The month is over. The sales were good, the P&L shows a profit and nothing appears to be seriously off.
Then, you should check the restaurant’s bank account.
You didn’t get the number you expected.
Restaurant owners can find this disconnect frustrating because they believe that cash flow and profits ought to be identical. These two things don’t match together. A P&L examines the financial performance of a company over time and your bank account shows the exact timing of funds being moved into and out of the business.
Understanding the differences can allow owners to change their views on the restaurant’s finances.
Imagine what might happen during a typical week. Customers pay for meals. Employees must be paid. You will receive invoices for the delivery of food and drinks. Rent is due. The time of debits to credit cards is different. Sales tax collected is an obligation.
Already the next week’s purchases have begun.
If you only look at revenues or the final profits, then you’ll be missing a lot of the activity.
Prime Cost Could Hold the Key to the Solution
Food, beverage and labour costs are worth a closer at when profitability in restaurants begins to decline.
Cost of sales combined with labor is the prime cost. The Bookkeeping Chef’s guidance puts primary costs between 60%-65 percent for most restaurants and emphasizes monitoring on a weekly basis instead of 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 However, this week, it grew. Perhaps overtime has is up. Perhaps beverage costs were steady however food costs increased. The manager can review menus, waste, portion sizes or vendor invoices, as well as purchasing if the food portion is greater.
The percentage raises questions. The activities that underlie the restaurant provide the answer.
Weekly reports make this conversation possible and everyone still remembers what happened.
The details are much more difficult for you to recall after a couple of days.
Then the Vendor Bills Show Up
Restaurants may purchase ingredients during a week and pay for them the next. This explains why understanding profit alone doesn’t answer all cash questions.
Invoices from vendors must be tracked, accepted and paid. In a business that has many suppliers, completing that manually can become an administrative task.
Automating the process for accounts payable can assist in coordinating this process through reducing the repetition of payments and bills. Owners can have an accurate picture of payments that haven’t been deposited into their bank account by using integrated bookkeeping systems.
This is useful, because the bank’s balance could appear to be healthier than the restaurant’s actual situation in the near future.
It could be that there is $80,000 in the account right now. The amount could mean something different if it is impacted by other elements like rent as well as payroll, vendors and other obligations that will be due in the coming days.
Forecasting cash flow is a natural outcome.
What happens to our money after we’ve received the cash we’ve been expecting and met all of our obligations?
The difference can be crucial when deciding if it is a suitable week to replace equipment, make an addition purchase, or maintain liquidity.
You may not be legally entitled to the full amount you believed.
The sales tax illustrates this point especially well.
A restaurant collects money from customers and has to be managed according to its tax obligations. If those dollars are mentally divided into operating cash, the balance in the bank can create a misleading sense of the amount there to be spent.
The consistent records help ensure the tax compliance of sales while giving management a more realistic view of the restaurant’s finances.
This is why it is that restaurant accounting can be more effective in situations where financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll impacts both labor percentage as well as cash. Cash flow is affected by sales tax. The P&L shows financial performance, and forecasting assists management to look ahead.
Connect the pieces.
Bookkeeping Chef incorporates restaurant-specific reporting along with system integrations. If you don’t want to stay up all night reconciling financial data, outsourcing bookkeeping services can take care of the bulk of accounting tasks while removing the business owner from the financial conversation.
It’s the very last one that is important.
It’s not for owners of restaurants to stop looking at the books because someone else handles them. It’s crucial that the owners receive information so they are aware of what’s happening.
So when the P&L states that the restaurant has made money but the bank account feels surprisingly insecure, don’t believe that any of the numbers can be wrong.
What happened between the two?
The answer to this question will reveal more about the restaurant’s location than the number.