The month is done. Sales were excellent, and the P&L indicates a profit and there’s nothing that appears to be to be terribly wrong.
Make sure to check the restaurant’s account.
The number isn’t what you’d hoped for.
For restaurant owners, that is a problem because profit and available cash seem like they should provide the same information. However, they aren’t. A P&L examines the financial performance of a company over time, while the bank account is a reflection of the timing of money actually moving in and out of the company.
Understanding the difference will change the way a restaurant’s manager is able to view their financials.
Imagine what could happen on the typical week. The customers pay for food. Paying employees is necessary. Food and drinks deliveries arrive with invoices. Rent is due. The time of credit card transactions differs. Sales tax is collected however it’s also responsibilities.
The purchase for next week has already begun.
If you only look at revenues or the final profit, then you will miss a lot of this activity.
The Key to the Mystery Could Be Hidden in the Prime Cost
The cost of food, drinks and labour costs are worth a closer at when profitability in restaurants begins to decrease.
Prime cost is composed from both items and labour. The Bookkeeping Chefs’ provided advice places the cost of goods sold between 60-65 percent of the revenues for a variety of establishments. They also suggest the importance of weekly monitoring rather than waiting until the month ends.
Effective management of prime costs requires not focusing on one percent and more being aware of earlier movement.
Let’s say that typically, the restaurant performs near its target but this week, it’s an increase in percentage. Perhaps the overtime rate increased. Perhaps, the costs for beverages remained constant while food costs jumped. A higher percentage of food could prompt the manager to examine purchasing, waste management, portions and menu mix, or vendor costs.
The percentage is a source of concern. The answer lies in the restaurant’s activity.
Weekly reports allow for this conversation to be held in the midst of everyone being aware of the events that have occurred.
After a period of two to three weeks, it becomes much more difficult to reconstruct particulars.
Once the vendor invoices are received
Restaurants may buy ingredients the week before and pay for them next week. This explains how profit alone will not be enough to answer all cash-related questions.
Vendor invoices must be recorded, received, tracked, and ultimately paid. The manual process of completing this task in a busy business with many suppliers can result in a significant administrative burden.
Automating accounts payable can help organize the process by cutting down on the need to handle bills in a repetitive manner and payment information. The user can have an accurate picture of debts that haven’t landed in their bank account through automated bookkeeping systems that are connected.
It’s important because the bank’s balance as a whole can appear healthier than the restaurant’s actual short-term position.
It is possible that you have $80,000 in your account at the moment. The figure of $80,000 means small if the cost of rent, vendors or payroll make up a large portion over the next few days.
That leads naturally to cash flow forecasting.
What happens to our cash once we’ve received the cash we’ve been expecting and have fulfilled all of our obligations?
It is crucial to understand what the distinction is when deciding if this week is the best time to replace equipment or purchase more products or to conserve liquidity.
You may not have been entitled to all the money you believed.
The sales tax illustrates this point especially well.
A restaurant receives money from customers which will need to be dealt with according to its tax obligations. If these funds are divided into operating cash, the balance in the bank can give a false idea of the money in the bank to spend.
The consistent records help ensure sales tax compliance as well as giving the management a better understanding of the restaurant’s financials.
This is the reason restaurant accounting is more efficient when financial obligations aren’t viewed as separate islands.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted by the purchases from vendors. Payroll has an impact on both cash and labor percentage. Sales tax affects the availability of cash. P&Ls are used to track financial performance. Forecasting can also be useful to management.
Connect the pieces.
Bookkeeping Chef uses restaurant-focused reporting and system integrations to integrate these pieces. Bookkeeping outsourcing can benefit owners who do not wish to work all night reconciling their financial data.
The last sentence is vital.
It’s not our goal for restaurant owners to stop examining their books because someone else does. It’s to provide owners with details in a manner that will help them understand what’s happening.
If the P&L shows that the establishment is earning money but the bank balance feels unbalanced, don’t assume that the P&L may be inaccurate.
What happened between the two?
Answering this question can provide more information about the restaurant’s reputation than the name.