The month is over. The sales were good, the P&L shows a profit, and there’s nothing that appears to be to be seriously off.
After that, you can check the bank account of the restaurant.
The number is not the one you were expecting.
Restaurant owners might find it difficult to reconcile this issue as they believe cash flow and profits must be exactly the same. They don’t add up. A P&L is a measure of the performance of the business’s finances over a specified time period, whereas an account in a bank shows the exact timing of funds entering and leaving the business.
Understanding the difference can change how a business owner looks at restaurant finances.
Imagine what could happen during an ordinary week. The customers pay for food. Employees must be paid. Food and drinks deliveries arrive with invoices attached. Rent is coming. The time frame for credit card deposits differs. The tax on sales is an obligation.
The purchase for next week has already begun.
Concentrating on revenue or the end-of-year profit number misses much of that activity.
The Key to the Mystery Could Be Hidden in the Prime Cost
If restaurant profits begin to decrease, food, beverage and labor costs must be taken in the equation.
Cost of selling goods with labor is the primary cost. The Bookkeeping Chef’s guidance puts the cost of goods sold at 60% to 65 percent for most restaurants and emphasizes monitoring on a weekly basis rather than waiting until the end of the month.
Effective cost management for primes involves less focus on a single percent and more being aware of earlier movement.
Imagine that the restaurant usually performs close to its target however, this week’s rate rises. Perhaps overtime was has increased. Maybe beverage costs were stable as food costs rose. The manager can review menus as well as waste, portions sizes along with vendor invoices and purchasing if the proportion of food is higher.
The percentage is a source of concern. The answer lies in the underlying food service activity.
This conversation is possible because everyone is able to recall what transpired.
A few weeks later The details are much more difficult to reconstruct.
The Vendor’s Bills Are Received
Restaurants may purchase ingredients during a week and pay for them the next. This explains the reason why profit alone isn’t enough to answer every cash question.
Vendor invoices have to be received, recorded, tracked, and ultimately paid. This can take an enormous task for an organization that has numerous suppliers.
Automation of accounts payable streamlines this process, reducing tedious tasks such as managing invoices and payment information. Systems for bookkeeping that are linked will give the owners a clear image of their obligations even if they’ve not yet been paid.
It’s advantageous because, considered as a whole the balance of a restaurant’s bank account may appear to be more stable than its actual financial situation.
It could be that you’ve got $80,000 in your account as of right now. This number can mean something different if it is impacted by other variables like rent, payroll, vendors and other obligations in the coming days.
Forecasting cash flow is a normal outcome.
What happens to our cash after we’ve gotten the amount we’ve hoped for and fulfilled all our obligations?
This is an important distinction to make when deciding on whether this is the right week to buy an additional purchase to replace equipment or to maintain liquidity.
You may not have been rightfully entitled to all the money you believed.
The sales tax example is a good example.
A restaurant receives money from customers which has to be managed according to tax requirements. If these funds are coupled with the normal operating cash, then the bank balance may be misleading about how much cash is available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant are not treated separately.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. Payroll affects both labor percentage as well as cash. The availability of cash is influenced by the sales tax. P&Ls can be used to document the financial performance. Forecasting can be helpful to management.
The pieces connect.
Bookkeeping Chef assists in bringing these elements together, using restaurant-specific reports as well as system integrations. Specialized outsourced bookkeeping services are an excellent option for operators who aren’t able to manually reconcile financial data. They will take care of a lot of the accounting tasks without taking the owner away from the financial conversation.
The last point is vital.
Restaurant owners should not stop reading the books, just because they are handled by someone else. Owners should be given information which will allow them to know what’s going on.
So when the P&L reports that the restaurant earned money, but the bank account is feeling a little insecure, don’t believe that some of the figures must be wrong.
What was the difference between them?
Answering this question can reveal more about the restaurant than just the name.