The month is now over. Sales were excellent, and the P&L is in profit and nothing appears to be terribly to be wrong.
Check the restaurant’s account.
The number doesn’t match what you expected.
For restaurant owners, that is a problem because profit and available cash seem like they should tell the same story. However, they aren’t. A P&L evaluates the financial performance over a period, while the bank account represents the time frame of money going into and out the business.
Understanding the difference will alter the way that a restaurant’s owner is able to view their financials.
Have a look at what happens in a normal week. Customers pay for meals. Paying employees is necessary. Deliveries of food and beverages arrive with invoices attached. Rent is coming. The time frame for credit card deposits differs. Taxes on sales are collected but it comes with responsibilities.
Already the purchases for the week ahead have started.
Looking only at revenue or the number of profits at the end misses much of that activity.
Prime Cost could be the Key to the Clue
If restaurant profits begin to move in the negative direction, food, drink and labor costs need attention.
The prime cost is comprised of both the cost of goods and labor. Bookkeeping Chef’s guidelines place the prime cost at between 60%-65 percent of the total revenue for many restaurants, focusing on the importance of monitoring weekly rather than waiting until the final day of the month.
Effective prime cost management involves less obsessing on a single percent and more noticing early changes.
If the restaurant typically does well, but this week, there’s a higher percentage. Perhaps the overtime rate was increased. The cost of drinks could remain the same, while food costs rose. A higher food percentage might make the supervisor think about reviewing buying, waste, menu mix, portions, or vendor invoices.
The percentage raises the question. The activities that underlie the restaurant provide the answer.
A weekly report makes this conversation possible and everyone is still able to remember what happened.
The details will be more difficult for you to recall the next day or two.
The Vendor’s bills arrive
The restaurant will be able to pay later for the food items it buys. This is the reason profits alone won’t be able to answer all cash questions.
Vendor invoices must be received and tracked. This could be quite a task in an organization that has numerous suppliers.
Automating the accounts payable process can help organize this by reducing the time-consuming handling of payments and bills. The owner can get better insight into the debts that haven’t landed in their bank accounts by utilizing integrated bookkeeping systems.
This is helpful, since the bank balance can appear to be healthier than the restaurant’s real near-term situation.
There could be $80,000 in the account today. It could mean something different in the event that payroll, rent vendors, or other commitments will consume a substantial portion of it over the next few days.
This is what leads to cash flow forecasting.
The most appropriate question to ask is “What happens to our money after we receive the money and have fulfilled the commitments we’ve identified?”
It is important to know the difference between them when deciding whether this week is a good moment to upgrade equipment, purchase more products or preserve the cash flow.
The Cash You Received May Not be Yours
The sales tax illustrates this point in particular.
The money that a restaurant gets from its patrons will eventually have to be dealt with in accordance with the tax requirements. If the money is mentally placed in the same category as operating cash, the balance of the bank could create a false impression of what is there to be spent.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant are not separated.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll impacts both labor percentage and cash. Cash availability is impacted by the sales tax. P&Ls track financial performance, while forecasting allows management to look ahead.
Connect the pieces.
Bookkeeping Chef incorporates restaurant-specific reporting with system integrations. Bookkeeping outsourcing can benefit those who don’t want to spend the night manually reconciling their financial data.
The last part is important.
Restaurant owners should never stop reading their books regardless of whether they’re being handled by another. The goal is for owners to get information in a form that allows them to understand what’s happening.
Don’t think that the P&L is correct if your balance of the bank seems to be tight, however the P&L indicates that the restaurant made money.
Ask them about what transpired between them.
That question can teach you more about your restaurant than any other number could be on its own.