The month is finished. The sales were decent and the P&L reported a profit and there was no sign of anything to be seriously off.
Then you check the restaurant’s bank account.
It wasn’t the number you were hoping for.
Restaurant owners can be dissatisfied with this because they believe that profits and cash flow should be exactly the same. They are not. The P&L is a gauge of financial performance, while the bank account is an indication of the time when money flows in and out.
Understanding the difference will alter the way a restaurant’s manager considers their financials.
Have a look at what happens in a normal week. The customers pay for food. Employees are required to be paid. Food and beverages are delivered with invoices. Rent is getting closer. The time of credit card transactions differs. Taxes on sales have been paid, but that cash has a responsibility.
The purchasing for the coming week has already begun.
Looking just at revenue or the ending profit number does not take into account a lot of the activity.
Prime Cost Could Hold the Key to the Answer
If restaurant profitability begins to decline, the cost of food, drinks and labor expenses should be taken into consideration.
Cost of sales combined with labor is the main cost. Bookkeeping Chef’s provided guidance places prime costs at approximately 60%-65% for many restaurant and focuses on weekly monitoring rather than staying until the end of the month.
It is much more crucial to be able to detect changes earlier than worrying about the exact percentage.
Let’s say that typically, the restaurant performs near its target however this week it’s a higher percentage. Perhaps overtime was added. Maybe beverage costs were stable However, food expenses increased. Operators may examine menus and portions, waste along with vendor invoices and buying if the percentage of food is greater.
The percentage is the most important. The restaurant’s activity is the answer.
Weekly reports allow this discussion to occur even though everyone is aware of what has happened.
After a period of two to three weeks, it becomes much more difficult to reconstruct particulars.
Once the vendor invoices are received
The restaurant will pay later for the ingredients it buys. That timing helps explain why that understanding profit alone isn’t the answer to every cash issue.
Vendor invoices must be recorded, received then tracked and finally paid. This can take a lot of work in the case of a business with many suppliers.
Automating accounts payable speeds up this process, which reduces routine tasks like handling payments and bills. Connected bookkeeping systems can also give the owner a clearer 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 financial position.
There may be $80,000 sitting in the account today. It could be different when it is affected by other elements like rent or payroll, vendors, and other obligations over the coming days.
Cash flow forecasting is a common outcome.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What is going to transpire with our cash after the money we’re expecting to receive and the obligations we are already aware about?”
It is crucial to understand the difference when deciding if this week is the ideal time to replace equipment, buy additional products or save liquidity.
You may not be entitled to all the money you thought.
Sales tax illustrates the point in particular.
The cash a restaurant receives from its customers will eventually have to be handled in accordance with its tax obligations. If the funds are coupled with the normal operating cash, then the balance of the bank account could provide an inaccurate picture of the amount of cash available.
The consistent records help ensure sales tax compliance while also providing management with a more accurate picture of the financials of the restaurant.
Restaurant accounting is more effective when the financial obligations of each restaurant are considered separately.
Prime cost affects margin. COGS and future payment are affected by vendor purchases. The percentage of labor and cash are affected by the payroll. The availability of cash is influenced by sales tax. P&Ls can be used to document the financial performance. Forecasting is also helpful to management.
Connect the pieces.
Bookkeeping Chef assists in bringing the pieces together by providing restaurant-specific reports and system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.
The last part is important.
Restaurant owners should not stop reading the books, just because they are handled by someone else. Owners should be given information that can help them understand what’s happening.
So if the P&L says the restaurant made profits, but the account feels surprisingly insecure, don’t believe that one of the numbers must be wrong.
Ask them about what transpired between them.
The answer to that question will reveal something more about the food you serve than any number alone.