The month is finished. The sales were decent and the P&L was profitable and there was nothing to be seriously wrong.
After that, you can check the bank account of the restaurant.
The number you received isn’t what you’d hoped for.
For owners of restaurants, this is a problem because profits and cash available seem like they should be the same. But they don’t. A P&L measures financial performance over a time, while the bank account represents the exact timing of funds moving in and out of the company.
Understanding the difference can alter how a business owner examines the financials of a restaurant.
Think about what happens in an ordinary week. The customers pay for food. Employers must be paid. You will receive invoices with food and beverage deliveries. Rent is coming. Deposits made with credit cards have their own specific timing. Sales tax collected is an obligation.
The purchasing for the coming week has already begun.
Looking only at revenue or the ending profit number misses much of that activity.
The Clue May Be Hiding in Prime Cost
Food, beverages and labor costs merit a closer look when restaurant profitability starts to decline.
Together, the cost of the goods sold and the labor cost comprise the primary cost. Bookkeeping Chef’s guidelines place prime cost at roughly 60% to 65 percent of revenues for a variety of restaurants, while focusing on weekly monitoring rather than waiting until the end of the month.
Effective management of prime costs requires less focus on a single percent and more noticing early changes.
If the restaurant is performing at or near its goal However, this week’s number increases. Perhaps the overtime rate was increased. Perhaps, the costs for beverages remained constant but food costs increased. An increase in the percentage of food items could make the supervisor think about reviewing purchase, waste, menu mix portions and vendor invoices.
The percentage raises the question. The answer lies in the activities in restaurants.
The reason this conversation can be relived is because everyone will be able to remember the details of what transpired.
After two or three weeks, it is much harder to reconstruct the details.
When the vendor invoices arrive
The restaurant will be able to pay an additional time for the items it buys. It’s because of this timing that knowing profits alone will not solve all cash problems.
Invoices from vendors need to be received, tracked and paid. In a business that has many suppliers, doing this manually could become the company’s own administrative task.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Connected bookkeeping systems can also provide the user with a more clear picture of debts that haven’t yet reached the bank account.
It’s useful because, looked at as a whole a restaurant s bank balance may appear to be more stable than its actual financial situation.
There could be $80,000 in the bank account at present. This number could mean something different when you consider that rent, payroll and vendors as well as other commitments will consume a substantial amount over the next several days.
This leads to cash flow forecasting.
The best question to ask yourself is “What happens to our cash once we receive it and have met our commitments we’ve identified?”
This is an important distinction to make when deciding on which is the right week to buy an additional purchase replacement of equipment, or preserve the liquidity.
The money you receive may Not be Yours
The sales tax illustrates this in particular.
A restaurant receives money from customers that eventually has to be managed in accordance with tax regulations. If these cash-flows are combined with operating cash, it may provide a false perception of the cash available for spending.
Consistent records support sales tax compliance while also giving the management a better perspective of the restaurant’s financials.
This is one reason why restaurant accounting is more efficient when financial obligations aren’t viewed as separate islands.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Cash and labor percentage are affected by the payroll. Cash availability is impacted by the sales tax. The P&L tracks financial performance, while forecasting helps management look ahead.
The pieces are connected.
Bookkeeping Chef is a restaurant-specific report that integrates along with system integrations. For business owners who don’t want to spend their nights manually reconciling financial data, outsourced bookkeeping services will handle large portions of the accounting burden without removing the owner from financial conversations.
It’s the last thing that is important.
It’s not the intention of restaurant owners to stop examining their books because someone else does. It’s for owners to receive data in a way which helps them comprehend the situation.
If the P&L indicates that the establishment is earning money however, the balance in the bank feels unbalanced, don’t assume the P&L could be wrong.
Ask them about what transpired between them.
The answer to that question will reveal much more about the restaurant than a single number could by itself.