The month is over. The month has ended.
You then check the bank account of the restaurant.
The number you received isn’t the one you were expecting.
For restaurant owners, that gap can be frustrating as profit and available cash feel as though they should have the same meaning. Both of them don’t match together. A P&L is a measure of how well the company’s financials have performed over a certain time, while the bank account reflects the exact timing of funds being moved into and out of the business.
Understanding the difference can alter the way a restaurant owner views their finances.
Look at what happens during a normal week. Customers pay for food. It is important to pay employees. Invoices will be sent out with the delivery of food and drinks. Rent is due. The timing of debits to credit cards differs. Taxes on sales are collected but it is an obligation.
Already the shopping spree for next week have started.
Concentrating on revenue or the end-of-year profit number does not take into account a lot of the activity.
Prime Cost Could Hold the key to the answer
Food, beverage and labour costs are worth a closer examine when restaurant profitability begins to go downhill.
Together, the cost of the items sold and labor comprise the primary cost. The Bookkeeping Chefs’ provided instructions place the main cost between 60 and 65% of revenues for many restaurants. They also suggest weekly monitoring instead of waiting until the end of the month.
It is crucial to be able to spot the changes before they occur rather than obsessing over certain percentages.
Let’s say that a restaurant typically performs at or near its goal however this week’s performance increases. Maybe overtime went up. Maybe beverage costs were stable, but food costs increased. The operator may review menus and portions, waste as well as vendor invoices and buying if the percentage of food is greater.
The percentage is what matters. The answer lies in the restaurant’s activity.
This conversation is possible because everybody can remember the details of what transpired.
After two or three weeks, it gets more difficult to reconstruct particulars.
The Vendor’s Bills Arrive
A restaurant could purchase the ingredients this week, but then pay for them later. This is a reason for profits alone won’t be able to answer all cash questions.
Invoices from vendors must be received, tracked and paid. In a business that has numerous suppliers, doing that manually can turn into the company’s own administrative task.
Automating the process of paying bills helps manage this process by eliminating the need to handle bills in a repetitive manner and payment details. These bookkeeping systems are also able to provide the user with a more clear view of any obligations that haven’t yet reached the bank account.
It’s beneficial because, when viewed as a whole, the restaurant’s financial position might appear to be better than its actual short-term financial position.
It might be that you have $80,000 on your account as of right now. The figure of $80,000 is tiny if rental, vendors or payroll are to take up a significant portion of the account in the coming 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’re expecting to receive and our obligations that we already know about?”
The distinction can matter when deciding whether this is the right time to replace equipment, an additional purchase, or preserve cash.
You may not have been rightfully entitled to all the money you believed.
The sales tax example is a great one.
A restaurant receives cash from its customers, which eventually needs to be handled in accordance with tax regulations. If the money is mentally combined with normal operating cash, then the bank balance could provide an inaccurate picture of how much cash is available.
Regularly updated records ensure the tax compliance of sales while giving management a more realistic picture of the financials of the restaurant.
Accounting for restaurant operations is more effective when the financial responsibilities of each restaurant do not have to be handled separately.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted through purchases from vendors. Payroll can affect the percentage of labor and cash. Cash flow is impacted by the sales tax. The P&L records financial performance, and forecasting assists management to look ahead.
Connect the pieces.
Bookkeeping Chef makes use of restaurant-specific reports and system integrations to help put all the pieces together. Specialized outsourced bookkeeping services are a great alternative for those who don’t have time to manually reconcile financial data. They are able to handle the bulk of the accounting task without taking the owner away from discussions about finances.
The final part is crucial.
Restaurant owners should not stop reading their books just because they are handled by someone else. Owners should receive information which will allow them to be aware of what’s happening.
If the P&L shows that the establishment is earning money but the bank balance seems tight, do not assume the P&L must be incorrect.
Ask about the events that occurred between them.
The answer to this question will tell you more about the restaurant’s reputation than the number.