The month has ended. The sales were decent, the P&L had a profit, and there was no sign of anything to be terribly off.
Verify the restaurant’s bank account.
The number isn’t what you expected.
Restaurant owners may find it difficult to reconcile this issue since they believe cash flow and profits must be identical. However, they aren’t. A P&L measures the financial performance of a company over a certain period of time, while accounts in banks show the exact timing of funds going into and out of he business.
Knowing the difference could change the way an owner is looking at the restaurant’s financials.
Imagine what could happen on a typical workday. The customers pay for food. The payment of employees is essential. Food and beverages are delivered with invoices attached. Rent is close to being paid. The timing of the credit card deposit differs. Sales tax is collected however it is responsibilities.
The shopping for the week ahead has already started.
If you just look at the revenue or the final profits, you’ll miss a lot of the activity.
The clue may be hidden in the price of the best.
If restaurant profitability begins to decrease, food, beverage and labor expenses should be taken into the equation.
Prime cost is made up of both the cost of goods and labor. Bookkeeping Chef’s provided guidance places the cost of goods sold at 60%-65 percent for most restaurants and emphasizes monitoring on a weekly basis as opposed to staying until the end of the month.
Effective cost management for primes involves less focusing on a single percent and more noticing earlier movement.
Imagine that the restaurant normally achieves its goals, but this week, it’s an increase in percentage. Perhaps overtime was added. Perhaps, the costs for beverages remained constant however food prices soared. The operator may review menus and portions, waste, vendor invoices, and buying if the percentage of food is greater.
The percentage raises a concern. It is in the underlying restaurant activity.
A weekly report can make an opportunity for conversation while everyone is still able to remember what happened.
After two or three weeks, it gets more difficult to reconstruct the particulars.
The Vendor Bills are then delivered.
A restaurant might purchase its ingredients in the week ahead, but pay for the ingredients later. It’s because of this timing that understanding profits alone does not address all cash issues.
Vendor invoices should be recorded, received as well as tracked until they are paid. This can be quite a task in an organization with many suppliers.
Automating accounts payable can help organize the process by cutting down on the need to handle bills in a repetitive manner and payment information. Systems for bookkeeping that are linked to accounting systems can provide owners with a clear image of their obligations even if they’ve not yet been paid.
That’s useful because an account balance seen in isolation can look healthier than the restaurant’s actual near-term position.
It might be that you have $80,000 in your account at the moment. The $80,000 amount is little if vendors, rent or payroll make the majority of the next few days.
That leads naturally to cash flow forecasting.
What will happen with the money we have received after we’ve received the cash we’ve been expecting and have fulfilled all of our obligations?
The distinction can matter when deciding if it is a comfortable week to replace equipment, an additional purchase, or preserve cash.
You might not have been eligible for all the money you thought.
The sales tax example is a good one.
Restaurants receive money from their customers, which they must be able to manage according to their tax obligations. When these dollars are mentally placed in the same category as operating cash, they can create a false impression of the cash available for spending.
The consistency of the records helps restaurants comply with sales taxes while giving the managers a clear picture of their finances.
This is why it is that restaurant accounting works better when financial obligations aren’t separated from other responsibilities.
Prime cost affects margin. COGS and future payment are affected by the purchase of vendor products. Payroll and cash availability are affected by the payroll. Sales tax affects the availability of cash. P&Ls are used for recording the financial performance. Forecasting can be helpful for management.
The pieces are joined.
Bookkeeping Chef uses restaurant-focused reporting as well as system integrations to bring those pieces together. Bookkeeping outsourcing can benefit users who don’t want to be tasked with reconciling their financial records.
The last sentence is vital.
It’s not the goal for restaurant owners to not check their accounts because someone does. Owners should receive information that will help them to understand what’s happening.
If the P&L indicates that the establishment is earning money however, the balance in the bank feels insufficient, don’t believe that the P&L may be inaccurate.
What happened between the two?
The answer to this question will tell you more about the restaurant, more than just an identifying number.