The month is over. The sales were excellent and the P&L reported a profit and there was nothing to be seriously wrong.
You should then check the bank account of the restaurant.
The number doesn’t match what you’d hoped for.
This can be very frustrating for restaurant owners because they believe that profit and cash flow should tell the same tale. They don’t add with each other. The P&L is a measure of financial performance. On the other hand, the bank account is a record of the time when money flows in and out.
Understanding the difference will help restaurant owners adjust their views on the restaurant’s finances.
Look at what goes on in a typical week. The customers pay for food. Employees must be paid. You will receive invoices for meals and beverages delivered. Rent is on the verge of being due. Deposits to credit cards are timed. Sales tax is collected, but the money is subject to an obligation.
The purchasing for the coming week has already begun.
If you just look at the amount of revenue or the final income, then you’ll be missing a lot of this action.
The clue may be hidden in the cost of prime.
If the restaurant’s profitability starts to decline, the cost of food, beverages and labour costs must be taken into the equation.
Cost of goods sold combined with labor is the main cost. Bookkeeping Chef’s provided guidance places primary costs between 60%-65 percent for a wide range of restaurants, and emphasizes weekly monitoring as opposed to 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.
Imagine that the restaurant’s performance typically within a certain range, but this past week, it was higher. Maybe overtime has increased. Maybe the costs for beverages were stable, but food costs increased. An increase in the percentage of food items could lead the operator to review the menu, purchases, waste, mix portions or invoices from vendors.
The percentage is what matters. It is in the underlying activities in restaurants.
This is possible due to the fact that everyone is able to recall the events that transpired.
The details are more difficult to remember just a few days later.
The Vendor’s Bills Arrive
The restaurant pays later for the food items it purchases. This timing helps to explain how profit alone will not be enough to answer all cash questions.
Vendor invoices must be accounted for, tracked and paid. This is quite a task in the case of a business with numerous suppliers.
Automating the process of paying bills helps manage this process by eliminating repetitive handling of bills and payment details. The bookkeeping system that is connected to the internet can provide the owner with a clearer view of any obligations that haven’t yet been paid into the bank account.
This is important since a bank balance viewed in isolation can look healthier than the restaurant’s actual short-term position.
It is possible that you’ve got $80,000 in your account right now. It could mean something different if rent, payroll and vendors as well as other obligations will consume a large part of it in the next few days.
Cash flow forecasting is a natural result.
The better question to ask is “What happens to our funds after we receive it and have met our obligations we’ve made?”
This is a crucial distinction when deciding on which is the appropriate time to make an additional purchase or replace equipment, or keep liquidity.
It is possible that you weren’t rightfully entitled to all the money you believed.
Sales tax illustrates this particularly well.
Restaurants receive money from their clients, which they deal with in accordance with the tax requirements. If these dollars are mentally mixed with operating cash, then the bank balance could give an inaccurate impression of how much cash is available.
A consistent record helps restaurants stay in compliance with sales taxes while giving the management a realistic view of their financial situation.
This is why it is that restaurant accounting works better when financial obligations aren’t thought of as separate entities.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted through purchases from vendors. Payroll affects the percentage of labor and cash. Cash flow is impacted by the sales tax. The P&L documents financial performance while forecasting helps management look ahead.
The pieces link.
Bookkeeping Chef combines restaurant-specific reports through system integrations. For operators who don’t want to be slavishly reconciling financial data, specialized outsourced bookkeeping services can handle the bulk of accounting tasks without removing the owner from financial conversations.
It’s the last part that counts.
It’s not the goal for restaurant owners to stop checking their books because somebody else does. Owners should be provided with the information they need in a format that helps them understand what’s going on.
Don’t believe that the P&L is correct if your accounts appear to be in a good state, yet the P&L shows the restaurant has made money.
Ask about the events that occurred between them.
This one question could teach you something more about the food you serve than any number be on its own.