The month is done. The sales were decent and the P&L was profitable and there was no sign of anything to be seriously wrong.
Then you check the restaurant’s bank account.
The number may not be what you expected.
This gap is a problem for restaurant owners because they believe that profit and cash flow should be the same. However, they aren’t. A P&L measures financial performance over a time while the bank account reflects the exact timing of funds flowing into and out of the business.
Understanding the differences will help restaurant owners adjust their perception of restaurant financials.
Imagine what could happen during an ordinary week. Food is paid for by customers. Employers must be paid. Invoices will be sent out with food and beverage deliveries. Rent is getting closer. Credit card deposits have their own specific timing. Sales tax is collected, however that money has a responsibility.
In the meantime, next week’s purchase has already begun.
Looking only at revenue or the final profit figure leaves out a lot of the work.
The key may lie in the price of the best.
If restaurant profits begin to decrease, food, beverage and labor costs must be taken into the equation.
Prime cost is composed of the price of items and labour. Bookkeeping Chef’s supplied guidance places the primary cost at around 60% to 65% of revenue for many establishments, and emphasizes weekly monitoring rather than waiting until the close of each month.
Effective prime cost management involves less obsessing on a single percent and more being aware of any early movements.
If the restaurant typically performs near its target but this week, there’s at a higher percentage. Maybe the number of overtime hours is up. Perhaps, the costs for beverages remained constant while food costs jumped. A higher proportion of food may cause the manager to look at purchase, waste, menu mix, portions and vendor invoices.
The percentage is what matters. The underlying restaurant activity provides the answer.
This is possible due to the fact that everyone will be able to remember the events that transpired.
Three or four weeks later The details are much harder to reconstruct.
Then the Vendor Bills Show Up
The restaurant pays an additional time for the items it buys. Because of this, it is the case that understanding profits alone can not resolve all cash-related issues.
Vendor invoices need to be accepted and logged. In a highly-competitive business with many suppliers, doing this by hand can be an administrative task.
Automating the accounts payable process can streamline this process through reducing the repetition of bills and payments. The account owner will have an accurate picture of obligations that haven’t yet landed on their bank account through connected bookkeeping systems.
This is important since a bank’s balance when seen as a whole can appear healthier than the restaurant’s actual short-term position.
It could be that there are $80,000 in your account at the moment. The $80,000 figure means very little if rent, vendors or payroll are to take up a large portion over the next few days.
That leads naturally to the process of forecasting cash flows.
The most important question to ask yourself is “What happens to our cash once we have received the funds and have fulfilled the obligations we have made?”
The distinction is important when deciding if it is a suitable week to replace equipment, make an addition purchase, or maintain cash.
The Cash Was Never Yours
Sales tax illustrates the point especially well.
Restaurants get money from customers, which they have to follow according to the tax requirements. If the money is mentally divided into operating cash, the balance of the bank can create a misleading sense of what’s there to be spent.
Regularly maintained records help restaurants comply with sales tax laws as well as providing a complete overview of their financial standing.
It’s for this reason that restaurant accounting can be more effective in situations where financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. Vendor purchases affect COGS and future payments. The percentage of labor and cash are affected by the payroll. Cash availability is affected by the sales tax. P&Ls report financial performance, and forecasting lets management look ahead.
The pieces link.
Bookkeeping Chef integrates restaurant-specific reporting with 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 point is vital.
It’s not the intention of restaurant owners to cease checking their accounts because someone does. Owners should be provided with details in a manner which helps them comprehend what’s going on.
If the P&L shows that the establishment is profitable but the bank balance seems too tight, don’t think that the P&L must be incorrect.
Find out what transpired between you and your partner.
This one question could teach you something more about the food you serve than any other number could by itself.