The month has ended. The month is finished.
Check the bank account of the restaurant.
The number you received isn’t what you’d expect.
Restaurant owners might find this disconnect frustrating because they believe that cash flow and profits should be identical. These two things don’t match together. A P&L measures how well the company’s financials have performed over a certain time in time, whereas the bank account represents the exact timing of funds being moved into and out of the business.
Understanding the differences can help owners change their view of the financials of their restaurant.
Imagine what could happen on an average week. Customers pay for meals. Employees need to be paid. Food and beverages are delivered. Rent is due. Credit card payments are timed. Sales tax collected is an obligation.
On the other hand, the next week’s shopping has already begun.
Concentrating on revenue or the end-of-year profit number leaves out a lot of the work.
The clue could be hidden in the Prime Cost
Food, beverages and labor costs merit a closer examine when restaurant profitability begins to decline.
Together, the cost of the items sold and labor are the main costs. Bookkeeping Chef’s provided guidance places prices for the prime cost at around 60%-65 percent for most restaurants and focuses on weekly monitoring rather than waiting until the end the month.
Effective prime cost management is not about focusing on a single percentage and more about spotting changes quickly.
Imagine that the restaurant’s performance generally within its target However, this past week, it was higher. Perhaps overtime was increased. Perhaps the cost of beverages remained steady as food costs rose. A higher proportion of food may lead the operator to review purchase, waste, menu mix portions or vendor invoices.
The percentage raises the question. It is in the underlying restaurant activity.
Weekly reports make the conversation possible, while everyone is still able to remember what happened.
The details are more difficult to recall the next day or two.
The Vendor’s Bills are Received
The restaurant will be able to pay in the future for the ingredients it buys. That timing helps explain why profits alone won’t be able to answer all cash questions.
Vendor invoices have to be received and tracked. In a business that has numerous suppliers, doing that by hand can be the company’s own administrative task.
Accounts payable automation helps organize the process, reducing the need to handle bills in a repetitive manner and payment details. Systems for bookkeeping that connect can give owners a better picture of obligations, even if they haven’t yet been paid.
That’s useful because a bank’s balance when seen in isolation may appear to be healthier than the restaurant’s actual short-term position.
There could be $80,000 in the account right now. This amount could mean something different if rent, payroll, vendors, and other commitments will consume a substantial portion over the next few days.
Cash flow forecasting is a common outcome.
The better question to ask is “What will happen to our cash once we receive the money and have met our obligations we have made?”
It is essential to be aware of the difference before deciding if this week is an ideal opportunity to replace equipment, purchase more products or save liquidity.
A portion of the Cash Was Never Yours
Sales tax illustrates the point especially well.
A restaurant collects money from customers that eventually must be disposed of in accordance with tax regulations. If the money is mentally divided into operating money, the bank’s balance could create a false impression of the money available to spend.
The consistent records help ensure the tax compliance of sales while providing management with a more accurate perspective of the restaurant’s financials.
Accounting for restaurants is more efficient when the financial obligations of each restaurant are handled separately.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll impacts both labor percentage and cash. Cash availability is affected by sales tax. P&Ls are used to track the financial performance. Forecasting is also beneficial for management.
Connect the pieces.
Bookkeeping Chef is a restaurant-specific report that integrates along with system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.
The last point is vital.
Restaurant owners shouldn’t stop studying the literature simply because they’re handled by someone else. It’s important that the owners are informed so that they can understand the situation.
Don’t believe that the P&L is wrong if the balance of the bank seems to be tight, however the P&L indicates that the restaurant has made money.
Ask what happened between them.
That question can teach you something more about the food you serve than any number alone.