The month ended. The sales were strong, the P&L shows a profit and there’s nothing that appears to be to be seriously to be wrong.
Check the restaurant’s account.
The number isn’t what you expected.
For restaurant owners, this is a problem because profit and available cash seem to have the same meaning. They don’t add up. It’s not true. P&L is a measure of financial performance. In contrast, the bank account is a record of when money moves in and out.
Understanding the difference will change how a restaurant’s owner is able to view their financials.
Imagine what could happen during an normal week. Food is paid for by customers. Employees are required to be paid. You will receive invoices for meals and beverages delivered. Rent is nearing. The time frame for credit card transactions differs. Sales tax has been collected, but the money has a responsibility.
Meanwhile, next week’s purchasing has already begun.
If you focus solely on revenue and the end-profit number it’s easy to overlook lots of activities.
Prime Cost could be the Key to the Solution
If the profitability of restaurants begins to fall, food, beverage and labor expenses should be taken into the equation.
Cost of goods sold combined with labor is the prime cost. The bookkeeping chef’s guideline places primary costs between 60%-65 percent for most restaurants and focuses on weekly monitoring rather than staying until the end of of the month.
Effective prime cost management involves less obsessing on a single percent and more being aware of early movement.
If the restaurant is performing close to its target However, this week’s number increases. Perhaps overtime has also increased. Perhaps the cost of beverages was stable However, food expenses increased. The manager can review menus, waste, portion sizes as well as vendor invoices and purchasing if the proportion of food is greater.
The percentage raises the question. The answer lies in the restaurant activity.
This conversation is possible because everybody can remember what happened.
After a few weeks The details are much more difficult to decipher.
The Vendor’s Bills are Received
The restaurant will be able to pay later for the food items it purchases. This can help explain why profit alone is not enough to answer all cash-related questions.
Vendor invoices have to be received and logged. In a highly-competitive business with many suppliers, completing that manually can become an administrative burden.
Automating accounts payable simplifies this process, reducing repetitive tasks such as handling bills and payment details. Systems for bookkeeping that connect to accounting systems can provide owners with a clear understanding of their obligations, even if they have not yet been paid.
It’s useful because, looked at as a whole the balance of a restaurant’s bank account may appear to be more stable than its actual short-term financial position.
There is currently an amount of $80,000 in the account. The $80,000 figure means very tiny if rental, vendors or payroll are to take the majority of 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 is likely to be the fate of our cash following the money we expect to receive and the obligations we know about?”
This is a crucial distinction when deciding on the appropriateness of the appropriate week to make an extra purchase replacement of equipment, or to maintain liquidity.
And Some of the Cash Wasn’t Really Yours
The sales tax example is a good example.
The cash a restaurant gets from its patrons will eventually have to be handled in line with the tax requirements. If the money is mentally coupled with the normal operating cash, then the balance of the bank account could provide an inaccurate picture of how much cash is available.
Consistent records support sales tax compliance, while giving the manager a better view of the restaurant’s finances.
This is one reason why restaurant accounting can be more effective when financial responsibilities aren’t considered as separate islands.
Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Payroll has an impact on both the labor percentage as well as cash. Sales tax impacts the availability of cash. P&Ls are used to record financial performance. Forecasting can be helpful for management.
The pieces are interconnected.
Bookkeeping Chef helps bring these elements together, using restaurant-specific reports as well as system integrations. If you don’t want to be slavishly reconciling financial data, specialized outsourcing bookkeeping services can take care of large portions of the accounting burden while removing the business owner from the financial discussion.
The last sentence is vital.
Restaurant owners shouldn’t be able to stop studying the literature even if they’re managed by another. It’s to provide owners with information in a form which helps them comprehend the situation.
If the P&L shows that the restaurant is earning money but the bank balance seems tight, do not assume that the P&L may be inaccurate.
Find out what transpired between them.
The answer to this question will reveal more about the restaurant, more than just the name.