The month has ended. The sales were strong, the P&L shows a profit, and there’s nothing that appears to be seriously wrong.
Check the restaurant’s account.
The number you received isn’t what you would have expected.
This can be very frustrating for restaurant owners because they feel that profit and cash available should tell the same tale. They don’t. A P&L is a measure of the financial performance of a firm over a certain period of time, while it is a bank account that shows the exact timing of money going into and out of he business.
Understanding the different aspects can help owners change their perception of restaurant financials.
Imagine what goes on during an average week. Customers pay for food. Employees have to be paid. Deliveries of food and beverages arrive with invoices. Rent is coming. Deposits to credit cards are timed. Sales tax is collected, but that money is subject to an obligation.
The purchasing for the coming week has already started.
If you just look at the amount of revenue or profits, you’ll miss a lot of this process.
Prime Cost Could Hold the Key to the Solution
If the profitability of restaurants begins to fall, cost of food, beverages and labour expenses should be taken into the equation.
Cost of goods sold combined with labor is a major cost. The Bookkeeping Chefs’ provided guidance places the prime cost between 60-65 percent of revenue for many establishments. They also suggest regular monitoring of the week instead of waiting until the month ends.
Effective prime cost management is less about obsessing over one particular percentage, and more about noticing movement early.
Let’s say that typically, the restaurant achieves its goals, but this week, there’s at a higher percent. Maybe overtime is up. Perhaps the cost of beverages was stable, but food costs increased. The chef may look over menus, waste, portion sizes or vendor invoices, as well as purchasing if the food percentage is greater.
The percentage is crucial. The answer is found in the restaurant’s activity.
A weekly report makes an opportunity for conversation while everyone remembers the events.
Three or four weeks later after that, the details become harder to understand.
Then the Vendor Bills Show Up
The restaurant will pay later for the ingredients it buys. This timing helps to explain how profit alone will not be enough to answer all cash-related questions.
Invoices from vendors have to be tracked, received and paid. This can take a lot of work in an operation that has numerous suppliers.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that connect to accounting systems can provide owners with a clear picture of obligations, even though they haven’t yet been paid.
This is because an account balance seen as a whole can appear healthier than a restaurant’s current position.
There might be $80,000 in the account today. This number can be interpreted differently when it is affected by other elements like rent or other expenses, such as payroll, vendors or other obligations for the coming days.
Cash flow forecasting is a natural outcome.
What will happen with our cash once we’ve received the funds we’ve expected and have fulfilled all of our obligations?
This is a crucial distinction in determining the appropriateness of the appropriate time to buy an additional purchase, replace equipment, or maintain the liquidity.
and some of the cash Wasn’t Really Yours
The example of sales tax is a good one.
Restaurants receive money from their clients, which they deal with in accordance with their tax obligations. If the funds are added to cash flow, the balance in a bank can be misleading about how much money is available.
Consistent records support sales tax compliance, while giving the manager a better perspective of the restaurant’s financials.
This is one reason restaurant accounting is more efficient when financial obligations aren’t viewed as separate islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected by purchases made by vendors. Payroll and cash availability are affected by the payroll. Sales tax influences the availability of cash. P&Ls track financial performance, while forecasting lets management examine the future.
The pieces join.
Bookkeeping Chef incorporates restaurant-specific reporting through system integrations. Outsourced bookkeeping services that are specifically tailored to your needs can be a good alternative for businesses that do not have time to reconcile their financial information. They can handle a large portion of the accounting task but without taking the owner away from discussions about finances.
The last sentence is vital.
Restaurant owners shouldn’t be able to stop studying the literature regardless of whether they’re being handled by another. It’s to provide owners with details in a manner that will help them understand what’s happening.
If the P&L indicates that the establishment is earning money but the bank balance feels insufficient, don’t believe the P&L may be inaccurate.
Ask them about what transpired between them.
This question can tell you more about your business than any number.