The month is over. The month is finished.
After that, you can check the bank account of the restaurant.
You didn’t get the number you expected.
Restaurant owners can be frustrated by this because they believe that cash flow and profits ought to be identical. They don’t add with each other. It’s not true. P&L is a measurement of financial performance. In contrast, the bank account is a reflection of the time when money flows in and out.
Knowing the difference could change the way an owner looks at restaurant finances.
Take a look at what happens during an normal week. The customers pay for food. The employees must be paid. You will receive invoices along with meals and beverages delivered. Rent is getting closer. The time of the credit card deposit is different. Sales tax is an obligation.
The purchase for next week has already begun.
Looking only at revenue or the final profit figure does not take into account a lot of the activity.
Prime Cost could be the Key to the Solution
When restaurant profitability starts moving in the negative direction, food, beverage as well as labor costs require the attention of restaurant owners.
Cost of sales combined with labor is the prime cost. Bookkeeping Chef’s provided guidance places primary costs between 60%-65 percent for a variety of restaurants and stresses weekly monitoring instead of waiting until the end the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Let’s say that typically, the restaurant is performing at a high level, but this week, it’s an increase in percentage. Perhaps overtime was increased. Perhaps the cost of beverages remained steady but food costs increased. Operators may examine menus or waste, portion sizes or vendor invoices, as well as purchasing if the food portion is greater.
The percentage raises questions. The restaurant’s activity is the answer.
A weekly report can make this conversation possible and everyone remembers the events.
The details will be more difficult for you to recall two or three days later.
Then, the Vendor Bills arrive.
Restaurants may buy ingredients in the week ahead, but pay for these items later. Because of this, it is the case that understanding profits alone can not solve all cash problems.
Invoices from vendors have to be tracked, received and paid. In a busy business with many suppliers, doing this manually can become an administrative task.
Automating the account payable process can assist in coordinating this process by reducing the repeated handling of bills and payments. The user can have an accurate picture of obligations that haven’t yet landed on their bank accounts through automated bookkeeping systems that are connected.
That’s useful because a bank’s balance when seen as a whole can appear healthier than the restaurant’s actual near-term position.
It could be that you’ve got $80,000 in your account at the moment. This number can be interpreted differently in the event that it is affected by other factors like rent as well as payroll, vendors and other obligations for the next few days.
That leads naturally to the process of forecasting cash flows.
The best question to ask is “What happens to our cash after we receive it and have met our commitments we’ve identified?”
This is an important distinction to make in determining the appropriateness of the appropriate time to make an additional purchase, replace equipment, or preserve liquidity.
You might not have been legally entitled to the full amount you thought.
The sales tax example is a good example.
The cash a restaurant gets from its customers will eventually need to be handled in accordance of its tax obligations. If these funds are combined with operating cash, they can provide a false perception of the cash available for spending.
The consistent recording system allows restaurants to comply with the sales tax laws, while providing a complete view of their financial position.
Accounting for restaurants is more efficient when the financial responsibilities of each restaurant are not separated.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll can affect both the labor and cash percentage. Sales tax influences the availability of cash. The P&L records financial performance, while forecasting aids management in looking ahead.
The pieces connect.
Bookkeeping Chef uses restaurant-focused reporting as well as system integrations to connect the pieces. Bookkeeping outsourcing can benefit operators who do not want to work all night reconciling their financial records.
The last part is important.
Restaurant owners should not stop going through the manuals even if they’re managed by someone else. It’s essential that owners get information so they know what’s happening.
If the P&L states that the restaurant has made profits, but the account seems to be a bit tight, don’t presume that some of the figures must be wrong.
What transpired between the two?
The answer to that question will reveal far more about your restaurant than any number by itself.