The month is over. Sales were solid, the P&L is in profit and nothing appears to be terribly off.
After that, you can check the restaurant’s bank account.
You didn’t get the call you had hoped for.
For restaurant owners, that is a problem because profit and available cash seem like they should be the same. However, they aren’t. A P&L measures financial performance over a time in time, whereas the bank account represents the timing of money actually being moved into and out of the company.
Knowing the difference can change the way a restaurant owner considers their financials.
Think about what happens in an normal week. Customers pay for meals. Employees need to be paid. Invoices will be sent out with drinks and food deliveries. Rent is due. Credit card deposits are also timed. Taxes on sales have been collected, however that money is subject to an obligation.
Already the shopping spree for next week have begun.
Focusing on revenue only or the ending profit number isn’t a good way to assess the full scope of what happens.
The key to the answer may lie in the prime cost
When restaurant profitability starts moving in the wrong direction, then food, drinks and labor expenses require consideration.
Cost of selling goods with labor is the prime cost. The Bookkeeping Chefs’ provided instructions place the main cost between 60% and 65 percent of the revenue for many restaurants. They also emphasize weekly monitoring instead of 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 results are usually within the range of its goals however this week it increased. Perhaps overtime was increased. The cost of drinks could remain the same, while food prices increased. A higher percentage of food could lead the operator to review the menu, purchases, waste, mix portions or invoices from vendors.
The percentage raised the question. The answer lies in the activities in restaurants.
Weekly reports allow for this discussion to occur in the midst of everyone being aware of what’s happened.
After a period of two to three weeks, it gets harder to reconstruct the details.
Once the vendor invoices are received
Restaurants may purchase ingredients during a week and pay for them next week. This is a reason for profits alone won’t be able to answer all cash questions.
Vendor invoices have to be received and logged. Doing this manually in an environment with many suppliers can be a massive administrative burden.
Automating accounts payable helps to streamline this process by eliminating the need to handle bills in a repetitive manner and payment information. The bookkeeping system that is connected to the internet can provide the owner with a clearer picture of debts that haven’t yet reached the account of the bank.
It’s beneficial because, when taken as a whole the restaurant’s financial position might appear to be better than its actual financial situation.
There could be a possibility that there are $80,000 in your account as of right now. It could mean something different when it is affected by other factors such as rent or other expenses, such as payroll, vendors or other obligations over the coming days.
This leads to the cash flow forecasting.
What will happen with our cash once we’ve received the amount we’ve hoped for and fulfilled all our obligations?
The difference can be crucial in determining if this is a suitable week to upgrade equipment, make an additional purchase, or to preserve liquid funds.
The cash you received may Not Be Yours
Sales tax illustrates this in particular.
Restaurants collect money from their customers, which they must then handle in accordance with their tax obligations. If these dollars are mentally coupled with the normal operating cash, then the bank balance may give an inaccurate impression of how much money is available.
Consistent record keeping helps restaurants to comply with the sales tax laws as well as providing a complete image of their financial condition.
This is why it is that restaurant accounting can be more effective in situations where financial responsibilities aren’t considered as distinct islands.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll can affect both the percentage of labor as well as cash. Cash availability is affected by sales tax. The P&L records financial performance, forecasting can help management look ahead.
The pieces link.
Bookkeeping Chef makes use of restaurant-specific reports and system integrations that help put all the pieces together. If you don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload while removing the business owner of the financial discussions.
The last section is very important.
It’s not our goal for restaurant owners to not check their books because somebody else does. It’s essential that owners receive information so they know the situation.
Don’t assume that the P&L is wrong if the balance of the bank seems to be tight, however the P&L confirms that the restaurant earned money.
What was the difference between them?
Answering this question can give you more insight into the restaurant’s reputation than an identifying number.