The month is finished. The month is finished.
Verify the restaurant’s bank account.
The number may not be what you would have expected.
Restaurant owners might be dissatisfied with this, as they believe that cash flow and profits ought to be the same. Both of them don’t match in. A P&L evaluates the financial performance of a company for a particular time period, whereas it is a bank account that shows the actual timing of money flowing into and out of he business.
Understanding the difference can alter the way that a restaurant’s owner views their finances.
Imagine what might happen during a typical week. Customers pay for meals. Employers must be paid. The invoices for food and drinks are issued. Rent is due. The time frame for credit card deposits differs. Sales tax is collected, but it’s also responsibilities.
The shopping for the week ahead has already started.
When you concentrate on revenue and the final profit figure, it is easy to miss a the vast amount of activity.
The Key to the Mystery Could Be Hidden in the Prime Cost
When the profitability of restaurants starts to change in the wrong direction, the food, beverages and labor costs need the attention of restaurant owners.
Cost of selling goods with labor is the prime cost. The Bookkeeping Chefs’ guidance places the prime cost between 60 and 65 percent of the revenues for a variety of restaurants. They also recommend weekly monitoring instead of waiting until the month ends.
It is essential to be able to detect changes early than obsessing about certain percentages.
Let’s say that typically, the restaurant achieves its goals, however this week it’s at a higher percent. Perhaps overtime was is up. The price of drinks may have remained the same, whereas food costs rose. An increase in the percentage of food items could prompt the owner to examine purchase, waste, menu mix portions and vendor invoices.
The percentage raises a question. The answer is found in the activity of the restaurant.
Weekly reports allow for this discussion to occur in the midst of everyone being aware of what has happened.
Three or four weeks later After that, the details become more difficult to decipher.
Then the Vendor Bills Arrive
A restaurant might purchase its ingredients this week, but then pay for the items in the future. This timing helps to explain the reason why profit alone isn’t enough to answer all cash-related questions.
Invoices from vendors must be tracked, received and paid. Doing this manually in a busy business with many suppliers can result in a significant administrative burden.
Accounts payable automation helps organize the process, reducing the need to handle bills in a repetitive manner and payment details. The bookkeeping system that is connected to the internet can provide the user with a more clear view of any obligations that haven’t yet hit the account of the bank.
That’s useful because the bank’s balance in isolation can look healthier than the restaurant’s actual near-term position.
The current balance could be $80,000 on the account. This number could mean something different if rent, payroll, vendors, and other obligations consume a significant portion of it over the next several days.
Cash flow forecasting is a normal outcome.
Instead of asking “How much cash do we have?” the better question is “What is going to transpire with our cash after the cash we anticipate to receive and our obligations that we already know about?”
This is an important distinction to make when deciding the appropriateness of the appropriate week to make an additional purchase replacement of equipment, or keep the liquidity.
The money you receive may Not be Yours
Sales tax highlights this point particularly well.
Restaurants take money from their customers, which they must be able to manage in accordance with the tax requirements. If the money is mentally added to 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.
It’s for this reason that restaurant accounting functions better in situations where financial responsibilities aren’t thought of as separate entities.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll has an impact on the percentage of labor and cash. Cash availability is impacted by sales tax. The P&L records financial performance, forecasting can help management look ahead.
The pieces are connected.
Bookkeeping Chef utilizes restaurant-specific reporting and system integrations that help bring those pieces together. For operators who don’t want to stay up all night reconciling financial data, outsourced bookkeeping services will handle much of the accounting workload without removing the owner of the financial discussions.
The last point is important.
The goal isn’t for owners of restaurants to stop looking at the books because someone else handles them. It’s important that the owners get information so they are aware of the situation.
When the P&L states that the restaurant has made money, but the bank account feels surprisingly insecure, don’t believe that some of the figures must be incorrect.
Find out what transpired between them.
Answering this question can provide more information about the restaurant’s location than an identifying number.