The month is over. The sales were excellent, the P&L had a profit, and there was no sign of anything that appeared to be seriously in error.
Make sure you check the account of the restaurant.
The number is not what you would have expected.
This disconnect can be frustrating for restaurant owners because they believe that profit and cash availability should be the same. They aren’t. A P&L evaluates the financial performance over a period in time, whereas the bank account represents the exact timing of funds going into and out the company.
Understanding the difference could alter the way a restaurant owner looks at restaurant finances.
Imagine what could happen on a typical week. Food is paid for by customers. Employees need to be paid. The invoices for food and beverages are delivered. Rent is getting closer. The time of credit card transactions differs. Sales tax is collected but it’s an obligation.
Meanwhile, next week’s purchasing has already started.
Looking just at revenue or the ending profit number isn’t a good way to assess the full scope of what happens.
Prime Cost Could Hold the Key to the Clue
When restaurant profitability starts moving in the wrong direction, food, beverage and labor costs need consideration.
Together, cost of products sold and labor comprise the primary cost. The bookkeeping chef’s guideline places the cost of goods sold at 60% to 65 percent for a wide range of restaurants and stresses weekly monitoring rather than staying until the end of the month.
Effective prime cost management is less about obsessing over the exact percentages and more about noticing movement early.
Imagine that the restaurant’s results are usually within the range of its goals However, this past week it increased. Perhaps overtime has increased. Perhaps, the costs for beverages remained constant but food costs increased. A higher percentage of food could prompt the owner to examine buying, waste, menu mix, portions, or vendor invoices.
The percentage is a source of concern. It is in the activity in the restaurant.
A weekly report can make that conversation possible while everyone is still able to remember what happened.
A few weeks later after that, the details become more difficult to decipher.
Once the vendor invoices are received
The restaurant pays in the future for the ingredients it purchases. It’s because of this timing that understanding profits alone does not address all cash issues.
Vendor invoices must be received and logged. In the course of manual processing, an organization with a lot of suppliers can become a huge administrative burden.
Automating accounts payable can help organize the process by cutting down on the need to handle bills in a repetitive manner and payment information. Bookkeeping systems that are connected can give the owner a clearer picture of obligations which haven’t yet deposited into the bank account.
This is advantageous, since the bank’s balance could appear healthier than a restaurant’s actual financial situation.
The current balance could be $80,000 on the account. This amount could mean something different in the event that it is affected by other elements like rent as well as payroll, vendors and other obligations for the coming days.
That leads naturally to cash flow forecasting.
The best question to ask yourself is “What will happen to our money after we receive it and have fulfilled the commitments we’ve identified?”
This distinction is crucial when deciding whether this is the right week to make an additional purchase to replace equipment or keep the liquidity.
It is possible that you weren’t entitled to all the money you thought.
Sales tax illustrates this in particular.
The cash a restaurant gets from its patrons will eventually have to be handled in accordance with the tax requirements. If these dollars are mentally coupled with the normal cash flow, the balance in a bank can be misleading about how much money is available.
Regularly maintained records help restaurants comply with sales tax laws, while providing a complete image of their financial condition.
Restaurant accounting is more efficient when the financial obligations of each restaurant are treated separately.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Payroll is a factor that affects both the labor and cash percentage. Cash availability is affected by sales tax. P&Ls are used for recording financial performance. Forecasting can be helpful to management.
The pieces are linked.
Bookkeeping Chef can help bring these pieces together using restaurant-specific reports and system integrations. Specialized outsourced bookkeeping services are an excellent alternative for businesses that don’t have time to manually reconcile financial data. They are able to handle the bulk of the accounting work without removing the owner from the financial conversation.
The last sentence is vital.
The idea isn’t for owners of restaurants to stop looking at the books because someone else is handling them. The goal is for owners to get the information they need in a format that allows them to understand the situation.
Don’t think that the P&L is not correct if the balance of the bank seems to be tight, however the P&L confirms that the restaurant earned money.
Find out what happened between you and your partner.
This question can tell you more about your business than any number.