The month is over. The sales were excellent and the P&L showed a profit and there was nothing to be terribly off.
Check the bank account of the restaurant.
The number may not be what you would have expected.
This gap is a problem for restaurant owners since they feel that profit and cash flow should have the same story to tell. Both of them don’t match with each other. A P&L measures financial performance over a time in time, whereas the bank account is a reflection of the exact timing of funds flowing into and out of the business.
Understanding the difference could alter the way an owner is looking at the restaurant’s financials.
Imagine what might happen during a typical workday. The customers pay for food. Employees need to be paid. Food and beverages are delivered with invoices. Rent is on the way. The credit card deposit is also timed. Sales tax is collected but it’s an obligation.
On the other hand, the next week’s shopping has already begun.
Focusing on revenue only or the number of profits at the end misses much of that activity.
The clue may be hidden in the price of the best.
If restaurant profits begin to move in the wrong direction, food, drink as well as labor costs require consideration.
Prime cost consists of both the cost of items and labour. Bookkeeping Chef’s guidelines place prices for the prime cost at around 60%-65 percent for a variety of restaurants and focuses on weekly monitoring instead of staying until the end of of the month.
It is essential to be able to detect changes earlier than worrying about certain percentages.
Suppose that normally the restaurant performs near its target however this week it’s a higher percent. Perhaps the overtime rate has increased. The beverage cost may have remained the same, whereas food prices increased. The operator may review menus, waste, portion sizes, vendor invoices, and purchasing if the food percentage is higher.
The percentage raises a question. The answer lies in the activities in restaurants.
Weekly reports make an opportunity for conversation while everyone remembers the events.
The details are more difficult to recall the next day or two.
The Vendor’s Bills Are Received
The restaurant will pay later for the ingredients it buys. This can help explain the reason why profit alone isn’t enough to answer every cash question.
Invoices from vendors have to be tracked, received and paid. The manual process of completing this task in a busy business with many suppliers can become a huge administrative burden.
Automating the process for accounts payable can help organize this by reducing the repetitive handling of payments and bills. Owners can have an accurate picture of obligations that haven t hit their bank account through the bookkeeping software that is connected to.
This is advantageous, since the balance of your bank account may seem healthier than a restaurant’s actual situation in the near future.
There might be $80,000 in the account today. This amount could be different in the event that it is affected by other variables like rent, payroll, vendors and other obligations in the coming days.
Cash flow forecasting is a natural result.
Instead of asking “How much cash do we have?” the better question is “What is likely to happen to our cash after the cash we anticipate to receive and our obligations that we already know about?”
The distinction could be important when deciding whether this is the right time to upgrade equipment, make an extra purchase, or keep liquidity.
It is possible that you weren’t eligible for all the money you thought.
Sales tax illustrates this particularly well.
The money a restaurant receives from its customers will eventually have to be handled in accordance with its tax obligations. If the money is mentally combined with normal cash flow, the bank balance may be misleading about how much cash is available.
Regularly maintained records help restaurants to comply with the sales tax laws while also giving a clear overview of their financial standing.
This is one reason why restaurant accounting can be more effective when financial obligations aren’t viewed as separate entities.
Prime cost affects margin. COGS and future payment are affected by vendor purchases. Payroll has an impact on the amount of cash available and also the labor percentage. Cash flow is impacted by sales tax. P&Ls report financial performance, and forecasting allows management to take a look ahead.
Connect the pieces.
Bookkeeping Chef can help bring the pieces together by providing restaurant-specific reports as well as system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.
It’s the last thing that matters.
It’s not the intention of restaurant owners to not check their books because somebody does. Owners should be given information which will allow them to be aware of what’s happening.
If the P&L reports that the restaurant earned cash, yet the bank account feels surprisingly unbalanced, don’t think that one of the numbers must be wrong.
What transpired between the two?
That question can teach you much more about the restaurant than any number by itself.