The month is done. The month has ended.
Verify the restaurant’s bank account.
The number may not be the one you were expecting.
This can be very frustrating for restaurant owners because they feel that profit and cash availability should speak the same truth. However, they aren’t. A P&L evaluates the financial performance of a company over a specified period of time, while it is a bank account that shows the exact time of money moving into and out of the company.
Understanding the difference will change how a restaurant’s owner thinks about their finances.
Imagine what might happen during a typical workday. Food is paid for by customers. Employees have to be paid. The invoices for food and beverages are delivered. Rent is close to being paid. Deposits made with credit cards have their own timing. Taxes on sales have been collected, but that money is subject to an obligation.
On the other hand, the next week’s shopping has already begun.
If you focus only on the amount of revenue or profits, you’ll miss a lot of this activity.
The Secret Could Be Hidden in Prime Cost
Food, beverages and labor costs merit a closer review when the profitability of a restaurant begins to decrease.
Together, the cost of products sold and labor are the main costs. The Bookkeeping Chefs’ provided advice places the cost of goods sold between 60 and 65 percent of revenue for many establishments. They also recommend regular monitoring of the week instead of waiting until the month ends.
It is crucial to be able to spot changes early than obsessing about the exact percentage.
Suppose that normally the restaurant performs near its target however this week it’s a higher percent. Maybe the number of overtime hours increased. The cost of drinks could have remained the same while food prices increased. The operator may review menus, waste, portion sizes or vendor invoices, as well as buying if the percentage of food is higher.
The percentage raised the question. The answer lies in the restaurant’s activity.
Weekly reports make an opportunity for conversation while everyone will be able to recall what occurred.
Three or four weeks later, the details become much harder to understand.
Once the vendor invoices are received
A restaurant may purchase ingredients this week but pay for them later. This is a way to explain why profit alone is not enough to answer every cash question.
Vendor invoices need to be accepted and logged. This is a lot of work in an organization that has many suppliers.
Automating the process for accounts payable will help to organize the process through reducing the repetition of payments and bills. These bookkeeping systems are also able to provide the user with a more clear picture of obligations that haven’t yet reached the bank account.
This is beneficial, as the balance of your bank account may appear to be healthier than the restaurant’s current situation.
It might be that you have $80,000 in your account right now. This number could mean something different in the event that payroll, rent, vendors, and other obligations will consume a large amount over the next few days.
That leads naturally to cash flow forecasting.
Instead of asking “How much cash do we have?” the better question is “What is likely to happen to our cash after the money we expect to receive and the obligations we are already aware about?”
This is an important distinction to make when deciding on whether this is the appropriate time to buy an additional purchase, replace equipment, or maintain liquidity.
The cash you received may Not be Yours
Sales tax highlights this point particularly well.
Restaurants collect money from their customers, which they follow in accordance with their tax obligations. If those dollars are mentally placed in the same category as operating cash, the balance in the bank can give a false idea of what is in the bank to spend.
Consistent records support sales tax compliance as well as giving management a more realistic view of the restaurant’s finances.
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 the percentage of labor and cash. Cash availability is affected by sales tax. P&Ls report financial performance, and forecasting lets management take a look ahead.
Connect the pieces.
Bookkeeping Chef integrates restaurant-specific reporting with system integrations. Specialized outsourced bookkeeping services are a great alternative for those who don’t have time to manually reconcile financial information. They will take care of a lot of the accounting work while removing the proprietor from financial discussions.
The last sentence is vital.
It’s not the intention of restaurant owners to stop checking their accounts because someone else does. The goal is for owners to get details in a manner that will help them understand what’s happening.
Don’t be fooled into thinking that the P&L is incorrect if the accounts appear to be in a good state, yet the P&L indicates that the restaurant has earned money.
Find out what transpired between you and your spouse.
This one question could teach you far more about your restaurant than any other number could on its own.