The month is over. Sales were excellent, and the P&L shows a profit, and nothing appears to be seriously off.
Make sure you check the account of the restaurant.
The number may not be what you would have expected.
This gap is a problem for restaurant owners since they feel that profits and cash availability should be the same. However, they aren’t. A P&L measures the financial performance of a company for a particular period of time, while it is a bank account that shows the actual timing of money moving into and out of he business.
Understanding the difference will change how a restaurant’s owner thinks about their finances.
Imagine what could happen on a typical week. The customers pay for food. Employees must be paid. Invoices for food and drinks are sent. Rent is on the verge of being due. Credit card transactions come with their own schedules. Sales tax has been paid, but that cash is subject to an obligation.
The purchase for next week has already started.
If you only look at the revenue or the final profits, you’ll miss a lot of this process.
The Secret Could Be Hidden in Prime Cost
The cost of food, drinks and labour costs are worth a closer look when restaurant profitability starts to fall.
Together, the cost of the items sold and labor together make up the bulk of the cost. The Bookkeeping Chefs’ provided guidelines place the primary cost between 60-65 percent of the revenue for many establishments. They also emphasize weekly monitoring instead of waiting until the end of the month.
Effective prime cost management is less about focusing on a single percentage and more about noticing movement quickly.
Imagine that the restaurant’s performance is typically within a certain range However, this past week, it was higher. Perhaps overtime was went up. Perhaps, the costs for beverages remained constant while food costs jumped. Operators may examine menus and portions, waste, vendor invoices, and buying if the percentage of food is greater.
The percentage is what matters. The answer lies in the restaurant activity.
A weekly report makes that conversation possible while everyone remembers the events.
After two or three weeks, it is much harder to reconstruct the specifics.
Once the vendor invoices are received
Restaurants may buy ingredients this week but have to pay for the items in the future. That timing helps explain why profits alone won’t be able to answer every cash issue.
Vendor invoices have to be received, recorded, tracked, and ultimately paid. This could be lots of work for the case of a business with several suppliers.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. These bookkeeping systems are also able to provide the owner with a clearer view of any obligations that haven’t yet hit the account of the bank.
It’s advantageous because, taken as a whole the restaurant’s financial position could appear to be more healthy than its actual short-term financial position.
It is possible that there are $80,000 in your account right now. This amount could mean something different if payroll, rent and vendors as well as other obligations will consume a large portion over the next several days.
This is the reason for cash flow forecasting.
What happens to the money we have received after we’ve received the funds we’ve expected and have fulfilled all of our obligations?
This distinction is essential when deciding on whether this is the best time to buy an additional purchase replacement of equipment, or preserve liquidity.
It is possible that you weren’t rightfully entitled to all the money you thought.
The example of sales tax is an excellent one.
The money restaurant owners receive from customers will eventually need to be dealt with in accordance with the tax requirements. If the money is mentally coupled with the normal operating cash, then the bank balance could provide an inaccurate picture of the amount of money available.
Consistent record keeping helps restaurants comply with sales tax laws, while providing a complete overview of their financial standing.
This is a reason why restaurant accounting works better in situations where financial responsibility isn’t seen as distinct islands.
Prime cost affects margin. COGS and future payments are affected by purchases made by vendors. Cash and labor percentage are affected by the payroll. Sales tax impacts cash availability. The P&L tracks financial performance, while forecasting helps management look ahead.
The pieces link.
Bookkeeping Chef can help bring these pieces together with restaurant-focused reports as well as system integrations. If you don’t want to work all night reconciling financial information, outsourced bookkeeping services can handle most of the accounting work while removing the business owner from the financial conversation.
It’s the final part that is important.
Restaurant owners should not stop reading their books just because they are handled by another. It’s crucial that the owners are informed so that they understand the situation.
When the P&L says the restaurant made cash, yet the bank account feels extremely unbalanced, don’t think that any of the numbers can be wrong.
Find out what transpired between them.
This question will reveal more about your company than any number.