The month has ended. The month is finished.
Check the bank account of the restaurant.
The number may not be exactly what you’d hoped for.
This gap is a problem for restaurant owners because they feel that profits and cash available should have the same story to tell. They aren’t. A P&L measures the financial performance of a firm over a specific time period, whereas a bank account shows the exact timing of money entering and leaving the company.
Understanding the difference can alter the way a restaurant’s manager is able to view their financials.
Imagine what could happen on a typical week. Customers pay for meals. Employees must be paid. You will receive invoices for drinks and food deliveries. Rent is on the verge of being due. The timing of debits to credit cards is different. Sales tax is collected, however that money has a responsibility.
Already, the next week’s purchases have started.
If you only look at revenues or the final income, then you’ll miss a lot of this process.
The clue could be hidden in Prime Cost
If restaurant profits begin to decline, the cost of food, drinks and labor expenses should be taken into the equation.
Cost of goods sold combined with labor is the primary cost. Bookkeeping Chef’s guidelines place prime costs at approximately 60% to 65 percent for a wide range of restaurants and emphasizes monitoring on a weekly basis rather than waiting until the end the month.
It is crucial to be able to spot the changes before they occur rather than obsessing over the exact percentage.
Suppose that normally the restaurant is performing at a high level, however this week it’s at a higher percentage. Perhaps overtime was is up. The beverage cost may have remained the same while food costs increased. The operator may review menus or waste, portion sizes as well as vendor invoices and purchasing if the proportion of food is greater.
The percentage is a source of concern. The answer is found in the restaurant’s activity.
A weekly report makes an opportunity for conversation while everyone still remembers what happened.
After a period of two to three weeks, it gets harder to reconstruct the particulars.
When the vendor bills arrive
A restaurant may purchase ingredients in the week ahead, but pay for the items later. That timing helps explain why profits alone won’t be able to answer all cash questions.
Invoices from vendors must be tracked, accepted and paid. This is an enormous task for an organization that has several suppliers.
Automating the accounts payable process will help to organize the process by reducing the repeated handling of payments and bills. Bookkeeping systems that are integrated allow owners to have a better image of their obligations even if they haven’t yet been paid.
This is helpful, since the balance of your bank account may seem healthier than a restaurant’s current situation.
There could be $80,000 in the bank account at present. This number can mean something different when it is affected by other factors such as rent, payroll, vendors and other obligations for the next few days.
Cash flow forecasting is a common outcome.
The best question to ask is “What happens to our cash after we have received the funds and have met the commitments we’ve identified?”
This is an important distinction to make when deciding on the appropriateness of the appropriate time to make an extra purchase or replace equipment, or to maintain liquidity.
The cash you received may Not Be Yours
Sales tax illustrates this especially well.
The money that a restaurant receives from its customers will eventually have to be dealt with in accordance with the tax requirements. If these funds are combined with normal operating cash, then the bank balance could offer a false impression of the amount of cash available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Restaurant accounting is more efficient when the financial responsibilities of each restaurant do not have to be treated separately.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted by the purchases from vendors. Payroll and cash availability are affected by payroll. Sales tax influences the availability of cash. P&Ls are used to track the financial performance. Forecasting is also beneficial for managers.
The pieces are connected.
Bookkeeping Chef uses restaurant-focused reporting and system integrations that help put all the pieces together. Specialized outsourced bookkeeping services are an excellent option for owners who don’t have the time to manually reconcile financial data. They are able to handle the bulk of the accounting tasks without removing the owner from financial discussions.
It’s the last part that matters.
It’s not the aim of restaurant owners to not check their books just because someone else does. It’s for owners to receive data in a way that helps them understand what’s going on.
If the P&L indicates that the establishment is profitable however the balance of the bank seems tight, do not assume that the P&L could be wrong.
Find out what transpired between you and your partner.
This question can tell you more about your company than any number.