The month has ended. The sales were decent, the P&L was profitable and there was no sign of anything that appeared to be terribly in error.
After that, you can check the bank account of the restaurant.
The number isn’t what you expected.
Restaurant owners, this disconnect can be frustrating because the cash flow and profit appear to provide the same information. These two things don’t match in. The P&L is a measure of financial performance. On the other hand, the bank account is a record of the time when money flows in and out.
Understanding the difference will change how a restaurant’s owner is able to view their financials.
Take a look at what goes on in a typical week. The customers pay for food. Employees must be paid. You will receive invoices with drinks and food deliveries. Rent is getting closer. Credit card deposits have their own specific timing. Sales tax is collected, but it comes with responsibilities.
The purchasing for the coming week has already begun.
If you only look at the revenue or the final income, then you’ll be missing a lot of this activity.
The key may lie in the price of the best.
Food, beverages and labor costs are worth a closer at when profitability in restaurants begins to fall.
Cost of selling goods with labor is the main cost. The Bookkeeping Chef’s guidance puts prime cost at roughly 60%-65 percent of the revenue for many restaurants, focusing on daily monitoring, rather than waiting until the close of the month.
Effective primary cost management is not about focusing on the exact percentages and more about recognizing changes earlier.
Imagine that the restaurant usually performs close to its target however this week’s performance increases. Perhaps the overtime rate increased. Maybe the costs for beverages were stable however food costs increased. A higher proportion of food could cause the owner to review purchases, waste management, portions and menu mix or even vendor invoices.
The percentage is what matters. The restaurant’s activity is the answer.
This conversation is possible because everyone can still remember what transpired.
After two or three weeks, it gets more difficult to reconstruct details.
The Vendor’s bills arrive
The restaurant is expected to pay later for the ingredients it buys. This timing helps to explain the reasons why profit alone isn’t enough to answer all cash related questions.
Invoices from vendors have to be tracked, received and paid. In a highly-competitive business with multiple suppliers, managing that manually could become an administrative task.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Owners can have a clearer view of the debts that haven’t landed in their bank accounts by utilizing the bookkeeping software that is connected to.
It’s beneficial because, when considered as a whole the restaurant’s financial position may appear to be more stable than its actual financial position.
It could be that there is $80,000 in the account as of today. This number could mean something different when you consider that rent, payroll and vendors commitments will consume a substantial part of it in 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 likely to be the fate of our cash following the money we hope to receive and the obligations we already know about?”
The distinction could be important in deciding if this is an appropriate time to replace equipment, make an additional purchase, or to preserve liquidity.
The Cash You Received May Not be Yours
Sales tax highlights this point very well.
A restaurant receives money from customers and has to be managed according to tax requirements. If these funds are mixed with cash flow, the balance in a bank can provide an inaccurate picture of the amount of money available.
Consistent records support sales tax compliance while also providing management with a more accurate picture of the financials of the restaurant.
This is one reason restaurant accounting can be more effective when financial responsibilities aren’t treated as separate entities.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll is a factor that affects the percentage of labor and cash. Taxes on sales affect cash availability. The P&L records financial performance, while forecasting helps management look ahead.
The pieces are connected.
Bookkeeping Chef helps bring these pieces together with restaurant-focused reports and system integrations. For operators who don’t want to stay up all night reconciling financial data, specialized outsourced bookkeeping services can handle the bulk of accounting tasks without removing the owner from the financial discussion.
It’s the last thing that is important.
Restaurant owners shouldn’t be able to stop studying the literature even if they’re managed by someone else. It’s to provide owners with details in a manner that allows them to understand what’s going on.
Don’t think that the P&L is not correct if the bank account appears to be in good shape, but the P&L shows the restaurant has generated money.
Ask what happened between them.
The answer to that question will reveal far more about your restaurant than any other number could be on its own.