The month is over. Sales were solid, the P&L indicates a profit and nothing is to be seriously off.
After that, you can check the restaurant’s bank account.
You didn’t get the call you would have expected.
Restaurant owners can be dissatisfied with this because they believe that profits and cash flow should be the same. They aren’t. The P&L is a measure of financial performance, whereas the bank account is a reflection of the time when money flows in and out.
Knowing the difference could change the way an owner examines the financials of a restaurant.
Imagine what happens on the typical week. Customers pay for food. Employees are required to be paid. Deliveries of food and beverages arrive with invoices attached. Rent is due. Deposits made with credit cards come with their own schedules. Sales tax is collected, but it is an obligation.
In the meantime, next week’s purchase has already begun.
Focusing on revenue only or the ending profit number does not take into account a lot of the activity.
Prime Cost Could Hold the Key to the Solution
If restaurant profits begin to move in the wrong direction, the food, beverages as well as labor costs require consideration.
Together, cost of items sold and labor together make up the bulk of the cost. Bookkeeping Chef’s guidelines place prime cost at roughly 60% to 65 percent of revenues for a variety of establishments, and emphasizes regular monitoring instead of waiting until the close of the month.
Effective prime cost management involves less obsessing on a single percentage and more attention to the earlier movement.
Imagine that the restaurant’s performance typically within a certain range However, this past week, it grew. Perhaps the overtime rate was increased. The cost of beverages could have remained the same, whereas food costs rose. An increase in the percentage of food items could lead the operator to review the menu, purchases, waste, mix, portions, or vendor invoices.
The percentage raises questions. It is in the underlying activity in the restaurant.
Weekly reports allow for the discussion to continue as everyone is conscious of what’s happened.
The details are much more difficult to remember two or three days later.
Then, the Vendor Bills arrive.
A restaurant may purchase ingredients this week but have to pay for them later. This explains why profits alone won’t be able to answer every cash question.
Vendor invoices must be recorded, received then tracked and finally paid. This can take lots of work for the case of a business with several suppliers.
Automating the process for accounts payable can help organize this by reducing the repeated handling of payments and bills. Systems for bookkeeping that are linked to accounting systems can provide owners with a clear view of their obligations, even if they’ve not yet been paid.
This is helpful, since the balance of your bank account may appear more healthy than the restaurant’s current situation.
Today, there may be an amount of $80,000 in the account. This number could mean something different in the event that payroll, rent and vendors as well as other obligations consume a significant part of it in the next few days.
This is what leads to cash flow forecasting.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What is likely to happen to our cash after the cash we anticipate to receive and our obligations that we already know about?”
This distinction is essential when deciding on the appropriateness of the appropriate time to make an additional purchase, replace equipment, or keep liquidity.
and some of the cash Wasn’t Really Yours
Sales tax illustrates this particularly well.
Restaurants take money from their customers, which they have to be able to manage in accordance with their tax obligations. If these cash-flows are grouped together with operating cash, it may give a false impression of the money available to spend.
Regularly updated records ensure sales tax compliance, while giving the manager a better perspective of the restaurant’s financials.
This is the reason restaurant accounting is more efficient in situations where financial responsibility isn’t seen as distinct islands.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Payroll affects both labor percentage as well as cash. The availability of cash is influenced by sales tax. P&Ls are used for recording the financial performance. Forecasting can be helpful for management.
The pieces are connected.
Bookkeeping Chef utilizes restaurant-specific reporting and system integrations to help integrate these pieces. 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.
It’s the very last one that’s important.
Restaurant owners should never stop studying the literature even if they’re managed by another. It’s to provide owners with the information they need in a format that helps them understand the situation.
If the P&L shows that the restaurant is profitable however the balance of the bank seems too tight, don’t think the P&L must be incorrect.
Find out what happened between you and your partner.
The answer to this question will give you more insight into the restaurant than just the number.