The month is over. The month is over.
Then, you should check the restaurant’s bank account.
The number you received isn’t exactly what you’d hoped for.
This disconnect can be frustrating for owners of restaurants because they think that profit and cash on hand should have the same story to tell. However, they aren’t. A P&L examines how well the company’s financials have performed over a certain time while the bank account reflects the exact timing of funds being moved into and out of the company.
Knowing the difference can change the way a restaurant owner considers their financials.
Imagine what could happen during an ordinary week. The customers pay for food. Employees are required to be paid. The invoices for food and drinks are issued. Rent is nearing. Credit card payments are subject to their own timetable. Sales tax collected is an obligation.
Already, the next week’s purchases have begun.
When you look only at revenue and the final profit figure, it is easy to overlook a great deal of activity.
Prime Cost Could Hold the Key to the Clue
Food, beverages and labor costs are worth a closer at when profitability in restaurants begins to decline.
Together, the cost of products sold and labor comprise the primary cost. The Bookkeeping Chef’s guidance puts the cost of goods sold at 60% to 65 percent of the total revenue for many restaurants, focusing on weekly monitoring rather than waiting until the closing of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Suppose that normally the restaurant does well, but this week, there’s more of a percentage. Perhaps overtime was increased. The cost of drinks could have remained the same while food costs rose. The chef may look over menus or waste, portion sizes along with vendor invoices and purchasing if the proportion of food is higher.
The percentage raises questions. The restaurant’s activity is the answer.
This conversation is possible because everyone is able to recall the events that transpired.
The details are much more difficult to remember the next day or two.
When the vendor invoices arrive
A restaurant could purchase the ingredients this week but have to pay for these items later. It’s due to this fact that understanding profits alone can not answer all cash issues.
Vendor invoices must be received and tracked. In a highly-competitive business with many suppliers, doing this manually could become its own administrative workload.
Automating the process of paying bills will help to organize the process by reducing the time-consuming handling of payments and bills. Connected bookkeeping systems can also provide the user with a more clear view of any obligations that haven’t yet been paid into the account of the bank.
It’s advantageous because, considered as a whole the balance of a restaurant’s bank account could appear to be more healthy than its actual financial position.
It is possible that you have $80,000 on your account at the moment. It could mean something different in the event that payroll, rent and vendors as well as other commitments consume a significant portion of it over the next few days.
Forecasting cash flow is a common outcome.
Instead of asking “How much cash do we have?” the better question is “What will occur to our cash after the money we hope to receive and our obligations that we already know about?”
This is an important distinction to make in determining the appropriateness of the best time to purchase an additional item replacement of equipment, or keep liquidity.
You might not have been legally entitled to the full amount you thought.
Sales tax illustrates the point particularly well.
Restaurants receive money from customers and will need to be dealt with in accordance with tax regulations. If those funds are divided into operating cash, the balance in the bank can create a misleading sense of what’s there to be spent.
Consistent records support sales tax compliance while also giving the manager a better picture of the financials of the restaurant.
Restaurant accounting is more efficient when the financial responsibilities of each restaurant are not separated.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Payroll affects both the labor and cash percentage. Sales tax affects cash availability. P&Ls are used for recording financial performance. Forecasting can also be useful for managers.
Connect the pieces.
Bookkeeping Chef utilizes restaurant-specific reporting and system integrations to help bring those pieces together. Outsourced bookkeeping is a great option for operators who do not want to stay up all night reconciling their financial information.
That last part matters.
The goal isn’t for restaurant owners to simply stop looking at the books because someone else handles them. Owners should be provided with details in a manner that will help them understand what’s going on.
So when the P&L states that the restaurant has made money but the bank account feels surprisingly insecure, don’t believe that one of the numbers could be wrong.
What was the difference between them?
This question will reveal more about your business than any other number.