The month is over. The sales were good, the P&L shows a profit and there is nothing seriously wrong.
You then check the restaurant’s bank account.
You didn’t get the call you would have expected.
For owners of restaurants, this disconnection can be a source of frustration because the cash flow and profit seem like they should provide the same information. These two things don’t match with each other. The P&L is a gauge of financial performance. In contrast, the bank account is a representation of how much money is moved in and out.
Understanding the difference can alter the way that a restaurant’s owner views their finances.
Look at what goes on in a typical week. Customers pay for meals. Employers must be paid. Food and beverages are delivered with invoices attached. Rent is on the way. The time frame for credit card deposits is different. Sales tax is collected however it’s also responsibilities.
The next week’s buying has already begun.
Looking just at revenue or the final profit figure does not take into account a lot of the activity.
The key to the answer may lie in the cost of prime.
If restaurant profits begin to move in the wrong direction, food, drink and labor expenses require focus.
Together, the cost of goods sold and labor comprise the primary cost. Bookkeeping Chef’s guidelines place the primary cost at around 60%-65% of revenue for many restaurants, focusing on daily monitoring, 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.
Imagine that the restaurant’s results are generally within its target however this week it increased. Maybe overtime increased. Perhaps, the costs for beverages remained constant however food prices soared. The manager can review menus as well as waste, portions sizes along with vendor invoices and purchasing if the food portion is greater.
The percentage is the most important. The activity of the restaurant itself provides the answer.
Weekly reports allow for this conversation to be held while everyone is still aware of what has happened.
The details are much more difficult to recall just a few days later.
The Vendor’s Bills Are Received
A restaurant could purchase the ingredients this week but pay for these items later. This is a way to explain the reasons why profit alone isn’t enough to answer all cash questions.
Vendor invoices should be recorded, received, tracked, and ultimately paid. Manually completing this task in an office with many suppliers can result in a significant administrative burden.
Automating accounts payable can streamline the process by reducing the time spent on tasks that are repetitive, such as managing invoices and payment information. The user can have an accurate picture of payments that haven’t been deposited into their bank accounts through integrated bookkeeping systems.
This is helpful, since the balance of your bank account may appear healthier than a restaurant’s current situation.
It might be that you’ve got $80,000 in your account right now. The amount could be different if it is impacted by other factors such as rent or other expenses, such as payroll, vendors or other obligations in the coming days.
This is the reason for cash flow forecasting.
The most appropriate question to ask is “What will happen to our cash after we receive it and have fulfilled our obligations that we know?”
It is crucial to understand the difference between them when deciding whether this week is the ideal opportunity to replace equipment, purchase additional items or preserve liquidity.
and some of the cash Was Never Really Yours
Sales tax illustrates the point in particular.
The cash a restaurant receives from its patrons will eventually have to be dealt with in accordance of its tax obligations. If the funds are mixed with cash flow, the bank balance may be misleading about the amount of money available.
A consistent record helps restaurants stay in compliance with sales tax regulations while also providing management an accurate view of their financials.
This is one reason why restaurant accounting can be more effective when financial obligations aren’t viewed as distinct islands.
Prime cost affects margin. COGS and future payment are affected by vendor purchases. Payroll affects both labor percentage and cash. The availability of cash is influenced by the sales tax. The P&L records financial performance, while forecasting helps management look ahead.
Connect the pieces.
Bookkeeping Chef combines restaurant-specific reports along with system integrations. For business owners who don’t want to be slavishly reconciling financial data, specialized outsourced bookkeeping services can handle large portions of the accounting burden without removing the proprietor from the financial discussion.
The last sentence is vital.
It’s not the goal for restaurant owners to stop checking their books because somebody does. Owners should be given information that helps them know what’s going on.
If the P&L indicates that the restaurant is profitable however, the balance in the bank feels tight, do not assume that the P&L is not accurate.
Find out what happened between you and your spouse.
That question can teach you more about your restaurant than any other number could alone.