The month has ended. The sales were decent and the P&L reported a profit and there was nothing that appeared to be seriously in error.
After that, you can check the bank account of the restaurant.
The number isn’t exactly what you’d hoped for.
This gap can be a source of frustration for owners of restaurants because they believe that profit and cash available should have the same story to tell. But they don’t. A P&L is a measure of the financial performance of a company for a particular time period, whereas a bank account shows the exact timing of funds flowing into and out of the business.
Knowing the difference could change the way that a proprietor examines the financials of a restaurant.
Imagine what goes on during an average week. The customers pay for food. Employees need to be paid. You will receive invoices along with food and beverage deliveries. Rent is close to being paid. The time frame for debits to credit cards differs. Sales tax collected is an obligation.
In the meantime, next week’s purchase has already started.
When you look only at revenue and the end-profit number, it is easy to miss out on the vast amount of activity.
The clue may be hidden in the price of the best.
Food, beverage and labour costs are worth taking a closer examine when restaurant profitability begins to fall.
Cost of selling goods with labor is the primary cost. Bookkeeping Chef’s supplied guidance places the prime cost at between 60% to 65 percent of revenues for a variety of establishments, and emphasizes the importance of monitoring weekly rather than waiting until the close of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
If the restaurant typically performs near its target but this week, there’s more of a percentage. Maybe overtime was boosted. Perhaps beverage costs remained stable however food prices soared. A higher food percentage might make the supervisor think about reviewing purchase, waste, menu mix portions or invoices from vendors.
The percentage is the key. It is in the activities in restaurants.
Weekly reports allow for this conversation to take place in the midst of everyone being aware of the events that have occurred.
A few weeks later After that, the details become harder to understand.
The Vendor’s Bills Are Received
A restaurant might purchase its ingredients in the week ahead, but pay for the ingredients later. This is a reason for profits alone won’t be able to answer all cash questions.
Vendor invoices need to be accepted and logged. This can be a lot of work in an operation that has many suppliers.
Automating accounts payable speeds up this process, reducing routine tasks like handling the payment and bill details. Bookkeeping systems that are connected will give the owners a clear image of their obligations even if they have not yet been paid.
It’s important because a bank balance viewed as an individual can appear more healthy than the restaurant’s actual short-term position.
It could be that there is $80,000 in the account today. It could mean something different if payroll, rent, vendors, and other commitments will consume a substantial portion over the next few days.
Forecasting cash flow is a natural result.
The better question to ask yourself is “What will happen to our money after we receive the money and have met our obligations we have made?”
The distinction is important in deciding if this is a suitable week to upgrade equipment, make an addition purchase, or maintain liquidity.
A portion of the Cash Was Never Yours
The example of sales tax is a great one.
Restaurants receive money from their customers, which they must be able to manage according to the tax requirements. If those funds are divided into operating cash, the balance in the bank can create a misleading sense of the money there to be spent.
The consistent records help ensure sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
It’s for this reason that restaurant accounting works better in situations where financial responsibilities aren’t thought of as separate entities.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected due to purchases made by vendors. Both labor and cash percentages are affected by the payroll. The availability of cash is influenced by sales tax. P&Ls keep track of financial performance and forecasting allows management to examine the future.
The pieces link.
Bookkeeping Chef utilizes restaurant-specific reporting and system integrations that help put all the pieces together. Bookkeeping outsourcing can benefit those who don’t want to spend the night manually reconciling their financial information.
It’s the last part that counts.
It’s not the intention of restaurant owners to cease checking their books because somebody does. It’s crucial that the owners get information so they are aware of what’s happening.
If the P&L indicates that the restaurant is earning money however, the balance in the bank feels insufficient, don’t believe the P&L could be wrong.
What happened between the two?
That question can teach you something more about the food you serve than any number by itself.