The month is done. The month is done.
After that, you can check the bank account of the restaurant.
It wasn’t the number you expected.
Restaurant owners can be frustrated by this because they believe that cash flow and profits ought to be exactly the same. However, they aren’t. A P&L measures financial performance over a time in time, whereas the bank account is a reflection of the time frame of money flowing into and out of the business.
Understanding the difference will alter the way a restaurant’s manager is able to view their financials.
Imagine what goes on during the typical week. Customers pay for meals. Employees need to be paid. Food and drinks deliveries arrive with invoices attached. Rent is approaching. Deposits made with credit cards have their own timing. Sales tax is collected however it’s also the responsibility.
Already the shopping spree for next week have started.
If you are only looking at the revenue or the final profits, you’ll be missing a lot of the activity.
The clue could be hidden in the Prime Cost
Food, beverages and labor cost are all worth a close review when the profitability of a restaurant begins to fall.
Together, cost of goods sold and labor are the main costs. The bookkeeping chef’s guideline places the cost of goods sold at 60%-65% for many restaurant and stresses weekly monitoring rather than staying until the end of of the month.
It is much more crucial to be able detect changes earlier than worrying about certain percentages.
Suppose the restaurant normally performs at or near its goal however this week’s performance increases. Perhaps overtime was has increased. Maybe the costs for beverages were stable however food costs increased. The operator may review menus, waste, portion sizes, vendor invoices, and purchasing if the food percentage is higher.
The percentage is the key. The answer lies in the activities in restaurants.
The reason this conversation can be relived is because everyone will be able to remember the events that transpired.
The details are more difficult for you to remember the next day or two.
When the vendor invoices arrive
Restaurants can purchase ingredients during a week and pay for them the following week. This is a way to explain how profit alone will not be enough to answer all cash questions.
Vendor invoices should be recieved and tracked. In a busy operation with multiple suppliers, managing that by hand can be an administrative burden.
Automating accounts payable helps to streamline the process by cutting down on the need to handle bills in a repetitive manner and payment information. The account owner will have better insight into the obligations that haven t hit their bank account by using integrated bookkeeping systems.
This is advantageous, since the balance of your bank account may seem healthier than a restaurant’s actual financial situation.
It might be that you’ve got $80,000 in your account as of right now. This amount could have a different meaning depending on other elements like rent, payroll, vendors and other obligations 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 becomes “What will occur to our cash after the money we expect to receive and our obligations that we already know about?”
The distinction could be important when deciding if it is the right time to upgrade equipment, make an additional purchase, or to preserve liquidity.
The cash you received may Not be Yours
The sales tax illustrates this very well.
Restaurants take money from their customers, which they must follow in accordance with the tax requirements. If these funds are placed in the same category as operating cash, the balance in the bank may create a false sense of what’s in the bank to spend.
Consistent record keeping helps restaurants to comply with the sales tax laws as well as giving a clear picture of their financial situation.
It is for this reason that restaurant accounting can be more effective 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 from vendors. Payroll can affect both cash and labor percentage. Cash availability is impacted by sales tax. P&Ls track financial performance, while forecasting lets management look ahead.
The pieces are connected.
Bookkeeping Chef combines restaurant-specific reports through system integrations. Outsourced bookkeeping services that are specifically tailored to your needs can be a good option for operators who aren’t able to reconcile their financial data. They will take care of a lot of the accounting duties while removing the proprietor from the financial discussion.
That last part matters.
It’s not the intention of restaurant owners to cease checking their books just because someone does. Owners need to be informed which will allow them to comprehend what’s happening.
So when the P&L indicates that the restaurant made profits, but the account feels surprisingly unbalanced, don’t think that some of the figures must be incorrect.
Ask about the events that occurred between them.
This question will teach you something more about the food you serve than any other number could by itself.
