The month is over. The month has ended.
Verify the restaurant’s bank account.
You didn’t get the number you expected.
Restaurant owners can find it difficult to reconcile this issue because they believe that profits and cash flow should be identical. They aren’t. It’s not true. P&L is a measurement of financial performance. On the other hand, the bank account is an indication of when money moves into and out.
Knowing the difference can change the way a restaurant’s manager considers their financials.
Look at the typical week. The customers pay for food. The payment of employees is essential. Invoices will be sent out with food and beverage deliveries. Rent is approaching. The time of credit card transactions differs. Sales tax is paid, but that cash is subject to an obligation.
Meanwhile, next week’s purchasing has already started.
If you just look at the amount of revenue or profits, then you’ll miss a lot of this action.
The Clue May Be Hiding in the Prime Cost
If restaurant profits begin to fall, cost of food, drinks and labor costs should be taken into the equation.
Prime cost is made up of both the cost of products and labor. Bookkeeping Chef’s guidelines place the prime cost at between 60% to 65% of revenue for many restaurants, focusing on daily monitoring, rather than waiting until the closing of each month.
Effective cost management for primes involves not focusing on one percent and more noticing any early movements.
If the restaurant is performing at or near its goal However, this week’s number rises. Perhaps overtime has went up. The price of drinks may be the same as food costs increased. The manager can review menus, waste, portion sizes as well as vendor invoices and purchasing if the food portion is higher.
The percentage raises a question. The restaurant’s activity is the answer.
The reason this conversation can be relived is because everyone will be able to remember what happened.
Two or three weeks later After that, the details become harder to reconstruct.
Then, the Vendor Bills arrive.
The restaurant is expected to pay later for the ingredients it buys. It’s due to this fact that understanding profits alone does not address all cash issues.
Vendor invoices need to be recorded, received, tracked, and ultimately paid. The manual process of completing this task in an office with many suppliers can result in a significant administrative burden.
Automating accounts payable speeds up this process, reducing the time spent on tasks that are repetitive, such as managing bills and payment details. The account owner will have better insight into the debts that haven’t landed in their bank account through automated bookkeeping systems that are connected.
This is advantageous, since the bank balance can appear more healthy than the restaurant’s actual situation in the near future.
It could be that you’ve got $80,000 in your account as of right now. The $80,000 figure means very little if vendors, rent or payroll take up a significant portion of the account in the next few days.
This leads to the cash flow forecasting.
What happens to our cash once we’ve received the amount we’ve hoped for and have met our obligations?
This is an important distinction to make in determining whether or not this is the right week to purchase an additional item replacement of equipment, or preserve liquidity.
The money you receive may Not be Yours
The sales tax illustrates this in particular.
Restaurants receive money from their customers, which they have to then handle according to the tax requirements. If the money is mentally coupled with the normal cash flow, the balance of the bank account could provide an inaccurate picture of the amount of cash available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
This is the reason that restaurant accounting functions better in situations where financial responsibilities aren’t considered as distinct islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted by the purchases made by vendors. Payroll affects the amount of cash available and also the labor percentage. Cash availability is affected by the sales tax. P&Ls keep track of financial performance and forecasting allows management to see the future.
The pieces link.
Bookkeeping Chef assists in bringing these elements together, using restaurant-specific reports and system integrations. Bookkeeping outsourcing can benefit operators who do not want to stay up all night reconciling their financial records.
That last part matters.
It’s not the intention of restaurant owners to not check their books because somebody else does. It’s important that the owners get information so they understand the situation.
Don’t think that the P&L is correct if your balance of the bank seems to be tight, however the P&L shows the restaurant has earned money.
Find out what transpired between you and your spouse.
This question will teach you more about your restaurant than a single number could be on its own.