The month is finished. The month is done.
You then check the restaurant’s bank account.
You didn’t get the number you expected.
For restaurant owners, this disconnection can be a source of frustration because profits and cash flow seem to provide the same information. However, they aren’t. A P&L examines financial performance over a time, while the bank account reflects the time frame of money going into and out the company.
Knowing the difference could change the way an owner looks at restaurant finances.
Imagine what goes on during a typical workday. Customers pay for meals. The employees must be paid. You will receive invoices with drinks and food deliveries. Rent is on the way. The credit card deposit is also timed. Sales tax is collected, but it is an obligation.
The shopping for the week ahead has already begun.
If you only look at revenues or the final profit, then you will be missing a lot of the activity.
Prime Cost Could Hold the key to the answer
Food, beverage and labour costs are worth taking a closer review when the profitability of a restaurant begins to decrease.
Together, the cost of goods sold and labor are the main costs. Bookkeeping Chef’s guidelines place prime costs at approximately 60%-65 percent for a wide range of restaurants and emphasizes monitoring on a weekly basis instead of staying until the end of the month.
Effective management of prime costs requires less focus on a single percent and more noticing earlier movement.
Imagine that the restaurant normally performs near its target but this week, it’s more of a percent. Maybe overtime is up. Maybe the costs for beverages were stable However, food expenses increased. The higher proportion of food could prompt the manager to examine buying, waste management portions and menu mix, or even vendor invoices.
The percentage is the key. The restaurant’s activity is the answer.
The reason this conversation can be relived is because everybody can remember the details of what transpired.
After two or three weeks, it is much more difficult to reconstruct particulars.
The Vendor Bills are then delivered.
The restaurant will pay an additional time for the items it purchases. It’s due to this fact that knowing profits alone will not address all cash issues.
Vendor invoices must be received and logged. Manually completing this task in a busy business with many suppliers can be a massive administrative burden.
Automating accounts payable can streamline this process, reducing repetitive tasks such as handling the payment and bill details. Systems for bookkeeping that connect to accounting systems can provide owners with a clear picture of obligations, even if they’ve not yet been paid.
It’s advantageous because, viewed as a whole, a restaurant s bank balance may appear to be healthier than its actual financial position.
There could be $80,000 in the account today. The $80,000 figure means very small if the cost of rent, vendors or payroll take up a significant portion of the account in the next few days.
This is the reason for cash flow forecasting.
What happens to our cash after we’ve gotten the amount we’ve hoped for and met all of our obligations?
This distinction is essential in determining which is the best time to make an additional purchase or replace equipment, or maintain liquidity.
The Cash You Received May Not be Yours
The example of sales tax is a good example.
Restaurants collect cash from its customers, which eventually will need to be dealt with in accordance with its tax obligations. When these money are thought of as placed in the same category as operating cash, they can create a false impression of the cash available for spending.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Accounting for restaurants is more efficient when the financial responsibilities of each restaurant are separated.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. Payroll has an impact on the percentage of labor and cash. Taxes on sales affect cash availability. The P&L documents financial performance and forecasting assists management to look ahead.
The pieces are linked.
Bookkeeping Chef assists in bringing these elements together, using restaurant-specific reports as well as system integrations. Specialized outsourced bookkeeping services are an ideal alternative for those who don’t have the time to reconcile their financial information. They are able to handle the bulk of the accounting tasks but without taking the owner away from discussions about finances.
It’s the very last one that matters.
It’s not the goal for restaurant owners to stop examining their accounts because someone else does. It is important that owners are informed so that they know what’s happening.
Don’t be fooled into thinking that the P&L is correct if your balance of the bank seems to be tight, however the P&L indicates that the restaurant has made money.
Find out what transpired between you and your partner.
This will reveal more about your business than any number.