The month is finished. The month is done.
Check the bank account of the restaurant.
The number you received isn’t what you’d expect.
This gap can be a source of frustration for owners of restaurants because they feel that profits and cash on hand should be the same. Both of them don’t match with each other. A P&L measures the financial performance of a business over a certain period of time, while accounts in banks show the exact time of money moving into and out of the business.
Knowing the difference can change the way that a restaurant’s owner is able to view their financials.
Imagine what might happen during a typical workday. Food is paid for by customers. The payment of employees is essential. Food and beverages are delivered with invoices. Rent is nearing. Credit card transactions come with their own schedules. Sales tax is an obligation.
Already, the next week’s purchases have started.
Looking only at revenue or the final profit figure leaves out a lot of the work.
The Key to the Mystery Could Be Hidden in Prime Cost
When the profitability of restaurants starts to change in the wrong direction, food, drink, and labor costs deserve the attention of restaurant owners.
Prime cost is composed from both goods and labor. The Bookkeeping Chefs’ advice places the cost of goods sold between 60% and 65% of revenues for many restaurants. They also recommend the importance of weekly monitoring rather than waiting until the end of the month.
Effective cost management for primes involves not focusing on one percent and more being aware of earlier movement.
If the restaurant is performing at or near its goal however, this week’s rate increases. Perhaps overtime was added. Perhaps, the costs for beverages remained constant but food costs increased. A higher food percentage might prompt the owner to examine purchase, waste, menu mix, portions or invoices from vendors.
The percentage raised the question. It is in the activity in the restaurant.
A weekly report can make an opportunity for conversation while everyone will be able to recall what occurred.
The details will be harder to remember after a couple of days.
When the vendor bills arrive
The restaurant pays in the future for the ingredients it buys. This explains the reasons why profit alone isn’t enough to answer all cash-related questions.
Vendor invoices need to be received, recorded as well as tracked until they are paid. This can take quite a task in an organization with numerous suppliers.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that connect can give owners a better picture of obligations, even though they haven’t yet been paid.
It’s important because an account balance seen in isolation can look healthier than the restaurant’s actual short-term position.
Today, there may be an amount of $80,000 in the account. It could mean something different when you consider that rent, payroll and vendors commitments will consume a substantial portion over the next few days.
This leads to the cash flow forecasting.
The better question to ask is “What happens to our cash once we have received the funds and have met our obligations we have made?”
It is vital to recognize the difference between them when deciding whether this week is an ideal time to replace equipment or buy more items, or conserve liquidity.
You might not have been legally entitled to the full amount you believed.
The sales tax illustrates this point especially well.
Restaurants receive money from customers and will need to be dealt with according to tax requirements. If the money is mentally associated with operating cash, the balance in the bank can give a false idea of what is in the bank to spend.
Regularly maintained records allow restaurants to comply with sales taxes and provide management a complete picture of their financials.
This is why it is that restaurant accounting can be more effective in situations where financial responsibilities aren’t considered as distinct islands.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll can affect both the percentage of labor and cash. Sales tax influences cash availability. P&Ls can be used to document financial performance. Forecasting can be helpful to management.
Connect the pieces.
Bookkeeping Chef utilizes restaurant-specific reporting as well as system integrations to connect the pieces. For business owners who don’t want to work all night reconciling financial records, outsourced bookkeeping services can handle the bulk of accounting tasks while removing the business owner of the financial discussions.
It’s the last part that matters.
Restaurant owners should not stop going through the manuals even if they’re managed by another. It’s for owners to receive information in a form that allows them to understand what is happening.
If the P&L shows that the establishment is profitable however the balance of the bank seems insufficient, don’t believe that the P&L could be wrong.
Ask them about what transpired between them.
This question can tell you more about your business than any other number.