The month is over. The sales were good, the P&L is in profit and there’s nothing that appears to be seriously to be wrong.
Make sure to check the restaurant’s account.
The number you received isn’t what you’d expect.
Restaurant owners might be frustrated by this since they believe cash flow and profits must be the same. They don’t. The P&L is a measure of financial performance, while the bank account is an indication of when money moves into and out.
Understanding the difference can help owners change their perception of restaurant financials.
Check out the typical week. Food is paid for by customers. The payment of employees is essential. You will receive invoices along with food and beverage deliveries. Rent is on the way. The credit card deposit is also timed. Sales tax is collected, but it comes with a responsibility.
The shopping for the week ahead has already started.
If you focus only on the amount of revenue or profits, then you’ll overlook a significant portion of this process.
The clue could be hidden in the Prime Cost
Food, beverage and labour costs are worth taking a closer at when profitability in restaurants begins to fall.
Prime cost is composed of both the cost of goods and labor. The bookkeeping chef’s guideline places primary costs between 60% to 65% for many restaurant and stresses weekly monitoring as opposed to 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 is usually close to its goal However, this past week, it was higher. Maybe overtime went up. The cost of drinks could have remained the same, whereas the food expenses increased. A higher food percentage might prompt the owner to examine purchasing, waste, menu mix portions or invoices from vendors.
The percentage is crucial. The answer lies in the activity of the restaurant.
Weekly reports allow for the discussion to continue while everyone is still aware of what’s happened.
Three or four weeks later After that, the details become more difficult to decipher.
Then, the Vendor Bills arrive.
Restaurants might purchase food items the week before and pay for them next week. It’s because of this timing that knowing profits alone will not resolve all cash-related issues.
Invoices from vendors must be tracked, accepted and paid. In a busy operation with numerous suppliers, doing that manually can become its own administrative workload.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment details. These bookkeeping systems are also able to give the user a better picture of obligations which haven’t yet deposited into the bank account.
This is useful, because the bank’s balance could seem healthier than a restaurant’s real near-term situation.
It might be that there are $80,000 in your account at the moment. This number can mean something different if it is impacted by other factors such as rent or payroll, vendors, and other obligations in the next few days.
Forecasting cash flow is a natural outcome.
The most appropriate question to ask yourself is “What happens to our cash once we receive it and have fulfilled our commitments we’ve identified?”
The difference can be crucial in determining if this is a suitable week to repair equipment, make an additional purchase, or to preserve liquidity.
You may not be legally entitled to the full amount you believed.
Sales tax highlights this especially well.
Restaurants collect money from customers which will need to be dealt with in accordance with its tax obligations. If the funds are combined with normal cash flow, the balance in a bank can provide an inaccurate picture of the amount of cash available.
Consistent records help restaurants comply with sales taxes and provide the managers a clear picture of their financials.
This is the reason restaurant accounting is more efficient when financial responsibilities aren’t considered as distinct islands.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll affects both labor percentage and cash. Taxes on sales affect cash availability. P&Ls keep track of financial performance and forecasting allows management to see the future.
The pieces are connected.
Bookkeeping Chef incorporates restaurant-specific reporting and system integrations. For business owners who don’t want to stay up all night reconciling financial data, outsourcing bookkeeping services can take care of the bulk of accounting tasks without removing the proprietor of the financial discussions.
The last section is very important.
It’s not our goal for restaurant owners to stop checking their accounts because someone does. It is important that owners receive information so they understand what’s happening.
So if the P&L reports that the restaurant earned money but the bank account feels extremely insecure, don’t believe that one of the numbers could be off.
Ask them about what transpired between them.
The answer to this question will provide more information about the restaurant than just an identifying number.
