The month is finished. The sales were good, the P&L reported a profit and there was nothing that appeared to be terribly incorrect.
You should then check the bank account of the restaurant.
This number isn’t exactly what you expected.
For restaurant owners, this disconnection can be a source of frustration because profits and cash flow appear to tell the same story. However, they aren’t. A P&L evaluates the financial performance over a period in time, whereas the bank account reflects the exact timing of funds moving in and out of the company.
Understanding the differences will help restaurant owners adjust their perspective on restaurant finances.
Have a look at what happens during a normal week. Customers pay for food. The payment of employees is essential. You will receive invoices with meals and beverages delivered. Rent is approaching. The credit card deposit is also timed. Taxes on sales have been collected, but that money is a legal obligation.
Already, the next week’s purchases have started.
When you concentrate on revenue and the end-profit number it’s easy to miss a the vast amount of activity.
The clue may be hidden in the cost of prime.
The cost of food, drinks and labour costs are worth taking a closer look when restaurant profitability starts to decrease.
Cost of selling goods with labor is the main cost. Bookkeeping Chef’s provided guidance places prime costs at approximately 60%-65 percent for a variety of restaurants and emphasizes monitoring on a weekly basis rather than waiting until the end the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
If the restaurant typically achieves its goals, however this week it’s a higher percentage. Perhaps overtime has went up. Maybe beverage costs were stable However, food expenses increased. The higher proportion of food could lead the business owner to examine purchasing, waste management, portions and menu mix or vendor bills.
The percentage raises a concern. The answer lies in the restaurant activity.
A weekly report can make an opportunity for conversation while everyone is still able to remember what happened.
After a period of two to three weeks, it is much more difficult to reconstruct particulars.
The Vendor’s Bills are Received
A restaurant could purchase the ingredients this week but have to pay for the ingredients later. It’s because of this timing that understanding profits alone can not address all cash issues.
Vendor invoices should be received, recorded as well as tracked until they are paid. Doing this manually in a busy business with many suppliers can result in a significant administrative burden.
Automating accounts payable can help organize the process, reducing the need to handle bills in a repetitive manner and payment details. The user can have better insight into the debts that haven’t landed in their bank account through the bookkeeping software that is connected to.
This is helpful, since the bank’s balance could appear to be healthier than the restaurant’s actual financial situation.
Today, there may be $80,000 on the account. It could be interpreted differently when it is affected by other factors like rent or payroll, vendors, and other obligations over the next few days.
This naturally leads to the process of forecasting cash flows.
The most appropriate question to ask is “What happens to our funds after we receive the money and have fulfilled the obligations that we know?”
The distinction could be important in deciding if this is an appropriate time to repair equipment, make an additional purchase, or preserve cash.
You may not have been eligible for all the money you believed.
The sales tax illustrates this point in particular.
A restaurant receives cash from its customers, which eventually will need to be dealt with in accordance with tax regulations. If those dollars are mentally divided into operating money, the bank’s balance may create a false sense of what’s available for spending.
A consistent record-keeping system helps restaurants comply with sales tax laws while also providing a complete view of their financial position.
This is a reason why restaurant accounting works better when financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted by purchases from vendors. Payroll affects both labor percentage as well as cash. Cash flow is impacted by the sales tax. P&Ls report financial performance, and forecasting lets management examine the future.
The pieces are linked.
Bookkeeping Chef incorporates restaurant-specific reporting with system integrations. For operators who don’t want to be slavishly reconciling financial information, outsourcing of bookkeeping can take on much of the accounting workload without removing the owner from the financial discussion.
The final part is crucial.
Restaurant owners shouldn’t stop studying the literature just because they are handled by another. It’s crucial that the owners have access to information so that they can understand what’s happening.
So if the P&L indicates that the restaurant made profits, but the account feels extremely tight, don’t presume that any of the numbers can be off.
What was the difference between them?
The answer to this question will give you more insight into the restaurant’s location than an identifying number.