The month is over. The sales were good, the P&L shows a profit and nothing is seriously off.
Verify the restaurant’s bank account.
It wasn’t the number you had hoped for.
Restaurant owners, this disconnection can be a source of frustration because the cash flow and profit seem to provide the same information. But they don’t. A P&L examines financial performance over a time and the bank account is a reflection of the exact timing of funds flowing into and out of the business.
Knowing the differences could help restaurant owners shift their perspective on restaurant finances.
Imagine what could happen during an normal week. The customers pay for food. Employees have to be paid. You will receive invoices for the delivery of food and drinks. Rent is getting closer. Credit card deposits are also timed. The sales tax collected has an obligation.
Meanwhile, next week’s purchasing has already started.
When you look only at revenue and the final profit figure it’s easy to miss a an abundance of activity.
The clue may be hidden in the cost of prime.
If the restaurant’s profitability begins to shift in the wrong direction, food, drink and labor expenses require the attention of restaurant owners.
Together, the cost of the products sold and labor make up prime cost. The Bookkeeping Chefs’ advice places the cost of goods sold between 60-65 percent of the revenues for a variety of restaurants. They also recommend the importance of weekly monitoring rather than waiting until the month ends.
Effective management of prime costs is less about worrying about one particular percentage, and more about recognizing changes earlier.
Imagine that the restaurant usually performs in line with its goals however this week’s performance rises. Perhaps the overtime rate went up. Perhaps beverage costs were steady However, food expenses increased. A higher proportion of food may prompt the owner to examine the menu, purchases, waste, mix, portions or vendor invoices.
The percentage raised the question. The activity of the restaurant itself provides the answer.
Weekly reports allow for this conversation to take place in the midst of everyone being aware of what’s happened.
The details are harder to remember two or three days later.
The Vendor’s Bills are Received
The restaurant pays in the future for the ingredients it buys. This is a reason for understanding profit alone doesn’t answer every cash issue.
Vendor invoices need to be received, recorded as well as tracked until they are paid. In a business that has numerous suppliers, doing that manually can turn into an administrative burden.
Automating the account payable process can streamline this process through reducing the repetition of payments and bills. Connected bookkeeping systems can also provide the owner with a clearer image of the obligations that haven’t yet hit the account of the bank.
This is because a bank’s balance when seen as an individual can appear more healthy than the restaurant’s real-time position.
There is currently $80,000 on the account. The figure of $80,000 is small if the cost of rent, vendors, or payroll will take up a significant portion of the account in the next few days.
This leads to the cash flow forecasting.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What is going to occur to our cash after the money we hope to receive and our obligations that we already know about?”
It is essential to be aware of the difference between them when deciding whether this week is the best time to replace equipment or purchase additional items or preserve liquid funds.
A portion of the Cash Wasn’t Yours at All
Sales tax illustrates the point particularly well.
The money that a restaurant gets from its patrons will eventually have to be handled in accordance with its tax obligations. When these money are thought of as grouped together with operating cash, it can provide a false perception 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.
This is a reason why restaurant accounting can be more effective when financial responsibilities aren’t treated as separate entities.
Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll is a factor that affects both cash and labor percentage. The availability of cash is influenced by sales tax. P&Ls are used to track financial performance. Forecasting is also helpful for management.
Connect the pieces.
Bookkeeping Chef is a restaurant-specific report that integrates with system integrations. Bookkeeping outsourcing services with specialization are an ideal option for owners who don’t have the time to reconcile their financial data. They are able to handle the bulk of the accounting work without removing the owner from discussions about finances.
It’s the final part that’s important.
The goal isn’t for restaurant owners to simply stop looking at the books because they are handled by someone else. It is important that owners are informed so that they are aware of the situation.
Don’t believe that the P&L is wrong if the bank account seems tight but the P&L indicates that the restaurant has made money.
Find out what transpired between you and your partner.
The answer to this question will give you more insight into the restaurant’s reputation than an identifying number.