The month has come to an end. The sales were strong, the P&L shows a profit, and there is nothing suspiciously to be wrong.
Check the bank account of the restaurant.
The number isn’t what you’d hoped for.
Restaurant owners can be dissatisfied with this, as they believe that cash flow and profits must be exactly the same. These two things don’t match up. A P&L measures the financial performance of a business over a specific time period, whereas it is a bank account that shows the actual timing of money going into and out of the company.
Understanding the difference can change how a business owner examines the financials of a restaurant.
Imagine what might happen during a typical week. The customers pay for food. The payment of employees is essential. Invoices for food and drinks are issued. Rent is getting closer. Credit card deposits come with their own schedules. Sales tax is collected, but the money is subject to an obligation.
The purchase for next week has already begun.
If you focus only on the amount of revenue or the final profit, then you will be missing a lot of this action.
Prime Cost could be the Key to the Answer
Food, beverages and labor costs are worth a closer look when restaurant profitability starts to fall.
Together, the cost of the products sold and labor are the main costs. The Bookkeeping Chefs’ guidance places the prime cost between 60-65 percent of the revenue for many restaurants. They also recommend weekly monitoring instead of waiting until the month ends.
It is essential for you to recognize changes earlier than worrying about a specific percentage.
Let’s say that typically, the restaurant does well, but this week, it’s more of a percentage. Perhaps overtime has is up. Perhaps the cost of beverages was stable However, food expenses increased. An increase in the percentage of food consumed could cause the owner to examine buying, waste management portions and menus, or vendor bills.
The percentage raises questions. The answer is found in the restaurant’s activity.
The reason this conversation can be relived is because everyone can still remember the details of what transpired.
After a period of two to three weeks, it gets more difficult to reconstruct the details.
The Vendor’s Bills Arrive
Restaurants can purchase ingredients the week before and pay for them the following week. This timing helps to explain the reason why profit alone isn’t enough to answer all cash-related questions.
Vendor invoices need to be recorded, received as well as tracked until they are paid. In the course of manual processing, an office with many suppliers can be a massive administrative burden.
Automating the process of paying bills helps manage this process by eliminating the need to handle bills in a repetitive manner and payment information. Bookkeeping systems that are connected to accounting systems can provide owners with a clear view of their obligations, even if they’ve not yet been paid.
This is important since an account balance seen in isolation can look healthier than the restaurant’s actual near-term position.
Today, there may be $80,000 on the account. It could mean something different if rent, payroll and vendors obligations will consume a large amount over the next few days.
Forecasting cash flow is a normal outcome.
The best question to ask yourself is “What will happen to our cash once we receive the money and have fulfilled the obligations we have made?”
This distinction is essential when deciding which is the appropriate time to buy an additional purchase replacement of equipment, or keep liquidity.
The Cash You Received May Not Be Yours
Sales tax illustrates the point especially well.
Restaurants collect money from customers and must be disposed of in accordance with its tax obligations. If the money is mentally associated with operating money, the bank’s balance may create a false sense of what is there to be spent.
Regularly maintained records allow restaurants to comply with sales tax regulations while also providing the managers a clear picture of their financial situation.
Accounting for restaurants is more efficient when the financial responsibilities of each restaurant are not handled separately.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll has an impact on the percentage of labor and cash. Cash availability is impacted by the sales tax. The P&L shows financial performance, while forecasting aids management in looking ahead.
Connect the pieces.
Bookkeeping Chef can help bring the pieces together by providing restaurant-specific reports and 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 aim of restaurant owners to stop examining their books because somebody else does. Owners need to be informed that will help them to comprehend what’s happening.
Don’t believe that the P&L is wrong if the bank account seems tight but the P&L indicates that the restaurant has made money.
Find out what transpired between you and your spouse.
Answering this question can reveal more about the restaurant, more than just an identifying number.