The month has ended. The month is done.
Check the restaurant’s bank account.
This number isn’t exactly the one you’d expected.
This gap is a problem for restaurant owners since they feel that profits and cash availability should speak the same truth. These two things don’t match with each other. A P&L evaluates the financial performance of a company over a specific time period, whereas an account in a bank shows the exact timing of money going into and out of he business.
Understanding the difference will change the way a restaurant’s manager views their finances.
Imagine what goes on during a typical week. The customers pay for food. Employees have to be paid. Invoices will be sent out with the delivery of food and drinks. Rent is on the verge of being due. Deposits made with credit cards have their own specific timing. Sales tax is collected, however that money is subject to an obligation.
The next week’s buying has already started.
If you only look at revenues or the final income, then you’ll overlook a significant portion of this activity.
Prime Cost Could Hold the Key to the Solution
If the restaurant’s profitability begins to shift in the wrong direction, the food, beverages, and labor costs deserve the attention of restaurant owners.
Together, the cost of items sold and labor are the main costs. The Bookkeeping Chefs’ guidance places the prime cost between 60% and 65% of revenues for many restaurants. They also recommend the importance of weekly monitoring rather than waiting until the end of the month.
It is essential for you to recognize any changes in the early stages rather than worrying about certain percentages.
Let’s say that typically, the restaurant performs near its target however this week it’s at a higher percentage. Maybe overtime went up. Perhaps the cost of beverages remained steady however food prices soared. A higher percentage of food might prompt the operator to review purchasing, waste management, menu mix and portions, or vendor costs.
The percentage raises a question. The answer lies in the underlying restaurant activity.
Weekly reports allow for this conversation to be held in the midst of everyone being aware of what’s transpired.
After a period of two to three weeks, it becomes much more difficult to reconstruct the specifics.
When the vendor invoices arrive
Restaurants may buy ingredients in the week ahead, but pay for the items later. Because of this, it is the case that analyzing profits alone will not answer all cash issues.
Invoices from vendors have to be tracked, received and paid. This is a lot of work in the case of a business with many suppliers.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that are linked allow owners to have a better view of their obligations, even if they have not yet been paid.
That’s useful because a bank’s balance when seen in isolation may appear to be healthier than a restaurant’s current position.
It might be that there are $80,000 in your account right now. It could mean something different depending on other factors such as rent, payroll, vendors and other obligations in the coming 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 met our obligations?
This distinction is crucial when deciding on whether this is the best time to purchase an additional item or replace equipment, or maintain the liquidity.
The cash you received may Not Be Yours
Sales tax illustrates the point in particular.
Restaurants collect money from their clients, which they be able to manage in accordance with the tax requirements. If the funds are mixed with cash flow, the balance in a bank can give an inaccurate impression of the amount of money available.
The consistency of the records helps restaurants comply with sales taxes and provide the managers a clear picture of their finances.
This is one reason restaurant accounting works better in situations where financial responsibility isn’t seen as separate islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected by the purchases from vendors. The percentage of labor and cash are affected by the payroll. Cash flow is impacted by sales tax. P&Ls report financial performance, and forecasting lets management see the future.
The pieces are interconnected.
Bookkeeping Chef assists in bringing these elements together, using restaurant-specific reports and system integrations. Bookkeeping outsourcing services with specialization can be a good option for owners who aren’t able to reconcile their financial information. They can take care of much of the accounting work without removing the owner from the financial discussion.
It’s the very last one that is important.
It’s not the intention of restaurant owners to stop checking their books because somebody does. It’s important that the owners get information so they can understand the situation.
If the P&L indicates that the establishment is earning money but the bank balance seems unbalanced, don’t assume that the P&L could be wrong.
Find out what happened between you and your spouse.
This question will reveal more about your business than any number.