The month has ended. The month has ended.
Make sure to check the restaurant’s account.
This number isn’t exactly what you’d hoped for.
For restaurant owners, that is a problem because profits and cash flow feel as though they should have the same meaning. They are not. A P&L evaluates the the financial performance of a company over time, while the bank account is a reflection of the actual timing of money going into and out the business.
Understanding the difference can help owners change their views on the restaurant’s finances.
Take a look at what happens during a normal week. Customers pay for meals. Paying employees is necessary. You will receive invoices with meals and beverages delivered. Rent is on the way. Credit card payments come with their own schedules. Taxes on sales have been collected, but the money has a responsibility.
The shopping for the week ahead has already started.
Looking just at revenue or the ending profit number leaves out a lot of the work.
Prime Cost could be the Key to the Solution
When restaurant profitability starts moving in the negative direction, then food, drinks and labor costs need focus.
Prime cost is made up of the price of items and labour. The bookkeeping chef’s guideline places primary costs between 60%-65 percent for a wide range of restaurants and focuses on weekly monitoring rather than waiting until the end of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant’s efficiency is usually within the range of its goals However, this past week, it went up. Maybe overtime also increased. The cost of beverages could be the same as the food expenses increased. A higher proportion of food may prompt the owner to examine purchase, waste, menu mix, portions or invoices from vendors.
The percentage raises a concern. The restaurant’s activity is the answer.
Weekly reports allow for this conversation to be held while everyone is still aware of what’s transpired.
A few weeks later after that, the details become harder to decipher.
The Vendor’s Bills Are Received
A restaurant could purchase the ingredients this week but pay for these items later. This is due to the fact that understanding profits alone does not solve all cash problems.
Vendor invoices must be recorded, received as well as tracked until they are paid. In a busy business with many suppliers, completing that manually can become its own administrative workload.
Accounts payable automation helps organize this process by eliminating the need to handle bills in a repetitive manner and payment details. The user can have better insight into the obligations that haven’t yet landed on their bank accounts through integrated bookkeeping systems.
This is because the bank’s balance as a whole can appear healthier than the restaurant’s actual short-term position.
Today, there may be an amount of $80,000 in the account. The $80,000 amount is small if the cost of rent, vendors or payroll are to take up a large portion over the next few days.
This leads to cash flow forecasting.
Instead of asking “How much cash do we have?” the better question is “What is going to occur to our cash after the money we hope to receive and our obligations that we already know about?”
The distinction could be important in determining if this is an appropriate time to repair equipment, make an additional purchase, or preserve cash.
The Money You Received Could Not Be Yours
Sales tax illustrates the point in particular.
The cash restaurant owners receive from patrons will eventually have to be managed in accordance with the tax requirements. If the money is mentally placed in the same category as operating cash, the bank balance could create a false impression of the amount there to be spent.
Consistent records help restaurants comply with sales tax requirements while providing the managers a clear picture of their financial situation.
This is the reason restaurant accounting is better when financial responsibilities aren’t considered as separate entities.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. The percentage of labor and cash are affected by the payroll. Cash availability is affected by the sales tax. P&Ls record financial performance while forecasting allows management to see the future.
The pieces connect.
Bookkeeping Chef incorporates restaurant-specific reporting with system integrations. Bookkeeping outsourcing can benefit users who don’t want to work all night reconciling their financial data.
It’s the final part that matters.
Restaurant owners should never stop reading the books, just because they are handled by someone else. It’s important that the owners get information so they understand what’s happening.
Don’t think that the P&L is not correct if the balance of the bank seems to be tight, however the P&L shows the restaurant has made money.
Find out what transpired between them.
This question can tell you more about your company than any other number.