The month is done. The sales were good and the P&L was profitable and there was nothing that appeared to be terribly off.
Check the bank account of the restaurant.
You didn’t get the call you expected.
This gap is a problem for restaurant owners since they believe that profit and cash on hand should have the same story to tell. But they don’t. A P&L measures the performance of the business’s finances over a certain time period, whereas accounts in banks show the exact time of money going into and out of the company.
Understanding the difference can change the way an owner looks at restaurant finances.
Imagine what could happen on an average week. Customers pay for food. It is important to pay employees. Invoices for food and beverages are handed out. Rent is getting closer. Deposits made with credit cards come with their own schedules. Sales tax is collected but it is a responsibility.
Already the next week’s purchases have started.
When you concentrate on revenue and the final profit figure, it is easy to miss out on a great deal of activity.
The clue could be hidden in the Prime Cost
If restaurant profits begin to move in the negative direction, food, beverage as well as labor costs require consideration.
Cost of goods sold combined with labor is a major cost. Bookkeeping Chef’s provided guidance places the cost of goods sold at 60% to 65 percent for a variety of restaurants and emphasizes monitoring on a weekly basis as opposed to 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 typically within a certain range however this week, it grew. Maybe overtime was boosted. Perhaps, the costs for beverages remained constant while food costs jumped. A higher percentage of food could cause the manager to look at the menu, purchases, waste, mix, portions, or vendor invoices.
The percentage is what matters. It is in the underlying activity in the restaurant.
The reason this conversation can be relived is because everyone is able to recall the events that transpired.
After a few weeks After that, the details become harder to reconstruct.
The Vendor Bills are then delivered.
A restaurant might purchase its ingredients this week but pay for them in the future. It’s due to this fact that knowing profits alone will not answer all cash issues.
Vendor invoices must be received and logged. In a busy operation with many suppliers, completing that by hand can be the company’s own administrative task.
Automating the process of paying bills can streamline this process by reducing the repeated handling of bills and payments. The user can have better insight into the obligations that haven t hit their bank account through connected bookkeeping systems.
This is because an account balance seen in isolation may appear to be healthier than the restaurant’s real-time position.
It could be that there is $80,000 in the account as of today. It could mean something different in the event that payroll, rent vendors, or other obligations consume a significant part of it in the next several days.
Forecasting cash flow is a natural outcome.
The most appropriate question to ask is “What will happen to our funds after we receive the money and have met our obligations we have made?”
It is important to know the difference when deciding if this week is a good moment to upgrade equipment, buy more items or preserve liquid funds.
and some of the cash Wasn’t Yours at All
Sales tax illustrates this in particular.
The money a restaurant receives from its customers is eventually going to need to be dealt with in accordance with the tax requirements. If those dollars are mentally grouped with ordinary operating cash, the balance of the bank may create a false sense of the money there to be spent.
Consistent record keeping helps restaurants comply with sales tax laws and also providing a complete picture of their financial situation.
This is a reason why restaurant accounting is more efficient when financial obligations aren’t viewed as distinct islands.
Prime cost affects margin. COGS (cost of goods sold) and future payments are affected due to purchases made by vendors. Payroll affects the percentage of labor and cash. Sales tax influences cash availability. P&Ls are used to record the financial performance. Forecasting can be helpful to management.
The pieces join.
Bookkeeping Chef helps bring the pieces together by providing restaurant-specific reports as well as system integrations. For business owners who don’t want to spend their nights manually reconciling financial information, outsourced bookkeeping services will handle large portions of the accounting burden without removing the proprietor from financial conversations.
It’s the last thing that matters.
It’s not the intention of restaurant owners to cease checking their books because somebody does. Owners should be given information that will help them to understand what’s happening.
If the P&L shows that the restaurant is profitable but the bank balance seems too tight, don’t think the P&L is not accurate.
Find out what transpired between them.
This will reveal more about your company than any number.