The month has come to an end. The month is finished.
It is recommended to check the restaurant’s bank account.
The number doesn’t match what you’d hoped for.
Restaurant owners may find this disconnect frustrating since they believe cash flow and profits ought to be the same. They don’t. A P&L measures financial performance over a period in time, whereas the bank account represents the time frame of money being moved into and out of the business.
Understanding the difference will alter the way that a restaurant’s owner considers their financials.
Imagine what could happen on a typical week. Food is paid for by customers. Employees have to be paid. Invoices will be sent out with meals and beverages delivered. Rent is due. Credit card transactions come with their own schedules. Sales tax is collected but it comes with a responsibility.
The purchasing for the coming week has already started.
If you only focus on revenue or the number of dollars earned at the end it’s easy to miss out on the vast amount of activity.
The Secret Could Be Hidden in the Prime Cost
If restaurant profits begin to fall, costs of food, beverages and labor costs should be taken into consideration.
Cost of sales combined with labor is the primary cost. The Bookkeeping Chefs’ provided instructions place the main cost between 60% and 65% of revenues for many establishments. They also suggest daily monitoring, not waiting until the month ends.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant usually performs in line with its goals however this week’s performance increases. Perhaps the overtime rate went up. Maybe beverage costs were stable while food costs jumped. A higher percentage of food could make the supervisor think about reviewing purchasing, waste, menu mix portions or invoices from vendors.
The percentage raises a concern. The answer lies in the activity of the restaurant.
Weekly reports allow for this discussion to occur while everyone is still aware of what’s transpired.
After a period of two to three weeks, it is much more difficult to reconstruct details.
Then the Vendor Bills Show Up
Restaurants can purchase ingredients the week before and pay for them the next. It’s because of this timing that understanding profits alone can not answer all cash issues.
Vendor invoices should be received, recorded as well as tracked until they are paid. This can be a lot of work in the case of a business with many suppliers.
Automating the process of paying bills helps manage this process by reducing the need to handle bills in a repetitive manner and payment information. The account owner will have an accurate picture of obligations that haven’t yet landed on their bank accounts through the bookkeeping software that is connected to.
This is because a bank’s balance when seen as a whole can appear healthier than the restaurant’s actual short-term position.
It might be that you’ve got $80,000 in your account right now. This amount could mean something different if rent, payroll and vendors as well as other commitments consume a significant portion of it over the next several days.
That leads naturally to cash flow forecasting.
The most appropriate question to ask is “What happens to our cash once we receive the money and have met our commitments we’ve identified?”
It is crucial to understand the difference between them when deciding whether this week is an ideal opportunity to replace equipment, buy more items or save the cash flow.
The cash you received may Not Be Yours
Sales tax highlights this point very well.
The cash a restaurant gets from its customers will eventually have to be handled in line with the tax requirements. If these funds are placed in the same category as operating cash, it may create a false impression of the amount of money that is available for spending.
Regularly updated records ensure sales tax compliance while also giving the manager a better view of the restaurant’s finances.
This is why it is that restaurant accounting is more efficient in situations where financial responsibilities aren’t separated from other responsibilities.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll has an impact on the amount of cash available and also the labor percentage. Cash availability is impacted by the sales tax. P&Ls track financial performance, while forecasting lets management examine the future.
The pieces connect.
Bookkeeping Chef can help bring these elements together, using restaurant-specific reports as well as system integrations. Specialized outsourced bookkeeping services are an excellent option for owners who don’t have the time to reconcile their financial information. They will take care of a lot of the accounting tasks without removing the owner from the financial discussion.
It’s the very last one that counts.
It’s not the goal for restaurant owners to cease checking their books because someone else does. The goal is for owners to get data in a way which helps them 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 has made money.
What was the difference between them?
This one question could teach you more about your restaurant than any number by itself.