The month is finished. The sales were excellent and the P&L was profitable and there was nothing to be seriously wrong.
You should then check the bank account of the restaurant.
It wasn’t the number you expected.
This gap can be a source of frustration for restaurant owners since they feel that profit and cash available should have the same story to tell. The two don’t line together. The P&L is a gauge of financial performance, whereas the bank account is a reflection of when money moves in and out.
Understanding the difference can change how a business owner is looking at the restaurant’s financials.
Consider what happens during an normal week. Customers pay for food. Employees must be paid. You will receive invoices along with meals and beverages delivered. Rent is on the verge of being due. The credit card deposit is also timed. Sales tax is collected, but that money is subject to an obligation.
The next week’s buying has already started.
Concentrating on revenue or the final profit figure does not take into account a lot of the activity.
The Secret Could Be Hidden in Prime Cost
Food, beverage and labour costs are worth a closer examine when restaurant profitability begins to decrease.
Cost of the goods sold with labor is the primary cost. The Bookkeeping Chefs’ provided guidelines place the primary cost between 60% and 65 percent of the revenues for a variety of restaurants. They also stress weekly monitoring instead of waiting until the end of the month.
It is much more crucial for you to recognize any changes in the early stages rather than worrying about a specific percentage.
Suppose that normally the restaurant does well, however this week it’s a higher percentage. Perhaps the overtime rate is up. Perhaps beverage costs remained stable while food costs jumped. A higher percentage of food might prompt the operator to look at buying, waste management portions and menus, or vendor costs.
The percentage raises a question. The answer is found in the restaurant’s activity.
This is possible due to the fact that everyone will be able to remember what happened.
After two or three weeks, it becomes much harder to reconstruct the specifics.
The Vendor’s Bills are Received
A restaurant might purchase its ingredients in the week ahead, but pay for these items later. It’s because of this timing that knowing profits alone will not answer all cash issues.
Vendor invoices have to be received and tracked. The manual process of completing this task in an organization with a lot of suppliers can result in a significant administrative burden.
Automating accounts payable helps to streamline the process, reducing the need to handle bills in a repetitive manner and payment information. Systems for bookkeeping that connect can give owners a better view of their obligations, even if they’ve not yet been paid.
It’s beneficial because, when looked at as a whole the restaurant’s financial position could appear to be more healthy than its actual financial situation.
There could be $80,000 in the account right now. It could be different in the event that it is affected by other factors such as rent or payroll, vendors, and other obligations in the coming days.
This is the natural progression to the process of forecasting cash flows.
What happens to our cash after we’ve gotten the money that we expect and fulfilled all our obligations?
This distinction is crucial when deciding on whether this is the right week to buy an additional purchase replacement of equipment, or keep the liquidity.
The Cash You Received May Not be Yours
Sales tax illustrates this particularly well.
The money a restaurant gets from its patrons will eventually have to be managed in accordance of its tax obligations. If the money is mentally placed in the same category as operating cash, the bank balance can create a misleading sense of what’s there to be spent.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Accounting for restaurants is more efficient when the financial obligations of each restaurant do not have to be separated.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. Payroll is a factor that affects the percentage of labor and cash. Cash availability is affected by sales tax. The P&L shows financial performance, forecasting can help management look ahead.
The pieces are linked.
Bookkeeping Chef utilizes restaurant-specific reporting and system integrations that help integrate these pieces. Bookkeeping outsourcing can benefit those who don’t want to stay up all night reconciling their financial information.
The final part is crucial.
Restaurant owners shouldn’t stop going through the manuals just because they are handled by someone else. It’s essential that owners are informed so that they are aware of the situation.
So if the P&L says the restaurant made cash, yet the bank account feels surprisingly unbalanced, don’t think that one of the numbers could be off.
Ask about the events that occurred between them.
This will reveal more about your company than any other number.