The month has come to an end. The sales were great, the P&L had a profit, and there was no sign of anything that appeared to be seriously incorrect.
Check the bank account of the restaurant.
This number isn’t exactly what you’d expect.
For restaurant owners, this gap can be frustrating as profits and cash available feel as though they should be the same. The two don’t line with each other. It’s not true. P&L is a metric of financial performance. In contrast, the bank account is a record of how much money is moved in and out.
Knowing the differences can allow owners to change their perspective on restaurant finances.
Imagine what could happen on the typical week. The customers pay for food. Employees have to be paid. Food and beverages are handed out. Rent is nearing. Credit card deposits have their own timing. Sales tax is paid, but that cash comes with an obligation.
Already the next week’s purchases have started.
Concentrating on revenue or the final profit figure does not take into account a lot of the activity.
The Clue May Be Hiding in the Prime Cost
If the restaurant’s profitability begins to shift in the negative direction, the food, beverages, and labor costs deserve focus.
Cost of the goods sold with labor is the primary cost. The Bookkeeping Chefs’ provided guidance places the prime cost between 60-65 percent of revenue for many establishments. They also recommend daily monitoring, not waiting until the month ends.
Effective cost management for primes is not about focusing on one particular percentage, and more about being able to spot changes in the early stages.
Suppose that normally the restaurant achieves its goals, but this week, there’s an increase in percent. Perhaps overtime was went up. Perhaps beverage costs were steady while food costs grew. Operators may examine menus or waste, portion sizes as well as vendor invoices and buying if the percentage of food is greater.
The percentage raises the question. It is in the underlying restaurant activity.
A weekly report can make the conversation possible, while everyone still remembers what happened.
After a period of two to three weeks, it gets harder to reconstruct the particulars.
The Vendor’s Bills Are Received
The restaurant is expected to pay later for the ingredients it purchases. This can help explain the reason why profit alone isn’t enough to answer all cash-related questions.
Vendor invoices must be recorded, received then tracked and finally paid. In a business that has numerous suppliers, doing that manually can turn into an administrative task.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The user can have an accurate picture of obligations that haven t hit their bank accounts through integrated bookkeeping systems.
This is helpful, since the bank balance can seem healthier than a restaurant’s actual financial situation.
There is currently $80,000 on the account. The $80,000 figure means very small if the cost of rent, vendors or payroll make an enormous amount over the coming days.
Forecasting cash flow is a natural outcome.
What happens to our money after we’ve received the funds we’ve expected and have fulfilled all of our obligations?
The distinction could be important in determining if this is the right time to replace equipment, an extra purchase, or keep cash.
You may not be rightfully entitled to all the money you thought.
Sales tax illustrates this particularly well.
Restaurants get money from customers, which they have to be able to manage according to their tax obligations. If the money is mentally added to cash flow, the balance of the bank account could give an inaccurate impression of the amount of cash available.
The consistent records help ensure sales tax compliance as well as providing management with a more accurate perspective of the restaurant’s financials.
This is a reason why restaurant accounting is better in situations where financial responsibility isn’t seen as distinct islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted by the purchases from vendors. Payroll can affect both the percentage of labor and cash. Sales tax influences cash availability. P&Ls report financial performance, and forecasting lets management see the future.
The pieces are connected.
Bookkeeping Chef incorporates restaurant-specific reporting along with system integrations. Bookkeeping outsourcing can be beneficial to owners who do not wish to be tasked with reconciling their financial information.
The last sentence is vital.
It’s not our goal for restaurant owners to cease checking their accounts because someone does. Owners must be provided with information that helps them comprehend what’s happening.
Don’t be fooled into thinking that the P&L is correct if your balance of the bank seems to be tight, however the P&L indicates that the restaurant made money.
What transpired between the two?
Answering this question can reveal more about the restaurant than just the name.