The month is finished. The month has ended.
Then, you should check the restaurant’s bank account.
The number you received isn’t what you’d expect.
Restaurant owners, this disconnection can be a source of frustration because the cash flow and profit feel as though they should have the same meaning. However, they aren’t. A P&L measures the performance of the business’s finances for a particular period of time, while it is a bank account that shows the exact timing of funds moving into and out of the company.
Knowing the difference could change how a business owner looks at restaurant finances.
Imagine what could happen on a typical workday. Customers pay for food. Employees need to be paid. You will receive invoices along with food and beverage deliveries. Rent is close to being paid. Credit card deposits are also timed. Sales tax is collected but it is a responsibility.
The purchase for next week has already begun.
If you only look at the amount of revenue or profit, then you will miss a lot of this process.
Prime Cost could be the key to the answer
Food, beverages and labor costs merit a closer look when restaurant profitability starts to decline.
Prime cost is made up of both goods and labor. The Bookkeeping Chefs’ guidelines place the primary cost between 60 and 65 percent of the revenues for a variety of establishments. They also emphasize the importance of weekly monitoring rather than waiting until the month ends.
It is essential to be able detect changes early than obsessing about a specific percentage.
Suppose the restaurant normally performs within its targets however, this week’s rate is higher. Perhaps overtime has also increased. Perhaps beverage costs remained stable as food costs rose. A higher percentage of food could cause the manager to look at the menu, purchases, waste, mix portions, or vendor invoices.
The percentage raised the question. The answer is found in the restaurant’s activity.
The reason this conversation can be relived is because everyone can still remember what happened.
Three or four weeks later, the details become much harder to understand.
After the vendor bills are paid
The restaurant pays an additional time for the items it purchases. This explains why profits alone won’t be able to answer every cash issue.
Vendor invoices must be accounted for, tracked and paid. In the course of manual processing, an office with many suppliers could become an enormous administrative burden.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Bookkeeping systems that are integrated to accounting systems can provide owners with a clear view of their obligations, even if they’ve not yet been paid.
This is important since a bank balance viewed in isolation can look healthier than a restaurant’s current position.
It could be that there is $80,000 in the bank account at present. The $80,000 figure means very tiny if rental, vendors or payroll make up a significant portion of the account in the next few days.
Forecasting cash flow is a common outcome.
What happens to our cash after we’ve gotten the amount we’ve hoped for and have met our obligations?
This is an important distinction to make in determining whether or not this is the best time to buy an additional purchase or replace equipment, or maintain liquidity.
It is possible that you weren’t rightfully entitled to all the money you believed.
Sales tax highlights this point particularly well.
Restaurants get money from clients, which they follow in accordance with their tax obligations. If these funds are combined with operating cash, it can provide a false perception of the cash available for spending.
Consistent records help restaurants comply with sales tax requirements while providing the management a realistic view of their finances.
It is for this reason that restaurant accounting can be more effective when financial responsibility isn’t treated as separate islands.
Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Cash and labor percentage are affected by the payroll. Sales tax affects cash availability. The P&L tracks financial performance, and forecasting assists management to look ahead.
The pieces are connected.
Bookkeeping Chef is a restaurant-specific report that integrates and system integrations. Bookkeeping outsourcing services with specialization are a great option for owners who don’t have the time to manually reconcile financial data. They can take care of much of the accounting work while removing the proprietor from the financial discussion.
It’s the last part that counts.
It’s not for restaurant owners to simply stop looking at their accounts because they are handled by someone else. Owners must be provided with information that will help them to understand what’s happening.
If the P&L indicates that the restaurant is profitable but the bank balance feels insufficient, don’t believe the P&L is not accurate.
Find out what transpired between you and your spouse.
This question will reveal more about your business than any number.
