The month is finished. Sales were excellent, and the P&L is in profit and there’s nothing that appears to be to be seriously incorrect.
Then, you should check the bank account of the restaurant.
The number you received isn’t what you’d expect.
This can be very frustrating for owners of restaurants because they believe that profit and cash available should have the same story to tell. The two don’t line in. A P&L measures the financial performance of a company over time, while the bank account is a reflection of the timing of money actually going into and out the company.
Understanding the difference will alter the way a restaurant owner thinks about their finances.
Imagine what happens on the typical week. The customers pay for food. The employees must be paid. Food and drinks deliveries arrive with invoices. Rent is on the way. Credit card payments have their own timing. Taxes on sales have been collected, but that 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 miss a lot of the activity.
The Clue May Be Hiding in Prime Cost
Food, beverages and labor cost are all worth a close examine when restaurant profitability begins to fall.
Together, the cost of the products sold and labor comprise the primary cost. The bookkeeping chef’s guideline places the primary cost at around 60%-65 percent of revenues for a variety of restaurants, while focusing on the importance of monitoring weekly rather than waiting until the close of each month.
It is crucial to be able to detect the changes before they occur rather than obsessing over a specific percentage.
Suppose the restaurant normally performs close to its target However, this week’s number rises. Perhaps overtime was is up. Perhaps the cost of beverages remained steady while food costs jumped. An increase in the percentage of food consumed could prompt the manager to consider examining purchases, waste management, portions and menu mix or even vendor invoices.
The percentage is the most important. The answer is found in the activity of the restaurant.
A weekly report can make that conversation possible while everyone still remembers what happened.
The details are much harder to remember two or three days later.
When the vendor invoices arrive
Restaurants can purchase ingredients the week before and pay for them the following week. This can help explain why profit alone is not enough to answer all cash-related questions.
Invoices from vendors have to be tracked, received and paid. This can be lots of work for an organization that has many suppliers.
Automating the account payable process can help organize this by reducing the repeated handling of payments and bills. The account owner will have an accurate picture of obligations that haven t hit their bank account by using connected bookkeeping systems.
This is advantageous, since the bank’s balance could appear to be healthier than the restaurant’s actual situation in the near future.
There could be a possibility that you’ve got $80,000 in your account at the moment. This number could mean something different in the event that payroll, rent and vendors as well as other obligations consume a significant portion over the next few days.
This naturally leads to cash flow forecasting.
The most important question to ask is “What will happen to our money after we receive the money and have fulfilled our obligations that we know?”
It is essential to be aware of what the distinction is when deciding if this week is the ideal opportunity to replace equipment, buy additional products or save the cash flow.
The cash you received may Not Be Yours
The example of sales tax is a great one.
The money a restaurant gets from its customers will eventually need to be dealt with in accordance with the tax requirements. If the money is mentally placed in the same category as operating cash, the balance of the bank can create a misleading sense of the money there to be spent.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
This is one reason restaurant accounting is better when financial responsibilities aren’t treated as distinct islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected through purchases from vendors. Payroll and cash availability are affected by the payroll. Cash flow is affected by the sales tax. P&Ls can be used to document financial performance. Forecasting can be helpful for management.
The pieces are interconnected.
Bookkeeping Chef is a restaurant-specific report that integrates and system integrations. Outsourced bookkeeping is a great option for operators who do not want to stay up all night reconciling their financial records.
It’s the last part that is important.
The goal isn’t for restaurant owners to not look at the books because someone else handles them. Owners must be provided with information that can help them know what’s going on.
If the P&L indicates that the restaurant is profitable but the bank balance feels tight, do not assume the P&L could be wrong.
Ask about the events that occurred between them.
This question can tell you more about your business than any other number.