The month has ended. The sales were good, the P&L showed a profit and there was no sign of anything that appeared to be seriously off.
You then check the bank account of the restaurant.
You didn’t get the number you expected.
This gap is a problem for restaurant owners since they think that profit and cash on hand should speak the same truth. However, they aren’t. A P&L measures the financial performance of a company over a certain time period, whereas accounts in banks show the exact timing of funds going into and out of the business.
Understanding the difference will alter the way a restaurant owner considers their financials.
Look at what happens in a normal week. Customers pay for meals. The payment of employees is essential. You will receive invoices with meals and beverages delivered. Rent is coming up. The time of credit card deposits differs. Sales tax is an obligation.
The purchase for next week has already started.
When you concentrate on revenue and the end-profit number, it is easy to miss out on an abundance of activity.
The Secret Could Be Hidden in the Prime Cost
Food, beverages and labor costs merit a closer review when the profitability of a restaurant begins to fall.
Cost of sales combined with labor is a major cost. The Bookkeeping Chefs’ instructions place the main cost between 60% and 65 percent of the revenue for many restaurants. They also suggest the importance of weekly monitoring rather than waiting until the end of the month.
Effective primary cost management is less about focusing on one particular percentage, and more about noticing movement quickly.
Let’s say that a restaurant typically performs at or near its goal However, this week’s number increases. Maybe overtime increased. The cost of drinks could have remained the same, whereas the food expenses increased. The chef may look over menus as well as waste, portions sizes as well as vendor invoices and purchasing if the proportion of food is higher.
The percentage raises questions. The answer lies in the activity of the restaurant.
Weekly reports allow for the discussion to continue in the midst of everyone being aware of what has happened.
Two or three weeks later After that, the details become harder to decipher.
The Vendor Bills are then delivered.
A restaurant could purchase the ingredients in the week ahead, but pay for these items later. This is due to the fact that understanding profits alone can not resolve all cash-related issues.
Vendor invoices should be received, recorded then tracked and finally paid. Doing this manually in a busy business with many suppliers can be a massive administrative burden.
Automating the accounts payable process can assist in coordinating this process through reducing the repetition of bills and payments. Bookkeeping systems that are connected can give the user a better picture of obligations which haven’t yet deposited into the account of the bank.
It’s beneficial because, when taken as a whole the bank balance of a restaurant could appear to be more healthy than its actual short-term financial position.
There may be $80,000 sitting in the account right now. The amount could have a different meaning in the event that it is affected by other elements like rent or other expenses, such as payroll, vendors or other obligations in the next few days.
That leads naturally to cash flow forecasting.
What will happen with our cash once we’ve received the amount we’ve hoped for and fulfilled all our obligations?
It is essential to be aware of the difference when deciding if this week is the ideal opportunity to replace equipment, purchase more products or save the cash flow.
You may not have been entitled to all the money you thought.
Sales tax illustrates the point in particular.
Restaurants receive money from customers that eventually must be disposed of in accordance with tax regulations. When these money are thought of as combined with operating cash, they can provide a false perception of the cash available for spending.
Records that are consistent support sales tax compliance while also giving the manager a better perspective of the restaurant’s financials.
This is one reason why restaurant accounting is more efficient when financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. COGS (cost of goods sold) and future payments are affected by purchases from vendors. The percentage of labor and cash are affected by payroll. Sales tax impacts cash availability. P&Ls track financial performance, while forecasting allows management to take a look ahead.
Connect the pieces.
Bookkeeping Chef integrates restaurant-specific reporting with system integrations. For those who don’t wish to stay up all night reconciling financial records, outsourcing of bookkeeping can take on most of the accounting work without having to remove the owner of the financial discussions.
The final part is crucial.
It’s not for restaurant owners to stop looking at their books simply because someone else handles them. It’s to provide owners with the information they need in a format that allows them to understand what’s happening.
Don’t be fooled into thinking that the P&L is not correct if the bank account seems tight but the P&L indicates that the restaurant has earned money.
What was the difference between them?
That question can teach you far more about your restaurant than either number can be on its own.