The month has ended. The month has ended.
Check the restaurant’s account.
The number you received isn’t the one you’d expected.
For restaurant owners, that disconnect can be frustrating because profit and available cash feel as though they should be the same. They don’t. A P&L examines financial performance over a time and the bank account reflects the timing of money actually flowing into and out of the business.
Understanding the different aspects will help restaurant owners adjust their views on the restaurant’s finances.
Check out the typical week. The customers pay for food. Employees must be paid. The invoices for food and drinks are issued. Rent is on the verge of being due. The credit card deposit is also timed. The sales tax collected has an obligation.
The next week’s buying has already begun.
When you concentrate on revenues and the numbers at the end of profits it’s easy to miss a an abundance of activity.
The Key to the Mystery Could Be Hidden in Prime Cost
If restaurant profits begin to move in the negative direction, the food, beverages and labor expenses require consideration.
Together, cost of products sold and labor together make up the bulk of the cost. Bookkeeping Chef’s provided guidance places primary costs between 60%-65 percent for a wide range of restaurants and focuses on weekly monitoring rather than staying until the end of the month.
Effective management of prime costs requires less focus on a single percent and more noticing early changes.
Let’s say that a restaurant typically performs in line with its goals However, this week’s number increases. Perhaps overtime has also increased. The price of drinks may have remained the same while food costs increased. A higher food percentage might prompt the owner to examine purchasing, waste, menu mix, portions, or vendor invoices.
The percentage raises the question. The answer lies in the restaurant’s activity.
Weekly reports make that conversation possible while everyone is still able to remember what happened.
Three or four weeks later, the details become much more difficult to reconstruct.
Then the Vendor Bills Arrive
The restaurant is expected to pay later for the ingredients it purchases. This explains the reasons why profit alone isn’t enough to answer all cash related questions.
Vendor invoices have to be received and logged. In the course of manual processing, an environment with many suppliers can result in a significant administrative burden.
Automating accounts payable helps to streamline this process by reducing the need to handle bills in a repetitive manner and payment details. These bookkeeping systems are also able to give the user a better picture of debts that haven’t yet been paid into the account of the bank.
That’s useful because the bank’s balance as a whole can appear healthier than the restaurant’s actual near-term position.
There could be a possibility that you have $80,000 in your account as of right now. That number means something very different in the event that payroll, rent and vendors as well as other obligations will consume a large part of it in the next several days.
This is the reason for cash flow forecasting.
Instead of asking “How much cash do we have?” the better question becomes “What is going to transpire with our cash after the cash we anticipate to receive and the obligations we already know about?”
The distinction can matter in deciding if this is an appropriate time to replace equipment, make an extra purchase, or keep liquidity.
You may not have been entitled to all the money you believed.
The sales tax illustrates this point particularly well.
The money restaurant owners receive from customers is eventually going to need to be dealt with in accordance of its tax obligations. If these funds are combined with normal operating cash, then the balance in a bank can give an inaccurate impression of how much money is available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Restaurant accounting is more efficient when the financial responsibilities of each restaurant do not have to be separated.
Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll is a factor that affects the amount of cash available and also the labor percentage. The availability of cash is influenced by the sales tax. P&Ls are used to record the financial performance. Forecasting can also be useful to management.
The pieces join.
Bookkeeping Chef integrates restaurant-specific reporting and system integrations. Specialized outsourced bookkeeping services are a great alternative for those who do not have time to reconcile their financial information. They are able to handle the bulk of the accounting work without taking the owner away from discussions about finances.
That last part matters.
It’s not the intention of restaurant owners to cease checking their accounts because someone else does. It’s essential that owners receive information so they know the situation.
When the P&L says the restaurant made money but the bank account feels extremely tight, don’t assume one of the numbers could be wrong.
What happened between the two?
This will reveal more about your company than any number.