The month is over. The sales were good, the P&L was profitable and there was nothing to be terribly wrong.
Then, you should check the restaurant’s bank account.
The number doesn’t match what you’d expect.
Restaurant owners can find it difficult to reconcile this issue since they believe cash flow and profits must be exactly the same. They don’t add up. The P&L is a measure of financial performance, while the bank account is an indication of how much money is moved in and out.
Knowing the difference can change the way a restaurant owner is able to view their financials.
Think about what happens in an normal week. Customers pay for food. Employees are required to be paid. You will receive invoices along with food and beverage deliveries. Rent is nearing. The time of the credit card deposit is different. Taxes on sales have been collected, but the money is a legal obligation.
Already the next week’s purchases have started.
Looking only at revenue or the ending profit number isn’t a good way to assess the full scope of what happens.
The answer could be hidden in the price of the best.
The cost of food, drinks and labour costs merit a closer review when the profitability of a restaurant begins to fall.
Together, cost of goods sold and labor comprise the primary cost. Bookkeeping Chef’s guidelines place prices for the prime cost at around 60%-65 percent for most restaurants and stresses weekly monitoring rather than waiting until the end the month.
Effective management of prime costs is less about worrying about the exact percentages and more about noticing movement quickly.
Suppose the restaurant normally performs within its targets however, this week’s rate is higher. Perhaps overtime has is up. The cost of drinks could be the same as food prices increased. A higher proportion of food may cause the manager to look at purchasing, waste, menu mix portions, or vendor invoices.
The percentage is a source of concern. It is in the underlying activity in the restaurant.
Weekly reports allow for the discussion to continue even though everyone is aware of the events that have occurred.
The details are much more difficult to remember two or three days later.
The Vendor’s Bills are Received
The restaurant is expected to pay an additional time for the items it purchases. This can help explain how profit alone will not be enough to answer all cash-related questions.
Vendor invoices should be received, recorded and tracked before being paid. In a busy operation with multiple suppliers, managing that by hand can be an administrative task.
Automation of accounts payable streamlines this process, reducing routine tasks like handling invoices and payment information. Connected bookkeeping systems can also provide the user with a more clear picture of debts which haven’t yet deposited into the bank account.
This is beneficial, as the bank balance can appear to be healthier than the restaurant’s actual situation in the near future.
The current balance could be $80,000 on the account. The amount could have a different meaning depending on other variables like rent, payroll, vendors and other obligations over the next few days.
That leads naturally to cash flow forecasting.
What happens to our money after we’ve received the cash we’ve been expecting and met all of our obligations?
It is essential to be aware of the difference before deciding if this week is an ideal opportunity to replace equipment, buy additional products, or conserve the cash flow.
You may not be rightfully entitled to all the money you believed.
The sales tax illustrates this particularly well.
Restaurants receive money from their customers, which they follow according to the tax requirements. If these funds are mixed with cash flow, the bank balance could be misleading about how much money is available.
Regularly maintained records allow restaurants to comply with sales taxes and provide management an accurate view of their finances.
This is why it is that restaurant accounting can be more effective when financial responsibilities don’t are considered as distinct islands.
Prime cost affects margin. COGS (cost of goods sold) and future payments are affected by the purchases made by vendors. Payroll affects both labor percentage and cash. Cash flow is impacted by the sales tax. The P&L documents financial performance forecasting can help management look ahead.
The pieces are interconnected.
Bookkeeping Chef is a restaurant-specific report that integrates and system integrations. Outsourced bookkeeping is a great option for owners who do not wish to stay up all night reconciling their financial records.
The last section is very important.
Restaurant owners should never stop going through the manuals regardless of whether they’re being handled by another. Owners need to be informed that helps them understand what’s happening.
So when the P&L reports that the restaurant earned money but the bank account feels surprisingly tight, don’t presume that one of the numbers could be off.
Ask about the events that occurred between them.
The answer to that question will reveal far more about your restaurant than a single number could be on its own.