The month is finished. The month is done.
Make sure you check the account of the restaurant.
The number doesn’t match what you expected.
Restaurant owners may be frustrated by this as they believe profits and cash flow should be the same. These two things don’t match in. It’s not true. P&L is a measurement of financial performance. On the other hand, the bank account is a reflection of how much money is moved in and out.
Understanding the difference will change the way that a restaurant’s owner considers their financials.
Look at what goes on in a typical week. The customers pay for food. Employees must be paid. Food and beverages are handed out. Rent is on the way. The timing of the credit card deposit differs. The tax on sales is an obligation.
Already the purchases for the week ahead have started.
Looking just at revenue or the ending profit number does not take into account a lot of the activity.
Prime Cost Could Hold the Key to the Solution
When the profitability of restaurants starts to change in the wrong direction, then food, drinks and labor expenses require consideration.
Together, cost of goods sold and the labor cost are the main costs. Bookkeeping Chef’s guidelines place the cost of goods sold at 60%-65 percent of the total revenue for many restaurants, while focusing on the importance of monitoring weekly rather than waiting until the end of each month.
Effective management of prime costs is not about focusing on one particular percentage, and more about recognizing changes quickly.
Imagine that the restaurant’s performance is usually within the range of its goals However, this week, it was higher. Perhaps overtime has also increased. Perhaps the cost of beverages remained steady as food costs rose. An increase in the percentage of food consumed might prompt the operator to look at purchases, waste management, menu mix and portions, or vendor bills.
The percentage is a source of concern. The answer lies in the activity of the restaurant.
This is possible due to the fact that everyone can still remember the events that transpired.
After two or three weeks, it becomes more difficult to reconstruct the details.
The Vendor Bills are then delivered.
The restaurant is expected to pay an additional time for the items it buys. This can help explain the reasons why profit alone isn’t enough to answer all cash questions.
Vendor invoices have to be received, recorded then tracked and finally paid. This could be a lot of work in an organization with many suppliers.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The owner can get better insight into the obligations that haven’t yet landed on their bank accounts through integrated bookkeeping systems.
This is because a bank balance viewed in isolation can look healthier than the restaurant’s actual short-term position.
It might be that you’ve got $80,000 in your account right now. That number means something very different if payroll, rent, vendors, and other obligations will consume a large portion of it over the next several days.
This is the natural progression to cash flow forecasting.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What is likely to transpire with our cash after the money we expect to receive and the obligations we already know about?”
The distinction can matter when deciding whether this is an appropriate time to repair equipment, make an additional purchase, or preserve the liquidity.
You may not be legally entitled to the full amount you believed.
Sales tax illustrates the point in particular.
A restaurant receives money from customers which has to be managed according to its tax obligations. If these funds are placed in the same category as operating cash, they can give a false impression of the amount of money that is available for spending.
Consistent records support sales tax compliance as well as providing management with a more accurate perspective of the restaurant’s financials.
It’s for this reason that restaurant accounting can be more effective when financial responsibilities don’t are treated as separate islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected by the purchases from vendors. Payroll affects the percentage of labor and cash. Cash flow is affected by the sales tax. P&Ls track financial performance, while forecasting allows management to take a look ahead.
The pieces are joined.
Bookkeeping Chef helps bring these elements together, using restaurant-specific reports and system integrations. If you don’t want to stay up all night reconciling financial records, outsourced bookkeeping services will handle most of the accounting work while removing the business owner from the financial conversation.
It’s the very last one that counts.
It’s not our goal for restaurant owners to stop checking their books because someone else does. Owners should receive information that can help them understand what’s happening.
If the P&L shows that the establishment is profitable but the bank balance seems too tight, don’t think the P&L may be inaccurate.
Find out what happened between you and your partner.
The answer to that question will reveal something more about the food you serve than any number on its own.
