The month is finished. The sales were good, the P&L shows a profit, and there is nothing to be terribly incorrect.
You should then check the restaurant’s bank account.
The number isn’t the one you were expecting.
Restaurant owners may find this disconnect frustrating, as they believe that cash flow and profits should be identical. They aren’t. The P&L is a measurement of financial performance. On the other hand, the bank account is an indication of the time when money flows in and out.
Understanding the difference will alter the way that a restaurant’s owner thinks about their finances.
Check out the typical week. Customers pay for food. Employees are required to be paid. You will receive invoices along with the delivery of food and drinks. Rent is coming. Credit card payments are subject to their own timetable. Sales tax has been collected, however that money comes with an obligation.
Already the purchases for the week ahead have begun.
If you focus solely on revenue and the final profit figure, it is easy to miss out on lots of activities.
The clue may be hidden in the price of the best.
Food, beverages and labor costs merit a closer at when profitability in restaurants begins to decrease.
Together, cost of goods sold and the labor cost comprise the primary cost. The Bookkeeping Chef’s guidance puts prices for the prime cost at around 60%-65 percent for most restaurants and focuses on weekly monitoring rather than staying until the end of the month.
It is essential for you to recognize changes early than obsessing about certain percentages.
Imagine that the restaurant normally performs near its target but this week, it’s a higher percent. Perhaps overtime has is up. The cost of drinks could be the same as food costs increased. A higher food percentage might make the supervisor think about reviewing buying, waste, menu mix, portions, or vendor invoices.
The percentage raised the question. The answer lies in the activities in restaurants.
This is possible due to the fact that everyone will be able to remember the events that transpired.
The details are much more difficult for you to remember just a few days later.
The Vendor’s Bills Arrive
Restaurants might purchase food items during a week and pay for them the next. This is due to the fact that analyzing profits alone will not resolve all cash-related issues.
Invoices from vendors have to be tracked, accepted and paid. This can be quite a task in the case of a business with many suppliers.
Automating accounts payable simplifies the process, cutting down on the time spent on tasks that are repetitive, such as managing the payment and bill details. Bookkeeping systems that are integrated will give the owners a clear view of their obligations, even if they haven’t yet been paid.
It’s advantageous because, considered as a whole the restaurant’s financial position may appear to be more stable than its actual short-term financial position.
There may be $80,000 sitting in the bank account at present. It could be interpreted differently when it is affected by other factors such as rent or other expenses, such as payroll, vendors or other obligations that will be due in the coming days.
This leads naturally to the process of forecasting cash flows.
What happens to our cash once we’ve received the funds we’ve expected and fulfilled all our obligations?
The difference can be crucial in determining if this is the right time to replace equipment, an additional purchase, or to preserve the liquidity.
The cash you received may Not be Yours
The sales tax illustrates this very well.
The money that restaurants receive from their customers is eventually going to need to be handled in accordance to its tax obligations. When these money are thought of as grouped together with operating cash, they can provide a false perception of the amount of money that is available for spending.
Regularly maintained records help restaurants comply with sales tax laws while also giving a clear image of their financial condition.
Restaurant accounting is more effective when the financial responsibilities of each restaurant do not have to be treated separately.
Prime cost affects margin. COGS and future payments are affected by the purchase of vendor products. Payroll and cash availability are affected by payroll. Sales tax influences cash availability. The P&L tracks financial performance, while forecasting helps management look ahead.
The pieces join.
Bookkeeping Chef assists in bringing these pieces together with restaurant-focused reports and system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.
It’s the final part that counts.
It’s not the goal for restaurant owners to not check their books just because someone else does. Owners should be given information that will help them to know what’s going on.
Don’t assume that the P&L is wrong if the bank account appears to be in good shape, but the P&L indicates that the restaurant made money.
Find out what happened between you and your spouse.
This question will tell you more about your business than any number.