The month has ended. The sales were good, the P&L showed a profit and there was no sign of anything to be seriously in error.
Verify the restaurant’s bank account.
The number doesn’t match what you expected.
Restaurant owners can be frustrated by this, as they believe that cash flow and profits must be exactly the same. They don’t. A P&L is a measure of the performance of the business’s finances over a specific time period, whereas it is a bank account that shows the exact timing of money entering and leaving he business.
Understanding the different aspects will help restaurant owners adjust their view of the financials of their restaurant.
Imagine what goes on during a typical week. Customers pay for meals. Employees need to be paid. Food and beverage deliveries arrive with invoices. Rent is on the way. The time of debits to credit cards is different. Sales tax collected is an obligation.
The buying for next week has already begun.
If you are only looking at revenues or the final profits, you’ll overlook a significant portion of this action.
The Secret Could Be Hidden in the Prime Cost
If the profitability of restaurants begins to fall, cost of food, beverages and labour costs must be taken in consideration.
Prime cost is composed of both the cost of materials and labor. Bookkeeping Chef’s provided guidance places prices for the prime cost at around 60% to 65 percent for most restaurants and stresses weekly monitoring as opposed to staying until the end of 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 normally is performing at a high level, but this week, there’s a higher percentage. Perhaps the overtime rate went up. The cost of drinks could have remained the same, whereas food prices increased. The operator may review menus and portions, waste, vendor invoices, and purchasing if the food percentage is greater.
The percentage is the most important. The answer lies in the activity of the restaurant.
Weekly reports allow for the discussion to continue in the midst of everyone being aware of what has happened.
After a period of two to three weeks, it gets more difficult to reconstruct particulars.
The Vendor’s bills arrive
Restaurants may buy ingredients in one week, and then make payments the following week. It’s due to this fact that analyzing profits alone will not answer all cash issues.
Vendor invoices need to be recorded, received and tracked before being paid. In a busy business with numerous suppliers, doing that by hand can be its own administrative workload.
Automating the account payable process can streamline this process by reducing the repeated handling of bills and payments. Bookkeeping systems that are connected can provide the user with a more clear picture of debts that haven’t yet been paid into the account of the bank.
This is because an account balance seen in isolation can look healthier than the restaurant’s actual short-term position.
It might be that you’ve got $80,000 in your account as of right now. This number can be different depending on other variables like rent or payroll, vendors, and other obligations for the next few days.
That leads naturally to the process of forecasting cash flows.
Instead of asking “How much cash do we have?” the better question is “What could be the fate of our cash following the money we hope to receive and our obligations that we already know about?”
It is crucial to understand the difference when deciding if this week is a good time to replace equipment or buy more items or preserve the cash flow.
The Cash Wasn’t Really Yours
The sales tax example is a good example.
Restaurants take money from their customers, which they follow in accordance with their tax obligations. When these dollars are mentally combined with operating cash, it could make a false impression about the money available to spend.
The consistent records help ensure sales tax compliance, while providing management with a more accurate perspective of the restaurant’s financials.
This is why it is that restaurant accounting is more efficient when financial obligations aren’t thought of as separate entities.
Prime cost affects margin. COGS and future payments are affected by purchases made by vendors. Payroll has an impact on both the labor percentage and cash. Sales tax affects cash availability. P&Ls can be used to document financial performance. Forecasting can also be useful for managers.
Connect the pieces.
Bookkeeping Chef combines restaurant-specific reports along with system integrations. Outsourced bookkeeping can help owners who do not wish to work all night reconciling their financial data.
It’s the very last one that counts.
Restaurant owners should never stop reading the books, regardless of whether they’re being handled by someone else. Owners need to be informed that helps them understand what’s happening.
Don’t assume that the P&L is incorrect if the bank account appears to be in good shape, but the P&L indicates that the restaurant generated money.
Ask them about what transpired between them.
The answer to this question will provide more information about the restaurant, more than just an identifying number.