The month is done. The month is finished.
It is recommended to check the bank account of the restaurant.
The number isn’t what you expected.
This can be very frustrating for restaurant owners since they feel that profit and cash available should have the same story to tell. However, they aren’t. A P&L measures the financial performance of a company over time and the bank account reflects the actual timing of money moving in and out of the business.
Understanding the difference could alter how a business owner examines the financials of a restaurant.
Take a look at what happens during an normal week. Customers pay for meals. Employees are required to be paid. Food and beverages are delivered with invoices attached. Rent is nearing. Credit card transactions are subject to their own timetable. Taxes on sales have been collected, but that money has a responsibility.
The buying for next week has already begun.
Looking just at revenue or the ending profit number misses much of that activity.
Prime Cost Could Hold the key to the answer
Food, beverage and labour cost are all worth a close review when the profitability of a restaurant begins to decline.
Cost of sales combined with labor is a major cost. Bookkeeping Chef’s supplied guidance places prime cost at roughly 60%-65% of revenue for many establishments, and emphasizes weekly monitoring rather than waiting until the end of each month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant normally performs near its target but this week, there’s an increase in percent. Perhaps overtime was increased. The cost of beverages could remain the same, while food costs increased. Operators may examine menus as well as waste, portions sizes as well as vendor invoices and purchasing if the food percentage is greater.
The percent raises the issue. The answer is found in the activity of the restaurant.
The reason this conversation can be relived is because everyone will be able to remember the details of what transpired.
After a period of two to three weeks, it becomes much harder to reconstruct the particulars.
Then, the Vendor Bills arrive.
The restaurant is expected to pay an additional time for the items it purchases. This timing helps to explain why profit alone is not enough to answer every cash question.
Vendor invoices have to be received and tracked. Doing this manually in a busy business with many suppliers could become an enormous administrative burden.
Automating the accounts payable process can help organize this by reducing the repeated handling of payments and bills. Bookkeeping systems that are integrated to accounting systems can provide owners with a clear understanding of their obligations, even if they’ve not yet been paid.
This is important since an account balance seen as a whole can appear healthier than the restaurant’s real-time position.
It is possible that you have $80,000 in your account at the moment. This number can mean something different if it is impacted by other variables like rent as well as payroll, vendors and other obligations for the coming days.
This is the natural progression to cash flow forecasting.
What will happen with our cash after we’ve gotten the funds we’ve expected and fulfilled all our obligations?
The distinction could be important in deciding if this is a suitable week to replace equipment, make an addition purchase, or maintain liquidity.
You may not be rightfully entitled to all the money you believed.
Sales tax highlights this point particularly well.
A restaurant collects cash from its customers, which eventually must be disposed of in accordance with tax regulations. If these cash-flows are combined with operating cash, it could create a false impression of the amount available for spending.
The consistent records help ensure sales tax compliance while also providing management with a more accurate understanding of the restaurant’s financials.
Accounting for restaurant operations is more effective when the financial responsibilities of each restaurant do not have to be considered separately.
Prime cost affects margin. COGS (cost of goods sold) and future payments are affected due to purchases made by vendors. Payroll can affect both the percentage of labor as well as cash. Cash flow is impacted by sales tax. P&Ls report financial performance, and forecasting lets management examine the future.
Connect the pieces.
Bookkeeping Chef makes use of restaurant-specific reports and system integrations to help bring those pieces together. For business owners who don’t want to be slavishly reconciling financial records, outsourcing bookkeeping services can take care of most of the accounting work without removing the proprietor from financial conversations.
The last part is important.
It’s not the goal for restaurant owners to not check their accounts because someone does. The goal is for owners to get the information they need in a format that will help them understand what is happening.
Don’t think that the P&L is correct if your balance of the bank seems to be tight, however the P&L confirms that the restaurant generated money.
Find out what happened between you and your partner.
This question will reveal more about your company than any other number.
