The month has ended. Sales were solid, the P&L shows a profit, and nothing is seriously wrong.
Check the restaurant’s bank account.
You didn’t get the call you expected.
Restaurant owners, this disconnection can be a source of frustration because profits and cash available feel as though they should have the same meaning. They don’t. A P&L measures the financial performance of a firm over a specified time period, whereas an account in a bank shows the exact timing of money flowing into and out of he business.
Understanding the differences can help owners change their views on the restaurant’s finances.
Think about what happens in an normal week. The customers pay for food. It is important to pay employees. Invoices for food and drinks are issued. Rent is getting closer. The timing of the credit card deposit differs. Sales tax is collected, however that money comes with an obligation.
Already, the next week’s purchases have started.
When you look only at revenue or the number of dollars earned at the end it’s easy to miss a an abundance of activity.
Prime Cost could be the Key to the Solution
The cost of food, drinks and labour costs merit a closer at when profitability in restaurants begins to decline.
Prime cost consists of the price of materials and labor. The bookkeeping chef’s guideline places the prime cost at between 60%-65 percent of the total revenue for many restaurants, focusing on weekly monitoring rather than waiting until the close of each month.
Effective cost management for primes is not about focusing on one percentage point and more about spotting changes earlier.
Imagine that the restaurant’s performance is usually close to its goal however this week, it was higher. Maybe overtime was boosted. Perhaps the cost of beverages was stable however food costs increased. A higher percentage of food could cause the owner to look at buying, waste management portions and menu mix, or even vendor invoices.
The percentage raises questions. It is in the activities in restaurants.
Weekly reports allow for this discussion to occur even though everyone is aware of what’s transpired.
Two or three weeks later after that, the details become more difficult to decipher.
The Vendor’s Bills Are Received
Restaurants might purchase food items during a week and pay for them next week. This explains why knowing the profit isn’t enough to answer every cash question.
Vendor invoices need to be received, recorded then tracked and finally paid. In a highly-competitive business with many suppliers, completing that manually could become the company’s own administrative task.
Automating accounts payable simplifies this process, which reduces the time spent on tasks that are repetitive, such as managing invoices and payment information. The account owner will have better insight into the debts that haven’t landed in their bank accounts by utilizing automated bookkeeping systems that are connected.
It’s important because a bank balance viewed as a whole can appear healthier than the restaurant’s real-time position.
There could be a possibility that you have $80,000 on your account right now. The amount could have a different meaning when it is affected by other factors such as rent or other expenses, such as payroll, vendors or other obligations for the next few days.
That leads naturally to cash flow forecasting.
What happens to our cash once we’ve received the cash we’ve been expecting and met all of our obligations?
The distinction could be important when deciding if it is a comfortable week to replace equipment, an addition purchase, or maintain cash.
The cash you received may Not Be Yours
The sales tax illustrates this in particular.
Restaurants receive money from their customers, which they must be able to manage in accordance with the tax requirements. When these money are thought of as grouped together with operating cash, they can create a false impression of the amount available for spending.
Records that are consistent support sales tax compliance while also giving management a more realistic perspective of the restaurant’s financials.
This is one reason why restaurant accounting can be more effective when financial responsibilities aren’t considered as separate islands.
Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll is a factor that affects both the labor and cash percentage. Sales tax influences the availability of cash. P&Ls record financial performance while forecasting lets management examine the future.
Connect the pieces.
Bookkeeping Chef helps bring these elements together, using restaurant-specific reports and system integrations. Specialized outsourced bookkeeping services are an ideal alternative for businesses that don’t have the time to manually reconcile financial data. They will take care of a lot of the accounting work but without taking the owner away from financial discussions.
It’s the last part that counts.
Restaurant owners should not stop studying the literature simply because they’re handled by someone else. It is important that owners have access to information so that they understand what’s happening.
Don’t believe that the P&L is wrong if the accounts appear to be in a good state, yet the P&L shows the restaurant has generated money.
Find out what transpired between you and your partner.
This will reveal more about your company than any number.
