The month has come to an end. The sales were strong, the P&L is in profit and nothing is suspiciously to be wrong.
Check the restaurant’s bank account.
This number isn’t exactly what you’d expect.
Restaurant owners might find this disconnect frustrating, as they believe that cash flow and profits must be the same. They are not. It’s not true. P&L is a gauge of financial performance. On the other hand, the bank account is a record of when money moves in and out.
Understanding the difference will change the way a restaurant owner thinks about their finances.
Check out what happens during a normal week. Food is paid for by customers. The employees must be paid. You will receive invoices along with drinks and food deliveries. Rent is approaching. The time of credit card transactions differs. The sales tax collected has an obligation.
The next week’s buying has already begun.
Looking just at revenue or the number of profits at the end misses much of that activity.
The Secret Could Be Hidden in the Prime Cost
If the restaurant’s profitability begins to shift in the negative direction, food, beverage as well as labor costs require focus.
The prime cost is comprised of both items and labour. The Bookkeeping Chef’s guidance puts the cost of goods sold at 60% to 65 percent for most restaurants, and emphasizes weekly monitoring instead of waiting until the end of the month.
It is more important to be able detect changes early than obsessing about the exact percentage.
Imagine that the restaurant usually performs within its targets however this week’s performance is higher. Perhaps the overtime rate was increased. Perhaps, the costs for beverages remained constant while food costs jumped. An increase in the percentage of food consumed could lead the business owner to look at the purchase, waste management, portions and menu mix or vendor costs.
The percentage is a source of concern. The answer is found in the activity of the restaurant.
Weekly reports allow for this conversation to take place as everyone is conscious of what has happened.
A few weeks later After that, the details become harder to understand.
The Vendor Bills are then delivered.
Restaurants can purchase ingredients in one week, and then make payments the following week. This explains why profits alone won’t be able to answer every cash question.
Vendor invoices have to be recorded, received, tracked, and ultimately paid. This can be quite a task in an organization that has many suppliers.
Automating accounts payable speeds up this process, which reduces repetitive tasks such as handling payments and bills. The bookkeeping system that is connected to the internet can give the user a better image of the obligations that haven’t yet reached the account of the bank.
This is advantageous, since the bank’s balance may appear more healthy than the restaurant’s real near-term situation.
There may be $80,000 sitting in the bank account at present. This number could mean something different when you consider that rent, payroll and vendors as well as other commitments consume a significant amount over the next several days.
This leads to cash flow forecasting.
The better question to ask yourself is “What will happen to our cash once we receive the money and have fulfilled the commitments we’ve identified?”
It is crucial to understand what the distinction is when deciding if this week is the best time to replace equipment, buy additional products or preserve the cash flow.
You may not be eligible for all the money you believed.
The example of sales tax is a good one.
Restaurants receive money from customers that eventually will need to be dealt with according to tax requirements. When these money are thought of as placed in the same category as operating cash, it could create a false impression of the money available to spend.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant do not have to be separated.
Prime cost affects margin. Vendor purchases impact COGS and future payments. The percentage of labor and cash are affected by payroll. Sales tax impacts cash availability. P&Ls record financial performance while forecasting allows management to see the future.
The pieces are linked.
Bookkeeping Chef utilizes restaurant-specific reporting and system integrations to help bring those pieces together. Bookkeeping outsourcing services with specialization are an excellent option for owners who don’t have time to reconcile their financial data. They can take care of much of the accounting duties without taking the owner away from financial discussions.
It’s the last thing that’s important.
It’s not the intention of restaurant owners to not check their accounts because someone does. Owners need to be informed that can help them know what’s going on.
So when the P&L indicates that the restaurant made money, but the bank account is feeling a little tight, don’t presume that any of the numbers can be wrong.
Ask what happened between them.
Answering this question can provide more information about the restaurant’s location than the number.