The month is over. The sales were decent, the P&L showed a profit and there was nothing that appeared to be terribly off.
Make sure to check the restaurant’s account.
The number you received isn’t what you’d expect.
For owners of restaurants, this is a problem because the cash flow and profit feel as though they should provide the same information. But they don’t. A P&L examines the financial performance of a company over time and your bank account shows the exact timing of funds moving in and out of the company.
Knowing the difference could change the way that a proprietor is looking at the restaurant’s financials.
Have a look at what happens during a normal week. The customers pay for food. Employers must be paid. Invoices for food and beverages are delivered. Rent is getting closer. The time frame for debits to credit cards differs. Sales tax collected is an obligation.
The purchasing for the coming week has already begun.
Focusing on revenue only or the end-of-year profit number does not take into account a lot of the activity.
Prime Cost could be the Key to the Clue
If restaurant profits begin to move in the negative direction, food, beverage, and labor costs deserve attention.
Prime cost is made up of the price of goods and labor. The Bookkeeping Chef’s guidance puts primary costs between 60% to 65 percent for most restaurants, and emphasizes weekly monitoring as opposed to waiting until the end the month.
It is essential to be able to detect changes early than obsessing about an exact percentage.
If the restaurant typically does well, however this week it’s an increase in percentage. Maybe the number of overtime hours increased. Perhaps beverage costs remained stable while food costs jumped. A higher proportion of food may cause the manager to look at the menu, purchases, waste, mix portions or vendor invoices.
The percentage raises a concern. The answer lies in the underlying activity in the restaurant.
The reason this conversation can be relived is because everyone will be able to remember the details of what transpired.
After two or three weeks, it becomes more difficult to reconstruct specifics.
When the vendor invoices arrive
A restaurant may purchase ingredients this week but have to pay for the items in the future. This is the reason profits alone won’t be able to answer every cash issue.
Invoices from vendors have to be tracked, received and paid. This could be lots of work for an organization with many suppliers.
Automating the process for accounts payable can streamline this process through reducing the repetition of payments and bills. The owner can get a clearer view of the obligations that haven’t yet landed on their bank account through integrated bookkeeping systems.
It’s useful because, taken as a whole the balance of a restaurant’s bank account could appear to be more healthy than its actual short-term financial situation.
It might be that you have $80,000 on your account as of right now. That number means something very different if payroll, rent vendors, or other obligations consume a significant part of it in the next several days.
That leads naturally to cash flow forecasting.
The better question to ask is “What will happen to our cash after we have received the funds and have fulfilled the obligations we have made?”
The distinction could be important in determining if this is the right time to replace equipment, an extra purchase, or keep the liquidity.
The money you receive may Not be Yours
Sales tax highlights this point very well.
Restaurants get money from clients, which they deal with according to their tax obligations. If these cash-flows are combined with operating cash, it may create a false impression of the amount available for spending.
Consistent record keeping helps restaurants to comply with the sales tax laws while also giving a clear picture of their financial situation.
Restaurant accounting is more efficient when the financial responsibilities of each restaurant are not treated separately.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Payroll affects both labor percentage and cash. Cash flow is impacted by sales tax. The P&L records financial performance, and forecasting assists management to look ahead.
The pieces connect.
Bookkeeping Chef assists in bringing the pieces together by providing restaurant-specific reports as well as system integrations. For business owners who don’t want to stay up all night reconciling financial records, outsourced bookkeeping services will handle most of the accounting work without having to remove the owner of the financial discussions.
The last point is vital.
It’s not the goal for restaurant owners to stop checking their books because somebody does. It’s crucial that the owners are informed so that they know what’s going on.
Don’t believe that the P&L is incorrect if the bank account appears to be in good shape, but the P&L shows the restaurant has generated money.
What transpired between the two?
This question will tell you more about your business than any other number.