The month is done. The month is done.
You then check the bank account of the restaurant.
You didn’t get the call you expected.
Restaurant owners may be frustrated by this because they believe that profits and cash flow should be identical. Both of them don’t match up. The P&L is a metric of financial performance. In contrast, the bank account is a representation of when money moves into and out.
Understanding the different aspects will help restaurant owners adjust their perception of restaurant financials.
Imagine what goes on during a typical workday. Customers pay for food. Employees have to be paid. You will receive invoices along with food and beverage deliveries. Rent is due. Deposits to credit cards are timed. Sales tax is collected, but that money is subject to an obligation.
The purchasing for the coming week has already started.
If you focus only on revenues or the final income, then you’ll be missing a lot of this process.
The Secret Could Be Hidden in Prime Cost
Food, beverage and labour cost are all worth a close review when the profitability of a restaurant begins to decline.
Cost of goods sold combined with labor is the primary cost. Bookkeeping Chef’s supplied guidance places the primary cost at around 60%-65% of revenue for many restaurants, while emphasizing daily monitoring, rather than waiting until the final day of the month.
Effective management of prime costs is not about focusing on a single percentage and more about recognizing changes early.
Suppose that normally the restaurant achieves its goals, but this week, there’s an increase in percentage. Maybe the number of overtime hours has increased. Perhaps the cost of beverages was stable However, food expenses increased. A higher percentage of food could lead the business owner to review purchases, waste management, portions and menus, or even vendor invoices.
The percentage raises a concern. The answer lies in the activity in the restaurant.
This conversation is possible because everyone will be able to remember what transpired.
The details are much harder to recall two or three days later.
Then the Vendor Bills Show Up
Restaurants might purchase food items in one week, and then pay for them the next. This is a reason for that understanding profit alone isn’t the answer to every cash issue.
Vendor invoices have to be received and tracked. In a highly-competitive business with many suppliers, completing that by hand can be an administrative burden.
Automating the account payable process will help to organize the process by reducing the repeated handling of bills and payments. The owner can get a clearer view of the debts that haven’t landed in their bank account through automated bookkeeping systems that are connected.
It’s helpful because, when considered as a whole the bank balance of a restaurant may appear to be more stable than its actual financial situation.
There could be $80,000 in the account today. The figure of $80,000 is tiny if rental, vendors or payroll make an enormous amount over the coming days.
Cash flow forecasting is a normal outcome.
Instead of asking “How much cash do we have?” the better question becomes “What could transpire with our cash after the money we’re expecting to receive and the obligations we are already aware about?”
The difference can be crucial in deciding if this is a comfortable week to replace equipment, make an addition purchase, or maintain the liquidity.
The cash you received may Not be Yours
Sales tax illustrates the point particularly well.
The cash a restaurant gets from its customers will eventually have to be managed in accordance to its tax obligations. If these funds are coupled with the normal cash flow, the balance in a bank can provide an inaccurate picture of the amount of cash available.
The consistency of the records helps restaurants comply with sales tax requirements while providing management an accurate view of their finances.
Accounting for restaurants is more efficient when the financial responsibilities of each restaurant are not treated separately.
Prime cost affects margin. Vendor purchases affect COGS as well as future payments. Payroll impacts both labor percentage and cash. Sales tax influences the availability of cash. The P&L shows financial performance, while forecasting helps management look ahead.
Connect the pieces.
Bookkeeping Chef uses restaurant-focused reporting and system integrations to help connect the pieces. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.
It’s the last thing that is important.
The idea isn’t for owners of restaurants to stop looking at their books since somebody else handles them. Owners should be given information that helps them know what’s going on.
So if the P&L indicates that the restaurant made money but the bank account feels surprisingly tight, don’t presume that some of the figures must be incorrect.
Find out what transpired between you and your partner.
Answering this question can provide more information about the restaurant, more than just the name.