The month is over. The month is done.
Verify the restaurant’s bank account.
This number isn’t exactly what you’d hoped for.
Restaurant owners might be frustrated by this since they believe cash flow and profits must be the same. They don’t. It’s not true. P&L is a gauge of financial performance. In contrast, the bank account is a record of how much money is moved in and out.
Understanding the difference could alter how a business owner considers restaurant financials.
Take a look at what goes on in a typical week. The customers pay for food. The employees must be paid. Deliveries of food and beverages arrive with invoices attached. Rent is coming. The timing of debits to credit cards is different. Sales tax is an obligation.
The purchase for next week has already started.
If you focus only on revenues or the final profits, you’ll overlook a significant portion of the activity.
The clue may be hidden in the cost of prime.
Food, beverages and labor cost are all worth a close look when restaurant profitability starts to decrease.
Cost of goods sold combined with labor is a major cost. The bookkeeping chef’s guideline places prime cost at roughly 60%-65 percent of the revenue for many restaurants, focusing on regular monitoring instead of waiting until the end of each month.
It is more important to be able to spot any changes in the early stages rather than worrying about an exact percentage.
Suppose that normally the restaurant is performing at a high level, however this week it’s at a higher percentage. Perhaps the overtime rate increased. Maybe beverage costs were stable while food costs jumped. A higher proportion of food could lead the business owner to look at the purchase, waste management, portions and menu mix or vendor charges.
The percentage is the most important. The answer lies in the activity of the restaurant.
Weekly reports allow this conversation to take place while everyone is still aware of what’s transpired.
After two or three weeks, it becomes more difficult to reconstruct particulars.
Once the vendor invoices are received
Restaurants may purchase ingredients one week and make payments the following week. Because of this, it is the case that understanding profits alone can not resolve all cash-related issues.
Vendor invoices have to be received, recorded and tracked before being paid. Doing this manually in a busy business with many suppliers can be a massive administrative burden.
Automating the process for accounts payable will help to organize the process by reducing the time-consuming handling of payments and bills. The owner can get a clearer view of the debts that haven’t landed in their bank accounts through the bookkeeping software that is connected to.
This is beneficial, as the bank balance can appear to be healthier than the restaurant’s current situation.
Today, there may be $80,000 on the account. This number can mean something different if it is impacted by other variables like rent, payroll, vendors and other obligations for the next few days.
This leads naturally to cash flow forecasting.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What will occur to our cash after the money we’re expecting to receive and the obligations we are already aware about?”
This distinction is essential in determining the appropriateness of the best time to purchase an additional item replacement of equipment, or keep liquidity.
The Money You Received Could Not Be Yours
The example of sales tax is a good one.
Restaurants get money from customers, which they then handle in accordance with the tax requirements. If these funds are grouped together with operating cash, it could create a false impression of the amount of money that is available for spending.
Regularly updated records ensure the tax compliance of sales while providing management with a more accurate understanding of the restaurant’s financials.
Restaurant accounting is more effective when the financial responsibilities of each restaurant do not have to be handled separately.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Payroll affects both labor percentage as well as cash. Cash availability is affected by sales tax. P&Ls report financial performance, and forecasting lets management take a look ahead.
The pieces are linked.
Bookkeeping Chef incorporates restaurant-specific reporting with 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.
The last point is vital.
The goal isn’t for restaurant owners to not look at their books simply because someone else handles them. It’s crucial that the owners receive information so they understand what’s happening.
When the P&L indicates that the restaurant made money, but the bank account seems to be a bit tight, don’t assume one of the numbers must be wrong.
Find out what happened between you and your spouse.
The answer to that question will reveal far more about your restaurant than any other number could by itself.