The month is finished. The sales were strong, the P&L indicates a profit and there is nothing to be seriously to be wrong.
Check the restaurant’s account.
The number doesn’t match what you’d expect.
This gap can be a source of frustration for restaurant owners because they think that profit and cash on hand should have the same story to tell. These two things don’t match up. A P&L is a measure of the financial performance of a business for a particular period of time, while a bank account shows the exact timing of funds moving into and out of he business.
Knowing the differences can allow owners to change their perception of restaurant financials.
Imagine what happens on the typical week. Food is paid for by customers. The payment of employees is essential. Food and beverages are delivered. Rent is getting closer. Deposits to credit cards are timed. Sales tax has been collected, but that money is subject to an obligation.
Already, the next week’s purchases have begun.
If you focus solely on revenues and the numbers at the end of profits, it is easy to miss a a great deal of activity.
The Key to the Mystery Could Be Hidden in the Prime Cost
The cost of food, drinks and labour costs are worth a closer look when restaurant profitability starts to decline.
Cost of selling goods with labor is the prime cost. The Bookkeeping Chef’s guidance puts the cost of goods sold at 60%-65 percent for most restaurants and focuses on weekly monitoring instead of waiting until the end of the month.
Effective management of prime costs is not about focusing on the exact percentages and more about being able to spot changes quickly.
Imagine that the restaurant’s results are generally within its target however this week, it was higher. Perhaps the overtime rate was increased. Maybe the costs for beverages were stable however food costs increased. The manager can review menus and portions, waste, vendor invoices, and purchasing if the food portion is higher.
The percentage raises questions. The activities that underlie the restaurant provide the answer.
A weekly report makes the conversation possible, while everyone still remembers what happened.
Three or four weeks later, the details become much harder to decipher.
The Vendor’s Bills are Received
The restaurant pays an additional time for the items it purchases. This is a reason for understanding profit alone doesn’t answer every cash question.
Invoices from vendors need to be tracked, received and paid. In a busy operation with many suppliers, completing that by hand can be an administrative burden.
Automating the process of paying bills helps manage the process, reducing the need to handle bills in a repetitive manner and payment information. Bookkeeping systems that are connected allow owners to have a better image of their obligations even though they haven’t yet been paid.
It’s helpful because, when considered as a whole the restaurant’s financial position could appear to be more healthy than its actual financial position.
It could be that you have $80,000 on your account as of right now. This number can be interpreted differently if it is impacted by other variables like rent or other expenses, such as payroll, vendors or other obligations over the coming days.
That leads naturally to the process of forecasting cash flows.
Instead of asking “How many dollars of cash are we carrying?” the better question becomes “What is going to be the fate of our cash following the money we expect to receive and the obligations we know about?”
The distinction is important in determining if this is a comfortable week to repair equipment, make an additional purchase, or preserve liquidity.
A portion of the Cash Was Never Yours
Sales tax illustrates the point especially well.
The cash a restaurant gets from its customers is eventually going to need to be handled in accordance with the tax requirements. If the money is mentally combined with normal cash flow, the bank balance may provide an inaccurate picture of the amount of cash available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
It is for this reason that restaurant accounting is more efficient when financial responsibility isn’t treated as separate islands.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Both labor and cash percentages are affected by payroll. Sales tax impacts cash availability. P&Ls report financial performance, and forecasting lets management look ahead.
The pieces are connected.
Bookkeeping Chef assists in bringing these pieces together using restaurant-specific reports as well as system integrations. Bookkeeping outsourcing services with specialization are an excellent option for operators who don’t have the time to reconcile their financial information. They will take care of a lot of the accounting work without taking the owner away from discussions about finances.
The last point is important.
Restaurant owners should not stop going through the manuals even if they’re managed by someone else. Owners should receive information that will help them to understand what’s happening.
If the P&L shows that the restaurant is earning money however, the balance in the bank feels tight, do not assume that the P&L may be inaccurate.
Ask them about what transpired between them.
The answer to this question will tell you more about the restaurant’s location than an identifying number.
