The month has ended. The sales were excellent, the P&L reported a profit and there was no sign of anything to be seriously incorrect.
You then check the restaurant’s bank account.
The number isn’t exactly what you’d hoped for.
Restaurant owners might find it difficult to reconcile this issue since they believe cash flow and profits must be identical. They are not. A P&L measures the financial performance of a firm over a specific time period, whereas an account in a bank shows the actual timing of money moving into and out of he business.
Understanding the difference will change the way a restaurant’s manager is able to view their financials.
Think about what happens in an ordinary week. Food is paid for by customers. Employees have to be paid. Invoices will be sent out with meals and beverages delivered. Rent is on the way. The time of debits to credit cards is different. Sales tax collected is an obligation.
The shopping for the week ahead has already started.
Looking just at revenue or the final profit figure isn’t a good way to assess the full scope of what happens.
Prime Cost could be the Key to the Clue
Food, drink and labour costs are worth taking a closer review when the profitability of a restaurant begins to decrease.
The prime cost is comprised of both the cost of products and labor. The Bookkeeping Chef’s guidance puts primary costs between 60%-65 percent for most restaurants and focuses on weekly monitoring instead of staying until the end of of the month.
It is crucial to be able to detect any changes in the early stages rather than worrying about an exact percentage.
Let’s say that typically, the restaurant performs near its target but this week, it’s a higher percentage. Maybe the number of overtime hours has increased. Perhaps the cost of beverages was stable however food costs increased. A higher food percentage might lead the operator to review buying, waste, menu mix portions or vendor invoices.
The percentage raises questions. The answer is found in the restaurant’s activity.
This is possible due to the fact that everyone will be able to remember the details of what transpired.
After a few weeks The details are much more difficult to understand.
The Vendor Bills are then delivered.
The restaurant pays later for the food items it buys. This explains why profit alone is not enough to answer all cash-related questions.
Vendor invoices should be recieved and tracked. This is lots of work for the case of a business with several suppliers.
Automating the process of paying bills can streamline this process by reducing the time-consuming handling of payments and bills. Owners can have more precise information about the debts that haven’t landed in their bank accounts through the bookkeeping software that is connected to.
It’s helpful because, when considered as a whole a restaurant s bank balance may appear to be more stable than its actual financial position.
The current balance could be $80,000 on the account. It could have a different meaning depending on other variables like rent, payroll, vendors and other obligations in the next few days.
That leads naturally to cash flow forecasting.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What will be the fate of our cash following the cash we anticipate to receive and the obligations we are already aware about?”
This is an important distinction to make when deciding on which is the appropriate time to buy an additional purchase or replace equipment, or keep liquidity.
You may not have been rightfully entitled to all the money you believed.
The example of sales tax is a good one.
The money that restaurant owners receive from customers will eventually have to be handled in line to its tax obligations. If the money is mentally mixed with cash flow, the balance in a bank can provide an inaccurate picture of how much cash is available.
Consistent record keeping helps restaurants comply with sales tax laws and also giving a clear view of their financial position.
This is the reason restaurant accounting works better when financial responsibilities aren’t treated as distinct islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected due to purchases made by vendors. Payroll is a factor that affects the amount of cash available and also the labor percentage. Cash flow is affected by sales tax. P&Ls are used to record the financial performance. Forecasting can also be useful for management.
The pieces connect.
Bookkeeping Chef is a restaurant-specific report that integrates with system integrations. Outsourced bookkeeping can help operators who do not want to be tasked with reconciling their financial data.
The final part is crucial.
The idea isn’t for owners of restaurants to stop looking at their accounts because somebody else handles them. It is important that owners are informed so that they know the situation.
Don’t think that the P&L is not correct if the balance of the bank seems to be tight, however the P&L indicates that the restaurant made money.
Find out what transpired between you and your spouse.
This one question could teach you far more about your restaurant than any other number could alone.