The month ended. The month is finished.
Then you check the restaurant’s bank account.
The number isn’t what you’d expect.
Restaurant owners may be dissatisfied with this as they believe cash flow and profits ought to be the same. However, they aren’t. It’s not true. P&L is a measure of financial performance. On the other hand, the bank account is an indication of the time when money flows in and out.
Understanding the difference can alter the way an owner considers restaurant financials.
Imagine what might happen during the typical week. Customers pay for food. It is important to pay employees. Food and beverages are delivered with invoices. Rent is getting closer. Credit card payments are timed. Sales tax collected is an obligation.
Already the next week’s purchases have begun.
If you only focus on revenue and the final profit figure it’s easy to miss a the vast amount of activity.
The answer could be hidden in the price of the best.
The cost of food, drinks and labour costs are worth a closer at when profitability in restaurants begins to decrease.
The prime cost is comprised of both the cost of materials and labor. The Bookkeeping Chef’s guidance puts the prime cost at between 60%-65 percent of revenues for a variety of restaurants, while emphasizing weekly monitoring rather than waiting until the close of the month.
Effective cost management for primes is less about focusing on a single percentage and more about recognizing changes early.
If the restaurant typically achieves its goals, but this week, it’s an increase in percentage. Maybe the number of overtime hours is up. Perhaps beverage costs were steady, but food costs increased. The higher proportion of food could prompt the manager to look at purchases, waste management, menu mix and portions, or vendor charges.
The percentage is the key. The restaurant’s activity is the answer.
This is possible due to the fact that everyone is able to recall the events that transpired.
The details are more difficult for you to recall just a few days later.
When the vendor bills arrive
The restaurant will be able to pay later for the ingredients it purchases. This is due to the fact that understanding profits alone does not resolve all cash-related issues.
Invoices from vendors must be tracked, received and paid. In a highly-competitive business with multiple suppliers, managing that by hand can be an administrative burden.
Automating the process for accounts payable can streamline this process through reducing the repetition of payments and bills. Connected bookkeeping systems can also give the user a better view of any obligations which haven’t yet deposited into the account of the bank.
This is beneficial, as the bank balance can seem healthier than a restaurant’s actual situation in the near future.
Today, there may be $80,000 on the account. The figure of $80,000 is tiny if rental, vendors or payroll make an enormous amount over the next few days.
That leads naturally to cash flow forecasting.
What happens to the money we have received after we’ve received the amount we’ve hoped for and fulfilled all our obligations?
The difference can be crucial when deciding whether this is a comfortable week to replace equipment, an extra purchase, or keep liquidity.
The cash you received may Not be Yours
The sales tax example is a good example.
Restaurants collect money from customers and needs to be handled in accordance with its tax obligations. If these funds are mixed with operating cash, then the bank balance may provide an inaccurate picture of how much money is available.
Consistent record keeping helps restaurants comply with sales tax laws and also providing an accurate picture of their financial situation.
This is why it is that restaurant accounting functions better in situations where financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted through purchases made by vendors. Payroll impacts both labor percentage as well as cash. Taxes on sales affect the availability of cash. P&Ls keep track of financial performance and forecasting allows management to examine the future.
Connect the pieces.
Bookkeeping Chef makes use of restaurant-specific reports and system integrations that help bring those pieces together. For business owners who don’t want to stay up all night reconciling financial records, outsourced bookkeeping services can handle most of the accounting work without removing the owner from the financial discussion.
It’s the final part that counts.
It’s not our goal for restaurant owners to stop examining their books because someone else does. The goal is for owners to get the information they need in a format which helps them comprehend what is happening.
Don’t think that the P&L is wrong if the bank account seems tight but the P&L confirms that the restaurant made money.
What was the difference between them?
This will reveal more about your business than any number.
