The month ended. Sales were excellent, and the P&L shows a profit and nothing is to be seriously off.
Verify the restaurant’s bank account.
The number is not the one you were expecting.
Restaurant owners, this disconnection can be a source of frustration because profits and cash available seem to tell the same story. But they don’t. The P&L is a metric of financial performance, whereas the bank account is a representation of the time when money flows in and out.
Knowing the difference could change how a business owner examines the financials of a restaurant.
Imagine what happens on a typical week. Customers pay for meals. The payment of employees is essential. Food and beverages are delivered with invoices. Rent is close to being paid. Deposits to credit cards are timed. Sales tax is collected however it is an obligation.
The buying for next week has already begun.
If you only focus on revenue and the final profit figure it’s easy to overlook an abundance of activity.
Prime Cost Could Hold the Key to the Solution
If the restaurant’s profitability starts to fall, cost of food, drinks and labor costs should be taken into consideration.
Cost of goods sold combined with labor is the main cost. The Bookkeeping Chefs’ provided advice places the cost of goods sold between 60 and 65 percent of revenue for many restaurants. They also stress regular monitoring of the week instead of waiting until the end of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
If the restaurant is performing at or near its goal however, this week’s rate increases. Maybe overtime also increased. Perhaps the cost of beverages was stable, but food costs increased. A higher proportion of food might prompt the operator to examine the purchase, waste management, portions and menus, or vendor charges.
The percentage is the key. The restaurant’s activity is the answer.
The reason this conversation can be relived is because everyone can still remember what transpired.
The details are much more difficult to remember the next day or two.
The Vendor’s Bills Are Received
A restaurant may purchase ingredients this week but pay for them in the future. This is a way to explain the reason why profit alone isn’t enough to answer all cash questions.
Invoices from vendors have to be accounted for, tracked and paid. This can be quite a task in the case of a business with many suppliers.
Automation of accounts payable streamlines this process, reducing routine tasks like handling bills and payment details. Connected bookkeeping systems can also give the user a better image of the obligations that haven’t yet hit the bank account.
This is useful, because the balance of your bank account may appear healthier than a restaurant’s actual situation in the near future.
There could be a possibility that there are $80,000 in your account right now. This number can be different depending on other factors like rent or payroll, vendors, and other obligations for the coming days.
This leads to cash flow forecasting.
Instead of asking “How much cash do we have?” the better question is “What is going to be the fate of our cash following the cash we anticipate to receive and the obligations we know about?”
The distinction is important in determining if this is a comfortable week to upgrade equipment, make an additional purchase, or to preserve liquid funds.
The Cash Wasn’t Yours at All
The sales tax illustrates this point in particular.
Restaurants receive money from their customers, which they must deal with in accordance with their tax obligations. If these dollars are mentally mixed with cash flow, the balance in a bank can give an inaccurate impression of how much money is available.
Regularly updated records ensure sales tax compliance as well as providing management with a more accurate understanding of the restaurant’s financials.
Restaurant accounting is more efficient when the financial responsibilities of each restaurant are handled separately.
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 affected by sales tax. The P&L documents financial performance forecasting can help management look ahead.
The pieces join.
Bookkeeping Chef makes use of restaurant-specific reports and system integrations to connect the pieces. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourcing of bookkeeping can take on large portions of the accounting burden without removing the owner from the financial discussion.
The last point is vital.
It’s not the intention of restaurant owners to stop checking their books because someone does. Owners must be provided with information that can help them know what’s going on.
If the P&L indicates that the establishment is earning money but the bank balance seems unbalanced, don’t assume that the P&L may be inaccurate.
Find out what happened between you and your spouse.
Answering this question can reveal more about the restaurant than just the number.
