The month is finished. The sales were strong, the P&L shows a profit, and nothing appears seriously to be wrong.
Check the bank account of the restaurant.
The number is not exactly what you’d hoped for.
This disconnect can be frustrating for restaurant owners as they feel that profit and cash on hand should speak the same truth. But they don’t. A P&L evaluates the performance of the business’s finances over a specified time period, whereas a bank account shows the actual timing of money going into and out of the company.
Knowing the differences could help restaurant owners shift their view of the financials of their restaurant.
Consider what happens during an ordinary week. Customers pay for meals. Employers must be paid. Food and drinks are sent. Rent is coming up. Credit card payments have their own timing. Sales tax is collected however it is the responsibility.
On the other hand, the next week’s shopping has already begun.
If you are only looking at the revenue or the final income, then you’ll miss a lot of this activity.
Prime Cost could be the Key to the Clue
Food, beverage and labour cost are all worth a close review when the profitability of a restaurant begins to decline.
Cost of selling goods with labor is a major cost. Bookkeeping Chef’s supplied guidance places the cost of goods sold at 60% to 65 percent of revenues for a variety of restaurants, focusing on weekly monitoring rather than waiting until the final day of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Suppose that normally the restaurant does well, but this week, there’s a higher percent. Perhaps the overtime rate is up. Perhaps the cost of beverages remained steady while food costs jumped. The higher proportion of food could cause the owner to look at the purchase, waste management, portions and menus, or vendor charges.
The percentage is crucial. The answer is found in the restaurant’s activity.
The reason this conversation can be relived is because everyone will be able to remember the events that transpired.
After a period of two to three weeks, it becomes more difficult to reconstruct the specifics.
Then the Vendor Bills Show Up
The restaurant is expected to pay later for the food items it buys. It’s because of this timing that knowing profits alone will not resolve all cash-related issues.
Vendor invoices must be received, recorded and tracked before being paid. In a business that has many suppliers, completing that manually can turn into an administrative task.
Automating accounts payable speeds up the process by reducing routine tasks like handling invoices and payment information. The account owner will have an accurate picture of obligations that haven’t yet landed on their bank accounts by utilizing connected bookkeeping systems.
This is helpful, since the bank’s balance could seem healthier than a restaurant’s actual financial situation.
In the present, there could be an amount of $80,000 in the account. The figure of $80,000 is tiny if rental, vendors or payroll are to take the majority of the coming days.
This is what leads to cash flow forecasting.
What happens to our cash once we’ve received the amount we’ve hoped for and met all of our obligations?
The distinction can matter in determining if this is a comfortable week to repair equipment, make an addition purchase, or maintain liquid funds.
and some of the cash Wasn’t Yours at All
The sales tax illustrates this particularly well.
Restaurants get money from customers, which they have to deal with according to the tax requirements. When these dollars are mentally combined with operating cash, it could provide a false perception of the amount of money that is available for spending.
The consistent records help ensure sales tax compliance, while giving the management a better perspective of the restaurant’s financials.
This is the reason that restaurant accounting is more efficient when financial responsibility isn’t treated as separate islands.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll has an impact on the percentage of labor and cash. Cash availability is affected by the sales tax. The P&L records financial performance, while forecasting helps management look ahead.
The pieces are linked.
Bookkeeping Chef incorporates restaurant-specific reporting through system integrations. Bookkeeping outsourcing can be beneficial to owners who do not wish to spend the night manually reconciling their financial information.
It’s the last thing that is important.
It’s not for restaurant owners to stop looking at their accounts because someone else handles them. The goal is for owners to get data in a way that will help them understand what’s happening.
When the P&L reports that the restaurant earned money, but the bank account feels extremely tight, don’t assume some of the figures must be wrong.
What happened between the two?
Answering this question can give you more insight into the restaurant’s reputation than an identifying number.