The month is over. The sales were excellent and the P&L reported a profit and there was nothing that appeared to be terribly incorrect.
You then check the bank account of the restaurant.
The number is not what you expected.
This disconnect can be frustrating for restaurant owners since they believe that profit and cash flow should have the same story to tell. They don’t. A P&L is a measure of the financial performance of a business for a particular time period, whereas a bank account shows the exact time of money entering and leaving the company.
Understanding the difference could help restaurant owners shift their perspective on restaurant finances.
Check out what goes on in a typical week. Customers pay for meals. Employees need to be paid. The invoices for food and beverages are handed out. Rent is coming up. The time frame for debits to credit cards differs. Sales tax has been collected, but that money is subject to an obligation.
Already the next week’s purchases have started.
Focusing on revenue only or the ending profit number isn’t a good way to assess the full scope of what happens.
The key to the answer may lie in the price of the best.
If restaurant profits begin to decrease, food, beverage and labor costs must be taken into consideration.
Cost of selling goods with labor is a major cost. The Bookkeeping Chefs’ provided instructions place the main cost between 60 and 65 percent of revenue for many restaurants. They also suggest regular monitoring of the week instead of waiting until the month ends.
Effective primary cost management requires less focus on a single percent and more being aware of early changes.
Imagine that the restaurant usually performs in line with its goals However, this week’s number is higher. Perhaps the overtime rate was increased. Maybe beverage costs were stable However, food expenses increased. The operator may review menus as well as waste, portions sizes as well as vendor invoices and purchasing if the food percentage is greater.
The percentage raises a concern. The answer lies in the activity of the restaurant.
Weekly reports make an opportunity for conversation while everyone is still able to remember what happened.
The details are much more difficult to remember just a few days later.
When the vendor bills arrive
Restaurants may purchase ingredients in one week, and then make payments the following week. Because of this, it is the case that understanding profits alone can not solve all cash problems.
Vendor invoices should be received, recorded then tracked and finally paid. This could be quite a task in an organization that has numerous suppliers.
Automating accounts payable can help organize this process by eliminating the need to handle bills in a repetitive manner and payment details. Bookkeeping systems that are connected can give the user a better image of the obligations that haven’t yet reached the bank account.
It’s useful because, looked at as a whole the balance of a restaurant’s bank account may appear to be more stable than its actual short-term financial situation.
It might be that you have $80,000 on your account at the moment. It could mean something different when you consider that rent, payroll, vendors, and other commitments will consume a substantial portion over the next few days.
That leads naturally to cash flow forecasting.
The most important question to ask yourself is “What will happen to our money after we receive it and have met the obligations we have made?”
The distinction could be important when deciding if it is an appropriate time to upgrade equipment, make an additional purchase, or to preserve the liquidity.
And Some of the Cash Was Never Really Yours
Sales tax illustrates the point in particular.
Restaurants receive cash from its customers, which eventually has to be managed in accordance with tax regulations. If those dollars are mentally grouped with ordinary operating money, the bank’s balance can create a misleading sense of the amount available to spend.
Regularly maintained records allow restaurants to comply with sales taxes and provide the management a realistic view of their finances.
Restaurant accounting is more efficient when the financial obligations of each restaurant do not have to be handled separately.
Prime cost affects margin. COGS and future payments are affected by purchases made by vendors. Cash and labor percentage are affected by the payroll. Cash availability is impacted by sales tax. P&Ls keep track of financial performance and forecasting lets management take a look ahead.
Connect the pieces.
Bookkeeping Chef is a restaurant-specific report that integrates with system integrations. Outsourced bookkeeping can help users who don’t want to spend the night manually reconciling their financial data.
It’s the very last one that matters.
The aim isn’t to get restaurant owners to stop looking at their books since someone else handles them. Owners need to be informed that helps them be aware of what’s happening.
So if the P&L reports that the restaurant earned money, but the bank account seems to be a bit tight, don’t assume some of the figures must be incorrect.
Find out what transpired between you and your partner.
This question will teach you something more about the food you serve than either number can alone.