The month is over. The month is over.
Make sure to check the restaurant’s account.
The number you received isn’t the one you’d expected.
This can be very frustrating for restaurant owners since they feel that profits and cash availability should speak the same truth. These two things don’t match up. A P&L evaluates the financial performance over a time and the bank account is a reflection of the time frame of money going into and out the company.
Understanding the difference could alter how a business owner is looking at the restaurant’s financials.
Imagine what goes on during the typical week. Customers pay for meals. It is important to pay employees. You will receive invoices for the delivery of food and drinks. Rent is coming up. The time of credit card deposits is different. The sales tax collected has an obligation.
In the meantime, next week’s purchase has already begun.
If you are only looking at the revenue or the final income, then you’ll overlook a significant portion of the activity.
Prime Cost Could Hold the Key to the Solution
If restaurant profits begin to move in the negative direction, then food, drinks and labor expenses require focus.
Together, the cost of the goods sold and labor together make up the bulk of the cost. Bookkeeping Chef’s guidelines place the cost of goods sold at 60% to 65 percent for most restaurants and emphasizes monitoring on a weekly basis instead of staying until the end of of the month.
Effective prime cost management involves not focusing on one percentage and more attention to the early movement.
If the restaurant typically performs near its target but this week, it’s a higher percentage. Maybe overtime has increased. Perhaps the cost of beverages was stable, but food costs increased. A higher percentage of food could prompt the manager to examine the purchase, waste management, portions and menu mix, or vendor costs.
The percentage raises a question. The answer lies in the restaurant’s activity.
Weekly reports allow for this conversation to take place in the midst of everyone being aware of what’s happened.
Two or three weeks later, the details become much more difficult to understand.
The Vendor’s Bills are Received
A restaurant may purchase ingredients in the week ahead, but pay for the items in the future. This is a way to explain the reason why profit alone isn’t enough to answer every cash question.
Invoices from vendors must be tracked, received and paid. In the course of manual processing, an environment with many suppliers could become an enormous administrative burden.
Automating the process of paying bills helps manage this process by eliminating repetitive handling of bills and payment information. These bookkeeping systems are also able to provide the owner with a clearer picture of obligations which haven’t yet deposited into the account of the bank.
This is useful, because the balance of your bank account may seem healthier than a restaurant’s actual situation in the near future.
Today, there may be an amount of $80,000 in the account. This amount could mean something different if payroll, rent and vendors as well as other obligations will consume a large portion of it over the next few days.
This naturally leads to cash flow forecasting.
The best question to ask yourself is “What happens to our funds after we receive the money and have fulfilled our obligations we have made?”
It is vital to recognize the difference between them when deciding whether this week is an ideal time to replace equipment or buy additional products, or conserve liquid funds.
You may not have been rightfully entitled to all the money you believed.
The sales tax example is an excellent one.
Restaurants collect cash from its customers, which eventually will need to be dealt with in accordance with its tax obligations. If these dollars are mentally added to cash flow, the bank balance may offer a false impression of the amount of cash available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
This is one reason restaurant accounting is better when financial obligations aren’t viewed as distinct islands.
Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Payroll affects both labor percentage as well as cash. Cash flow is affected by sales tax. The P&L tracks financial performance, and forecasting assists management to look ahead.
The pieces join.
Bookkeeping Chef uses restaurant-focused reporting and system integrations to connect the pieces. For business owners who don’t want to spend their nights manually reconciling financial data, outsourced bookkeeping services can handle large portions of the accounting burden without having to remove the owner of the financial discussions.
The last section is very important.
The idea isn’t for restaurant owners to not look at their books simply because someone else handles them. The goal is for owners to get information in a form that helps them understand the situation.
Don’t be fooled into thinking that the P&L is not correct if the bank account appears to be in good shape, but the P&L confirms that the restaurant generated money.
What transpired between the two?
The answer to this question will give you more insight into the restaurant’s location than the number.