The month is now over. The sales were good, the P&L indicates a profit and nothing is to be terribly wrong.
Check the restaurant’s bank account.
The number you received isn’t what you expected.
For restaurant owners, that gap can be frustrating as profits and cash flow seem to provide the same information. They are not. A P&L is a measure of the financial performance of a company over time and the bank account is a reflection of the exact timing of funds being moved into and out of the business.
Understanding the difference will change the way a restaurant owner considers their financials.
Take a look at what goes on in a typical week. The customers pay for food. Paying employees is necessary. The invoices for food and drinks are issued. Rent is nearing. Deposits to credit cards are timed. Sales tax is collected however it is an obligation.
The buying for next week has already started.
When you look only at revenue or the number of dollars earned at the end it’s easy to miss a a great deal of activity.
Prime Cost could be the Key to the Solution
If restaurant profits begin to move in the wrong direction, food, drink as well as labor costs require focus.
The prime cost is comprised from both products and labor. Bookkeeping Chef’s guidelines place the prime cost at between 60% to 65 percent of the total revenue for many establishments, and emphasizes weekly monitoring rather than waiting until the close of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant usually performs in line with its goals however, this week’s rate rises. Perhaps overtime was increased. Maybe beverage costs were stable, but food costs increased. A higher proportion of food may prompt the owner to examine purchasing, waste, menu mix portions, or vendor invoices.
The percentage raised the question. It is in the food service activity.
A weekly report can make this conversation possible and everyone remembers the events.
The details will be more difficult to recall after a couple of days.
The Vendor Bills are then delivered.
A restaurant could purchase the ingredients this week but have to pay for these items later. This explains how profit alone will not be enough to answer all cash-related questions.
Vendor invoices need to be accepted and logged. In a busy operation with multiple suppliers, managing that manually can turn into its own administrative workload.
Automating accounts payable can streamline the process, cutting down on the time spent on tasks that are repetitive, such as managing payments and bills. The bookkeeping system that is connected to the internet can give the owner a clearer picture of obligations that haven’t yet hit the bank account.
This is useful, because the balance of your bank account may appear more healthy than the restaurant’s real near-term situation.
There could be $80,000 in the bank account at present. This amount could mean something different if payroll, rent and vendors commitments will consume a substantial amount over the next few days.
This leads to cash flow forecasting.
What happens to our cash after we’ve gotten the money that we expect and met all of our obligations?
It is important to know the difference before deciding if this week is a good opportunity to replace equipment, purchase more products or to conserve the cash flow.
You might not have been eligible for all the money you believed.
The sales tax illustrates this point in particular.
The cash a restaurant gets from its customers is eventually going to need to be handled in line with the tax requirements. If these dollars are mentally coupled with the normal cash flow, the balance in a bank can provide an inaccurate picture of how much cash is available.
Regularly maintained records allow restaurants to comply with sales taxes and provide management a complete picture of their financial situation.
This is one reason restaurant accounting works better when financial obligations aren’t viewed as separate islands.
Prime cost affects margin. COGS and future payments are affected by the purchase of vendor products. Payroll can affect the percentage of labor and cash. Cash flow is affected by the sales tax. P&Ls track financial performance, while forecasting lets management examine the future.
The pieces join.
Bookkeeping Chef combines restaurant-specific reports through system integrations. Bookkeeping outsourcing services with specialization can be a good option for operators who do not have time to manually reconcile financial data. They can take care of much of the accounting task while removing the proprietor from the financial conversation.
The last part is important.
It’s not the aim of restaurant owners to not check their accounts because someone does. It’s crucial that the owners are informed so that they can understand the situation.
If the P&L indicates that the establishment is profitable but the bank balance seems unbalanced, don’t assume the P&L is not accurate.
What was the difference between them?
The answer to this question will reveal more about the restaurant, more than just the name.