The month is finished. The sales were excellent and the P&L had a profit, and there was nothing to be terribly incorrect.
You should then check the bank account of the restaurant.
The number is not the one you were expecting.
Restaurant owners, this disconnection can be a source of frustration because the cash flow and profit seem like they should provide the same information. They don’t. A P&L evaluates the financial performance over a period in time, whereas the bank account represents the exact timing of funds moving in and out of the business.
Understanding the different aspects could help restaurant owners shift their perspective on restaurant finances.
Imagine what goes on during a typical week. Customers pay for food. Employees must be paid. You will receive invoices for the delivery of food and drinks. Rent is on the verge of being due. Credit card transactions have their own timing. Sales tax collected is an obligation.
The next week’s buying has already started.
If you focus only on revenues or the final profits, then you’ll overlook a significant portion of this process.
The Secret Could Be Hidden in Prime Cost
If restaurant profits begin to decline, the cost of food, beverages and labour costs should be taken into consideration.
Cost of selling goods with labor is the main cost. Bookkeeping Chef’s supplied guidance places the cost of goods sold at 60%-65 percent of the total revenue for many restaurants, while emphasizing the importance of monitoring weekly rather than 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.
Suppose that normally the restaurant achieves its goals, however this week it’s more of a percentage. Maybe overtime went up. Maybe the costs for beverages were stable while food costs grew. The higher proportion of food could lead the business owner to review the purchase, waste management, portions and menu mix, or even vendor invoices.
The percentage raises the question. The answer is found in the activity of the restaurant.
Weekly reports make this conversation possible and everyone remembers the events.
A few weeks later, the details become much more difficult to reconstruct.
When the vendor bills arrive
The restaurant will pay later for the food items it purchases. Because of this, it is the case that knowing profits alone will not solve all cash problems.
Invoices from vendors need to be received, tracked and paid. Manually completing this task in an environment with many suppliers can be a massive administrative burden.
Automating the process of paying bills helps manage the process, reducing repetitive handling of bills and payment details. Bookkeeping systems that are integrated can give owners a better view of their obligations, even if they have not yet been paid.
This is important since a bank balance viewed as an individual can appear more healthy than a restaurant’s current position.
The current balance could be an amount of $80,000 in the account. This amount could mean something different if rent, payroll, vendors, and other commitments will consume a substantial part of it in the next few days.
This is the reason for cash flow forecasting.
The most important question to ask yourself is “What happens to our cash once we receive it and have met our obligations that we know?”
It is important to know what the distinction is when deciding if this week is an ideal moment to upgrade equipment, buy more items or preserve the cash flow.
You may not have been entitled to all the money you thought.
The sales tax example is an excellent one.
The cash restaurants receive from their customers will eventually need to be handled in line with its tax obligations. If the funds are added to operating cash, then the bank balance could provide an inaccurate picture of how much cash is available.
Consistent records support the tax compliance of sales while giving management a more realistic understanding of the restaurant’s financials.
This is the reason restaurant accounting can be more effective when financial obligations aren’t viewed as distinct islands.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. The percentage of labor and cash are affected by payroll. Cash flow is impacted by sales tax. The P&L shows financial performance, forecasting can help management look ahead.
The pieces link.
Bookkeeping Chef incorporates restaurant-specific reporting along with system integrations. Specialized outsourced bookkeeping services are a great option for operators who aren’t able to reconcile their financial data. They will take care of a lot of the accounting work while removing the proprietor from discussions about finances.
It’s the last thing that’s important.
Restaurant owners shouldn’t be able to stop reading the books, just because they are handled by someone else. It’s crucial that the owners get information so they can understand what’s happening.
If the P&L indicates that the establishment is profitable but the bank balance feels unbalanced, don’t assume that the P&L could be wrong.
Ask what happened between them.
This question will reveal more about your company than any other number.