The month ended. The month is done.
Make sure you check the account of the restaurant.
The number isn’t the one you were expecting.
This gap can be a source of frustration for restaurant owners as they feel that profits and cash available should speak the same truth. They don’t. A P&L is a measure of the financial performance of a firm for a particular time period, whereas an account in a bank shows the exact timing of funds moving into and out of the business.
Understanding the differences could help restaurant owners shift their perspective on restaurant finances.
Take a look at what happens during an normal week. The customers pay for food. Employees have to be paid. You will receive invoices along with meals and beverages delivered. Rent is getting closer. The timing of credit card deposits differs. Sales tax is an obligation.
The purchasing for the coming week has already begun.
If you focus solely on revenue and the final profit figure, it is easy to overlook lots of activities.
Prime Cost could be the Key to the Clue
Food, beverage and labour cost are all worth a close look when restaurant profitability starts to fall.
Cost of the goods sold with labor is the primary cost. The bookkeeping chef’s guideline places prime cost at roughly 60%-65 percent of the total revenue for many restaurants, focusing on the importance of monitoring weekly rather than waiting until the final day of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Suppose the restaurant normally performs close to its target, but this week’s percentage increases. Perhaps overtime has increased. The cost of drinks could have remained the same while food costs increased. Operators may examine menus, waste, portion sizes or vendor invoices, as well as purchasing if the proportion of food is greater.
The percentage is crucial. The activities that underlie the restaurant provide the answer.
A weekly report makes this conversation possible and everyone still remembers what happened.
After two or three weeks, it becomes harder to reconstruct the particulars.
Then the Vendor Bills Arrive
Restaurants may buy ingredients one week and pay for them the next. This is the reason understanding profit alone doesn’t answer every cash question.
Vendor invoices should be received, recorded then tracked and finally paid. In the course of manual processing, an office with many suppliers can become a huge administrative burden.
Automating accounts payable helps to streamline the process by cutting down on the need to handle bills in a repetitive manner and payment information. Systems for bookkeeping that connect to accounting systems can provide owners with a clear image of their obligations even if they have not yet been paid.
This is useful, because the bank’s balance may appear healthier than a restaurant’s current situation.
It could be that you have $80,000 on your account at the moment. The $80,000 amount is small if the cost of rent, vendors, or payroll will take up a significant portion of the account in the coming days.
This leads naturally to cash flow forecasting.
Instead of asking “How much cash do we have?” the better question becomes “What will transpire with our cash after the money we’re expecting to receive and our obligations that we already know about?”
It is crucial to understand the difference before deciding if this week is an ideal moment to upgrade equipment, purchase additional items or to conserve liquid funds.
You may not have been legally entitled to the full amount you thought.
The sales tax illustrates this particularly well.
Restaurants receive cash from its customers, which eventually needs to be handled in accordance with its tax obligations. If these funds are divided into operating cash, the balance of the bank can create a misleading sense of what’s available to spend.
A consistent record-keeping system helps restaurants comply with sales tax laws while also providing a complete picture of their financial situation.
This is the reason restaurant accounting can be more effective when financial obligations aren’t viewed as distinct islands.
Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Payroll affects both labor percentage and cash. Cash flow is affected by the sales tax. P&Ls report financial performance, and forecasting lets management look ahead.
Connect the pieces.
Bookkeeping Chef assists in bringing these pieces together with restaurant-focused reports and system integrations. For those who don’t wish to spend their nights manually reconciling financial data, outsourced bookkeeping services can handle the bulk of accounting tasks without having to remove the owner from the financial discussion.
It’s the last part that counts.
Restaurant owners shouldn’t be able to stop reading the books, even if they’re managed by someone else. It’s for owners to receive data in a way that will help them understand what’s going on.
If the P&L shows that the establishment is earning money however the balance of the bank seems insufficient, don’t believe the P&L could be wrong.
What transpired between the two?
This question will reveal more about your company than any number.