The month is finished. The month is done.
Make sure you check the account of the restaurant.
The number isn’t what you’d expect.
This gap is a problem for restaurant owners since they think that profit and cash availability should have the same story to tell. Both of them don’t match up. A P&L evaluates the financial performance of a firm over a specified period of time, while accounts in banks show the exact timing of funds going into and out of the business.
Understanding the difference can allow owners to change their perspective on restaurant finances.
Imagine what happens on a typical workday. Customers pay for meals. The payment of employees is essential. Food and beverages are delivered. Rent is on the way. Credit card payments have their own timing. Sales tax is collected, but it is a responsibility.
Meanwhile, next week’s purchasing has already begun.
Concentrating on revenue or the final profit figure isn’t a good way to assess the full scope of what happens.
The key may lie in the price of the best.
When restaurant profitability starts moving in the negative direction, the food, beverages as well as labor costs require consideration.
Together, the cost of goods sold and labor are the main costs. The Bookkeeping Chef’s guidance puts prime cost at roughly 60%-65 percent of revenues for a variety of restaurants, focusing on weekly monitoring rather than waiting until the final day of each month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Suppose that normally the restaurant performs near its target but this week, there’s more of a percentage. Perhaps the overtime rate went up. The beverage cost may have remained the same while the food expenses increased. The manager can review menus and portions, waste along with vendor invoices and buying if the percentage of food is greater.
The percentage raises a question. The answer lies in the restaurant’s activity.
The reason this conversation can be relived is because everybody can remember the details of what transpired.
Three or four weeks later, the details become much more difficult to reconstruct.
The Vendor Bills are then delivered.
Restaurants may buy ingredients this week but pay for the ingredients in the future. It’s due to this fact that knowing profits alone will not resolve all cash-related issues.
Vendor invoices must be tracked, received and paid. Manually completing this task in an environment with many suppliers can be a massive administrative burden.
Automating the account payable process can help organize this by reducing the repetitive handling of bills and payments. These bookkeeping systems are also able to provide the user with a more clear image of the obligations that haven’t yet reached the bank account.
This is useful, because the bank’s balance may appear more healthy than the restaurant’s current situation.
There could be $80,000 in the account right now. The figure of $80,000 means little if vendors, rent or payroll take up a large portion over the coming days.
This is what leads to cash flow forecasting.
Instead of asking “How many dollars of cash are we carrying?” the better question becomes “What is likely to happen to our cash after the money we’re expecting to receive and the obligations we are already aware about?”
The distinction is important when deciding whether this is an appropriate time to repair equipment, make an extra purchase, or keep the liquidity.
The Money You Received Could Not Be Yours
The sales tax illustrates this particularly well.
Restaurants collect money from their clients, which they be able to manage in accordance with the tax requirements. If those dollars are mentally grouped with ordinary operating money, the bank’s balance can give a false idea of what is available for spending.
Regularly maintained records help restaurants comply with sales tax laws while also giving a clear overview of their financial standing.
This is the reason restaurant accounting can be more effective when financial responsibilities aren’t treated as separate islands.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Cash and labor percentage are affected by payroll. Cash flow is impacted by the sales tax. P&Ls keep track of financial performance and forecasting allows management to take a look ahead.
Connect the pieces.
Bookkeeping Chef integrates restaurant-specific reporting along with system integrations. For business owners who don’t want to stay up all night reconciling financial data, outsourced bookkeeping services will handle much of the accounting workload without removing the proprietor from the financial discussion.
It’s the last part that’s important.
It’s not for restaurant owners to not look at their books since somebody else handles them. It’s for owners to receive data in a way that will help them understand what is happening.
When the P&L says the restaurant made profits, but the account feels surprisingly insecure, don’t believe that one of the numbers must be wrong.
Ask them about what transpired between them.
This one question could teach you something more about the food you serve than any number by itself.