The month is over. The month has ended.
After that, you can check the bank account of the restaurant.
This number isn’t exactly what you’d hoped for.
This disconnect can be frustrating for owners of restaurants because they believe that profit and cash on hand should speak the same truth. But they don’t. The P&L is a metric of financial performance, whereas the bank account is a reflection of the time when money flows in and out.
Understanding the difference will change the way a restaurant’s manager is able to view their financials.
Think about what happens in an ordinary week. The customers pay for food. Employees have to be paid. Invoices for food and beverages are delivered. Rent is getting closer. Deposits to credit cards are timed. Sales tax is collected, however that money has a responsibility.
Already the shopping spree for next week have begun.
If you focus only on revenues or the final profits, then you’ll not be able to see a lot of this action.
Prime Cost could be the key to the answer
If the profitability of restaurants begins to decrease, cost of food, drinks and labor costs must be taken into consideration.
Prime cost is made up of both goods and labor. Bookkeeping Chef’s guidelines place the cost of goods sold at 60% to 65 percent for a wide range of restaurants and focuses on weekly monitoring instead of staying until the end of of the month.
Effective cost management for primes is less about worrying about a single percentage and more about spotting changes earlier.
Suppose the restaurant normally performs in line with its goals, but this week’s percentage is higher. Perhaps overtime was added. Perhaps the cost of beverages was stable while food costs grew. The manager can review menus and portions, waste or vendor invoices, as well as purchasing if the food percentage is higher.
The percentage is the most important. The answer lies in the underlying restaurant activity.
A weekly report can make an opportunity for conversation while everyone is still able to remember what happened.
Two or three weeks later After that, the details become more difficult to decipher.
The Vendor’s bills arrive
Restaurants may purchase ingredients during a week and pay for them the following week. This is a way to explain the reason why profit alone isn’t enough to answer all cash questions.
Vendor invoices should be recieved and tracked. Manually completing this task in an environment with many suppliers can be a massive administrative burden.
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 view of their obligations, even if they have not yet been paid.
This is advantageous, since the bank balance can appear to be healthier than the restaurant’s actual financial situation.
It might be that you have $80,000 in your account at the moment. This number could mean something different in the event that payroll, rent, vendors, and other commitments consume a significant portion of it over the next few days.
Forecasting cash flow is a natural outcome.
What will happen with our money after we’ve received the amount we’ve hoped for and have fulfilled all of our obligations?
It is important to know the difference before deciding if this week is a good time to replace equipment or buy additional products or to conserve liquidity.
You might not have been eligible for all the money you thought.
Sales tax highlights this especially well.
Restaurants get money from customers, which they must then handle according to their tax obligations. If these dollars are mentally mixed with operating cash, then the bank balance may provide an inaccurate picture of the amount of cash available.
Consistent record keeping helps restaurants to comply with the sales tax laws while also providing a complete view of their financial position.
This is the reason restaurant accounting can be more effective when financial obligations aren’t viewed as separate islands.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll and cash availability are affected by the payroll. Cash flow is impacted by sales tax. P&Ls are used to track the financial performance. Forecasting is also helpful to management.
Connect the pieces.
Bookkeeping Chef utilizes restaurant-specific reporting as well as system integrations to put all the pieces together. Outsourced bookkeeping is a great option for operators who do not want to work all night reconciling their financial records.
The last point is vital.
Restaurant owners shouldn’t stop reading the books, just because they are handled by someone else. Owners must be provided with information that will help them to be aware of what’s happening.
Don’t be fooled into thinking that the P&L is wrong if the accounts appear to be in a good state, yet the P&L indicates that the restaurant earned money.
What happened between the two?
The answer to that question will reveal something more about the food you serve than any number alone.