The month is done. The month is over.
Make sure to check the restaurant’s account.
The number you received isn’t the one you were expecting.
This disconnect can be frustrating for restaurant owners because they feel that profit and cash flow should have the same story to tell. They don’t. A P&L examines financial performance over a period while the bank account reflects the exact timing of funds moving in and out of the business.
Understanding the difference will help restaurant owners adjust their perception of restaurant financials.
Take a look at what goes on in a typical week. Customers pay for meals. Employees have to be paid. You will receive invoices with meals and beverages delivered. Rent is coming. Credit card payments have their own specific timing. The sales tax collected has an obligation.
The purchasing for the coming week has already begun.
If you only look at the revenue or the final profits, you’ll not be able to see a lot of this action.
The answer could be hidden in the prime cost
If restaurant profits begin to decline, the costs of food, beverages and labor costs should be taken into the equation.
Cost of selling goods with labor is the primary cost. The Bookkeeping Chefs’ provided instructions place the main cost between 60% and 65 percent of revenue for many establishments. They also suggest weekly monitoring instead of waiting until the month ends.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Suppose the restaurant normally performs close to its target, but this week’s percentage rises. Maybe overtime was boosted. Maybe beverage costs were stable while food costs grew. The operator may review menus as well as waste, portions sizes or vendor invoices, as well as buying if the percentage of food is greater.
The percentage is what matters. The activities that underlie the restaurant provide the answer.
Weekly reports allow this conversation to be held while everyone is still aware of the events that have occurred.
After two or three weeks, it is much more difficult to reconstruct the particulars.
After the vendor bills are paid
Restaurants might purchase food items in one week, and then pay for them next week. This is due to the fact that knowing profits alone will not resolve all cash-related issues.
Vendor invoices should be recorded, received then tracked and finally paid. In a busy operation with many suppliers, doing this manually could become its own administrative workload.
Automating accounts payable simplifies the process, cutting down on the time spent on tasks that are repetitive, such as managing bills and payment details. Bookkeeping systems that are connected to accounting systems can provide owners with a clear image of their obligations even if they haven’t yet been paid.
This is useful, because the bank’s balance may seem healthier than a restaurant’s actual situation in the near future.
There may be $80,000 sitting in the account as of today. That number means something very different in the event that payroll, rent and vendors commitments consume a significant amount over the next several days.
This leads naturally to cash flow forecasting.
The best question to ask is “What will happen to our cash after we have received the funds and have fulfilled the commitments we’ve identified?”
It is essential to be aware of what the distinction is when deciding if this week is a good moment to upgrade equipment, buy more items or to conserve liquid funds.
A portion of the Cash Wasn’t Yours at All
The sales tax illustrates this point particularly well.
The money that a restaurant gets from its customers will eventually need to be dealt with in accordance with its tax obligations. If these funds are placed in the same category as operating cash, it can make a false impression about the money available to spend.
The consistency of the records helps restaurants comply with sales taxes while giving the management a realistic view of their financials.
It is for this reason that restaurant accounting functions better when financial responsibility isn’t considered as distinct islands.
Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Payroll and cash availability are affected by payroll. Cash flow is impacted by the sales tax. P&Ls record financial performance while forecasting lets management look ahead.
Connect the pieces.
Bookkeeping Chef employs restaurant-specific reporting and system integrations to put all the pieces together. Outsourced bookkeeping is a great option for operators who do not want to stay up all night reconciling their financial information.
The last point is vital.
It’s not the goal for restaurant owners to stop examining their books just because someone else does. Owners must be provided with information which will allow them to comprehend what’s happening.
If the P&L says the restaurant made money, but the bank account is feeling a little unbalanced, don’t think that some of the figures must be off.
What happened between the two?
This one question could teach you more about your restaurant than any other number could by itself.