The month is done. The sales were good, the P&L shows a profit and there’s nothing that appears to be to be terribly wrong.
Check the bank account of the restaurant.
This number isn’t exactly the one you’d expected.
This can be very frustrating for restaurant owners since they feel that profits and cash flow should be the same. They are not. A P&L examines the financial performance of a business over a specified period of time, while accounts in banks show the exact timing of funds going into and out of the business.
Understanding the differences can help owners change their perspective on restaurant finances.
Imagine what goes on during a typical week. Customers pay for meals. The payment of employees is essential. Invoices will be sent out with meals and beverages delivered. Rent is coming up. The credit card deposit is also timed. Sales tax collected is an obligation.
Meanwhile, next week’s purchasing has already started.
Focusing on revenue only or the ending profit number does not take into account a lot of the activity.
Prime Cost could be the key to the answer
If restaurant profits begin to decline, the cost of food, drinks and labor expenses should be taken into the equation.
Prime cost consists from both products and labor. Bookkeeping Chef’s guidelines place the prime cost at between 60% to 65 percent of the revenue for many restaurants, while emphasizing regular monitoring instead of waiting until the end of each month.
It is essential for you to recognize the changes before they occur rather than obsessing over certain percentages.
If the restaurant is performing close to its target However, this week’s number rises. Perhaps overtime was is up. The price of drinks may be the same as food prices increased. The manager can review menus and portions, waste or vendor invoices, as well as purchasing if the food portion is greater.
The percentage raised the question. The answer lies in the activity of the restaurant.
A weekly report makes an opportunity for conversation while everyone will be able to recall what occurred.
After two or three weeks, it becomes more difficult to reconstruct particulars.
Then, the Vendor Bills arrive.
The restaurant will pay later for the ingredients it purchases. This is a reason for knowing the profit isn’t enough to answer every cash-related question.
Vendor invoices have to be received, recorded then tracked and finally paid. This can be a lot of work in an organization with numerous suppliers.
Accounts payable automation helps organize the process by cutting down on the need to handle bills in a repetitive manner and payment details. Connected bookkeeping systems can also give the user a better image of the obligations which haven’t yet deposited into the account of the bank.
This is helpful, since the bank’s balance may seem healthier than a restaurant’s actual situation in the near future.
There could be $80,000 in the account today. This number could mean something different when you consider that rent, payroll and vendors obligations will consume a large portion of it over the next several days.
This leads to cash flow forecasting.
What happens to our cash once we’ve received the funds we’ve expected and have fulfilled all of our obligations?
It is crucial to understand what the distinction is when deciding if this week is a good time to replace equipment or purchase more products, or conserve liquid funds.
The Cash You Received May Not Be Yours
Sales tax illustrates the point especially well.
Restaurants take money from their customers, which they must be able to manage according to their tax obligations. If those funds are divided into operating cash, the balance of the bank can give a false idea of the amount in the bank to spend.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Restaurant accounting is more effective when the financial responsibilities of each restaurant are separated.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. Payroll has an impact on both the labor percentage as well as cash. The availability of cash is influenced by the sales tax. P&Ls are used to record financial performance. Forecasting is also beneficial for management.
Connect the pieces.
Bookkeeping Chef can help bring these pieces together with restaurant-focused reports and system integrations. Bookkeeping outsourcing services with specialization are a great option for operators who don’t have the time to manually reconcile financial information. They can handle a large portion of the accounting work while removing the proprietor from financial discussions.
The last point is important.
It’s not our goal for restaurant owners to stop checking their accounts because someone else does. Owners should receive information which will allow them to comprehend what’s happening.
Don’t think that the P&L is wrong if the accounts appear to be in a good state, yet the P&L indicates that the restaurant earned money.
What was the difference between them?
The answer to this question will give you more insight into the restaurant’s location than the number.