The month is over. The month is done.
Check the bank account of the restaurant.
The number you received isn’t what you’d expect.
For restaurant owners, this gap can be frustrating as profit and available cash feel as though they should be the same. But they don’t. It’s not true. P&L is a metric of financial performance, while the bank account is a reflection of when money moves into and out.
Understanding the difference will alter the way a restaurant’s manager considers their financials.
Consider what happens during an ordinary week. The customers pay for food. Employers must be paid. Invoices will be sent out with the delivery of food and drinks. Rent is due. Credit card payments have their own timing. Sales tax is paid, but that cash is subject to an obligation.
The purchase for next week has already started.
Looking just at revenue or the number of profits at the end leaves out a lot of the work.
Prime Cost could be the Key to the Clue
If the restaurant’s profitability starts to decrease, costs of food, beverages and labor costs should be taken into consideration.
Cost of selling goods with labor is the main cost. The bookkeeping chef’s guideline places prime costs at approximately 60%-65 percent for a variety of restaurants and stresses weekly monitoring as opposed to waiting until the end of the month.
Effective cost management for primes is not about focusing on the exact percentages and more about being able to spot changes early.
Imagine that the restaurant’s performance is generally within its target However, this week, it grew. Perhaps the overtime rate was increased. Maybe the costs for beverages were stable However, food expenses increased. A higher proportion of food may cause the manager to look at buying, waste, menu mix, portions or vendor invoices.
The percent raises the issue. It is in the activities in restaurants.
This conversation is possible because everyone can still remember the details of what transpired.
After a period of two to three weeks, it is much more difficult to reconstruct particulars.
When the vendor invoices arrive
The restaurant is expected to pay an additional time for the items it purchases. This can help explain how profit alone will not be enough to answer every cash question.
Vendor invoices should be received, recorded then tracked and finally paid. In a business that has many suppliers, doing this by hand can be its own administrative workload.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. These bookkeeping systems are also able to give the owner a clearer picture of debts that haven’t yet been paid into the bank account.
This is advantageous, since the bank’s balance may seem healthier than a restaurant’s current situation.
It could be that there is $80,000 in the account today. This number can have a different meaning if it is impacted by other factors such as rent or other expenses, such as payroll, vendors or other obligations over the next few days.
This naturally leads to cash flow forecasting.
What will happen with our cash after we’ve gotten the amount we’ve hoped for and fulfilled all our obligations?
The distinction could be important in deciding if this is a comfortable week to upgrade equipment, make an addition purchase, or maintain the liquidity.
And Some of the Cash Was Never Really Yours
Sales tax illustrates this particularly well.
A restaurant collects cash from its customers, which eventually has to be managed according to its tax obligations. If these dollars are mentally coupled with the normal operating cash, then the bank balance could offer a false impression of how much cash is available.
Regularly maintained records allow restaurants to comply with sales tax regulations while also providing management an accurate view of their financials.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant are treated separately.
Prime cost affects margin. COGS and future payments are affected by purchases made by vendors. Payroll is a factor that affects the percentage of labor and cash. Cash flow is affected by the sales tax. The P&L records financial performance, forecasting can help management look ahead.
Connect the pieces.
Bookkeeping Chef can help bring these elements together, using restaurant-specific reports as well as system integrations. Outsourced bookkeeping can help owners who do not wish to spend the night manually reconciling their financial data.
It’s the last thing that matters.
The idea isn’t for restaurant owners to not look at their books simply because someone else handles them. It’s to provide owners with data in a way that will help them understand the situation.
If the P&L indicates that the establishment is earning money but the bank balance seems too tight, don’t think that the P&L must be incorrect.
Find out what happened between you and your partner.
This question can tell you more about your business than any other number.