The month is over. The sales were great, the P&L was profitable and there was nothing that appeared to be seriously off.
Make sure you check the account of the restaurant.
It wasn’t the number you expected.
Restaurant owners, this disconnection can be a source of frustration because profits and cash flow seem to be the same. They aren’t. A P&L evaluates the financial performance of a firm over a certain period of time, while a bank account shows the exact timing of funds flowing into and out of the company.
Understanding the difference can help owners change their view of the financials of their restaurant.
Imagine what could happen during an normal week. Food is paid for by customers. Employers must be paid. Food and drinks deliveries arrive with invoices attached. Rent is getting closer. Credit card payments are timed. Taxes on sales have been collected, however that money is subject to an obligation.
Already, the next week’s purchases have begun.
When you look only at revenue or the number of dollars earned at the end it’s easy to miss a an abundance of activity.
The key may lie in the cost of prime.
If the profitability of restaurants begins to decrease, cost of food, drinks and labor costs must be taken into the equation.
Together, cost of goods sold and labor together make up the bulk of the cost. The Bookkeeping Chef’s guidance puts the prime cost at between 60%-65% of revenue for many restaurants, while emphasizing the importance of monitoring weekly rather than waiting until the end of the month.
Effective cost management for primes is less about focusing on one percentage point and more about recognizing changes early.
Let’s say that typically, the restaurant does well, but this week, there’s at a higher percentage. Perhaps overtime was is up. Perhaps the cost of beverages was stable However, food expenses increased. The chef may look over menus as well as waste, portions sizes or vendor invoices, as well as purchasing if the proportion of food is higher.
The percentage raises questions. The restaurant’s activity is the answer.
The reason this conversation can be relived is because everybody can remember the details of what transpired.
The details will be more difficult for you to remember the next day or two.
When the vendor invoices arrive
A restaurant could purchase the ingredients in the week ahead, but pay for the ingredients later. This can help explain the reason why profit alone isn’t enough to answer all cash-related questions.
Invoices from vendors need to be accounted for, tracked and paid. In a business that has many suppliers, doing this manually can turn into the company’s own administrative task.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Bookkeeping systems that are connected can give owners a better understanding of their obligations, even if they’ve not yet been paid.
This is useful, because the bank balance can seem healthier than a restaurant’s actual situation in the near future.
There could be a possibility that there are $80,000 in your account right now. That number means something very different if payroll, rent, vendors, and other obligations consume a significant portion over the next several days.
Cash flow forecasting is a natural outcome.
What will happen with the money we have received after we’ve received the funds we’ve expected and have met our obligations?
It is important to know the difference before deciding if this week is a good opportunity to replace equipment, buy additional products or save liquid funds.
The cash you received may Not Be Yours
Sales tax highlights this point particularly well.
Restaurants receive money from their clients, which they then handle in accordance with the tax requirements. If these funds are placed in the same category as operating cash, they can provide a false perception of the amount of money that is available for spending.
The consistent recording system allows restaurants to comply with the sales tax laws, while giving a clear image of their financial condition.
This is one reason why restaurant accounting can be more effective in situations where financial responsibility isn’t seen as distinct islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted by the purchases from vendors. Payroll is a factor that affects the amount of cash available and also the labor percentage. The availability of cash is influenced by the sales tax. The P&L tracks financial performance, and forecasting assists management to look ahead.
Connect the pieces.
Bookkeeping Chef is a restaurant-specific report that integrates along with system integrations. Bookkeeping outsourcing can be beneficial to those who don’t want to spend the night manually reconciling their financial information.
It’s the last thing that counts.
Restaurant owners shouldn’t stop going through the manuals just because they are handled by another. It is important that owners are informed so that they are aware of what’s going on.
Don’t assume that the P&L is not correct if the bank account appears to be in good shape, but the P&L confirms that the restaurant generated money.
Ask what happened between them.
This question can tell you more about your business than any other number.