The month ended. The month is over.
Make sure to check the restaurant’s account.
The number may not be exactly what you’d hoped for.
This gap is a problem for restaurant owners as they feel that profit and cash available should be the same. They don’t add together. A P&L evaluates the financial performance of a company for a particular time period, whereas a bank account shows the exact timing of money going into and out of the company.
Knowing the difference can change the way a restaurant’s manager is able to view their financials.
Imagine what might happen during the typical week. The customers pay for food. It is important to pay employees. Deliveries of food and beverages arrive with invoices attached. Rent is on the verge of being due. Deposits made with credit cards come with their own schedules. Sales tax is an obligation.
On the other hand, the next week’s shopping has already started.
If you only look at the revenue or the final profits, then you’ll overlook a significant portion of the activity.
Prime Cost Could Hold the key to the answer
Food, drink and labour costs are worth a closer look when restaurant profitability starts to fall.
Prime cost is made up of the price of products and labor. Bookkeeping Chef’s supplied guidance places prime cost at roughly 60%-65% of revenue for many establishments, and emphasizes the importance of monitoring weekly rather than waiting until the closing of the month.
Effective management of prime costs is less about focusing on a single percentage and more about noticing movement quickly.
If the restaurant typically performs near its target but this week, there’s a higher percent. Maybe overtime was boosted. Perhaps the cost of beverages was stable however food costs increased. An increase in the percentage of food items could prompt the owner to examine purchase, waste, menu mix portions or invoices from vendors.
The percent raises the issue. The answer is found in the restaurant’s activity.
Weekly reports make this conversation possible and everyone still remembers what happened.
The details will be harder to recall after a couple of days.
The Vendor’s Bills are Received
The restaurant pays an additional time for the items it buys. This is the reason understanding profit alone doesn’t answer all cash questions.
Invoices from vendors have to be tracked, accepted and paid. This could be a lot of work in an organization that has numerous suppliers.
Automating accounts payable can help organize this process by eliminating repetitive handling of bills and payment information. Bookkeeping systems that are connected can provide the user with a more clear image of the obligations which haven’t yet deposited into the account of the bank.
This is important since a bank’s balance when seen as a whole can appear healthier than the restaurant’s actual near-term position.
It could be that there is $80,000 in the account right now. The amount could have a different meaning in the event that it is affected by other factors like rent or other expenses, such as payroll, vendors or other obligations over the coming days.
That leads naturally to cash flow forecasting.
Instead of asking “How much cash do we have?” the better question is “What will be the fate of our cash following the money we hope to receive and the obligations we are already aware about?”
The difference can be crucial in deciding if this is a comfortable week to repair equipment, make an extra purchase, or keep liquid funds.
You may not have been eligible for all the money you believed.
The example of sales tax is a good one.
Restaurants get money from customers, which they follow in accordance with their tax obligations. If these funds are added to cash flow, the bank balance may provide an inaccurate picture of the amount of money available.
A consistent record helps restaurants stay in compliance with sales taxes while giving management an accurate view of their financials.
Accounting for restaurants is more efficient when the financial responsibilities of each restaurant are separated.
Prime cost affects margin. COGS (cost of products sold) and future payments are affected by the purchases from vendors. Both labor and cash percentages are affected by payroll. Cash availability is affected by sales tax. The P&L documents financial performance while forecasting helps management look ahead.
The pieces are interconnected.
Bookkeeping Chef utilizes restaurant-specific reporting and system integrations to connect the pieces. Outsourced bookkeeping can help users who don’t want to stay up all night reconciling their financial information.
The last part is important.
The aim isn’t to get owners of restaurants to stop looking at their accounts because someone else handles them. The goal is for owners to get data in a way that helps them understand what’s going on.
So when the P&L says the restaurant made money, but the bank account is feeling a little unbalanced, don’t think that one of the numbers could be incorrect.
What was the difference between them?
The answer to this question will tell you more about the restaurant than just the number.