The month is finished. The sales were decent and the P&L showed a profit and there was nothing to be seriously in error.
Make sure to check the restaurant’s account.
The number isn’t the one you’d expected.
Restaurant owners, this gap can be frustrating as profit and available cash seem like they should have the same meaning. They don’t. The P&L is a gauge of financial performance, whereas the bank account is a representation of when money moves in and out.
Knowing the difference can change the way a restaurant’s manager thinks about their finances.
Imagine what goes on during an average week. Food is paid for by customers. Employees have to be paid. The invoices for food and beverages are delivered. Rent is getting closer. The credit card deposit is also timed. Sales tax has been collected, however that money is a legal obligation.
Already the shopping spree for next week have started.
If you focus solely on revenues and the numbers at the end of profits it’s easy to miss a the vast amount of activity.
Prime Cost Could Hold the Key to the Solution
If restaurant profitability begins to fall, cost of food, beverages and labour costs must be taken into consideration.
Prime cost consists of the price of products and labor. The Bookkeeping Chefs’ advice places the cost of goods sold between 60 and 65% of revenues for many restaurants. They also emphasize weekly monitoring instead of waiting until the month ends.
Effective primary cost management is not about focusing on the exact percentages and more about spotting changes early.
If the restaurant is performing in line with its goals however this week’s performance is higher. Perhaps overtime has is up. The beverage cost may have remained the same while the food expenses increased. An increase in the percentage of food items could make the supervisor think about reviewing purchase, waste, menu mix portions or vendor invoices.
The percentage raises a question. The answer lies in the activity in the restaurant.
Weekly reports allow this discussion to occur while everyone is still aware of what has happened.
After a period of two to three weeks, it becomes more difficult to reconstruct the particulars.
When the vendor invoices arrive
Restaurants may purchase ingredients one week and make payments the following week. This can help explain the reason why profit alone isn’t enough to answer every cash question.
Vendor invoices must be recorded, received then tracked and finally paid. This could be lots of work for an operation that has numerous suppliers.
Automating accounts payable can help organize the process by cutting down on repetitive handling of bills and payment details. Owners can have more precise information about the obligations that haven t hit their bank account by using the bookkeeping software that is connected to.
It’s advantageous because, considered as a whole the restaurant’s financial position may appear to be healthier than its actual financial position.
There could be $80,000 in the bank account at present. The $80,000 figure means very little if rent, vendors or payroll make an enormous amount over the coming days.
That leads naturally to cash flow forecasting.
The best question to ask yourself is “What will happen to our funds after we have received the funds and have met our obligations we’ve made?”
It is important to know the difference between them when deciding whether this week is the ideal moment to upgrade equipment, purchase additional items or to conserve the cash flow.
You might not have been legally entitled to the full amount you believed.
The sales tax example is a great one.
The cash restaurants receive from their customers is eventually going to need to be dealt with in accordance to its tax obligations. When these money are thought of as combined with operating cash, it can give a false impression of the cash available for spending.
Consistent records help restaurants comply with sales taxes while giving the managers a clear picture of their financial situation.
This is the reason restaurant accounting is better when financial obligations aren’t viewed as separate entities.
Prime cost affects margin. COGS and future payments are affected by purchases made by vendors. Payroll affects both labor percentage as well as cash. Cash availability is affected by the sales tax. P&Ls can be used to document financial performance. Forecasting can also be useful to management.
Connect the pieces.
Bookkeeping Chef assists in bringing these pieces together with restaurant-focused reports as well as system integrations. Bookkeeping outsourcing services with specialization are an ideal option for owners who don’t have the time to reconcile their financial information. They will take care of a lot of the accounting work without taking the owner away from discussions about finances.
That last part matters.
It’s not our goal for restaurant owners to stop checking their books because somebody else does. Owners should receive information that helps them understand what’s happening.
If the P&L shows that the establishment is profitable but the bank balance seems too tight, don’t think the P&L is not accurate.
Find out what transpired between you and your spouse.
This question can tell you more about your business than any other number.