided with information in a form that will help them understand what’s going on.
Don’t think that the P&L is wrong if the bank account seems tight but the P&L indicates that the restaurant has generated money.
What transpired between the two?
This question will reveal more about your company than any number.