The month is done. The month is done.
Check the bank account of the restaurant.
This number isn’t exactly what you’d expect.
Restaurant owners can find this disconnect frustrating because they believe that cash flow and profits should be the same. However, they aren’t. The P&L is a measure of financial performance, while the bank account is an indication of how much money is moved in and out.
Understanding the difference can alter the way an owner considers restaurant financials.
Imagine what might happen during an average week. Customers pay for food. The payment of employees is essential. Food and drinks deliveries arrive with invoices. Rent is coming. Credit card payments have their own specific timing. Sales tax has been collected, but that money is a legal obligation.
The next week’s buying has already begun.
If you focus solely on revenues and the numbers at the end of profits it’s easy to miss out on the vast amount of activity.
The clue may be hidden in the price of the best.
Food, beverages and labor costs are worth a closer examine when restaurant profitability begins to fall.
Together, the cost of the products sold and labor are the main costs. Bookkeeping Chef’s guidelines place the prime cost at between 60% to 65 percent of the revenue for many restaurants, while emphasizing regular monitoring instead of waiting until the closing of each month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
If the restaurant typically achieves its goals, however this week it’s at a higher percent. Perhaps overtime was increased. Perhaps the cost of beverages remained steady however food prices soared. An increase in the percentage of food items could lead the operator to review purchasing, waste, menu mix, portions, or vendor invoices.
The percentage is the most important. The activity of the restaurant itself provides the answer.
A weekly report makes an opportunity for conversation while everyone still remembers what happened.
Two or three weeks later, the details become much more difficult to understand.
The Vendor’s Bills Arrive
The restaurant will be able to pay in the future for the ingredients it buys. This explains the reasons why profit alone isn’t enough to answer all cash-related questions.
Vendor invoices need to be accepted and tracked. In the course of manual processing, an organization with a lot of 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. Owners can have a clearer view of the debts that haven’t landed in their bank account by using automated bookkeeping systems that are connected.
It’s beneficial because, when taken as a whole the balance of a restaurant’s bank account might appear to be better than its actual financial situation.
There may be $80,000 sitting in the account right now. The $80,000 figure means very little if vendors, rent, or payroll will take up a significant portion of the account in the coming days.
This is the reason for cash flow forecasting.
What will happen with our cash once we’ve received the amount we’ve hoped for and met all of our obligations?
It is crucial to understand the difference before deciding if this week is the ideal opportunity to replace equipment, purchase additional items or save liquidity.
The Money You Received Could Not be Yours
The sales tax example is a great one.
The cash a restaurant gets from its customers is eventually going to need to be dealt with in accordance with the tax requirements. If these funds are coupled with the normal cash flow, the balance in a bank can provide an inaccurate picture of how much cash is available.
A consistent record helps restaurants stay in compliance with sales tax regulations while also providing the managers a clear picture of their finances.
This is the reason restaurant accounting works better in situations where financial responsibility isn’t seen as separate entities.
Prime cost affects margin. COGS (cost of goods sold) and future payments are affected through purchases from vendors. Payroll can affect the percentage of labor and cash. Taxes on sales affect the availability of cash. P&Ls can be used to document the financial performance. Forecasting can be helpful to management.
The pieces link.
Bookkeeping Chef makes use of restaurant-specific reports as well as system integrations to integrate these pieces. Bookkeeping outsourcing can benefit owners who do not wish to work all night reconciling their financial data.
The last point is important.
Restaurant owners should never stop studying the literature just because they are handled by someone else. Owners need to be informed that can help them understand what’s happening.
When the P&L reports that the restaurant earned money, but the bank account seems to be a bit insecure, don’t believe that some of the figures must be off.
Find out what transpired between you and your spouse.
This question will teach you something more about the food you serve than a single number could be on its own.
