The month ended. The sales were excellent, the P&L was profitable and there was no sign of anything to be terribly wrong.
After that, you can check the bank account of the restaurant.
The number doesn’t match what you expected.
Restaurant owners can find it difficult to reconcile this issue because they believe that cash flow and profits ought to be exactly the same. They don’t add in. It’s not true. P&L is a measure of financial performance. In contrast, the bank account is an indication of when money moves into and out.
Understanding the difference can alter the way a restaurant’s manager views their finances.
Look at the typical week. The customers pay for food. Employees must be paid. The invoices for food and drinks are issued. Rent is close to being paid. Credit card payments have their own specific timing. The sales tax collected has an obligation.
The purchasing for the coming week has already started.
Looking just at revenue or the ending profit number does not take into account a lot of the activity.
The Clue May Be Hiding in the Prime Cost
If the profitability of restaurants begins to decline, the costs of food, beverages and labor costs should be taken into the equation.
Cost of the goods sold with labor is the primary cost. 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 rather than staying until the end of the month.
Effective management of prime costs requires less focus on a single percent and more being aware of any early movements.
If the restaurant typically does well, however this week it’s a higher percent. Maybe overtime was boosted. Maybe beverage costs were stable however food costs increased. A higher food percentage might prompt the owner to examine purchasing, waste, menu mix portions or vendor invoices.
The percentage is what matters. The answer is found in the activity of the restaurant.
Weekly reports allow the discussion to continue in the midst of everyone being aware of what has happened.
After two or three weeks, it becomes more difficult to reconstruct details.
The Vendor’s Bills Arrive
The restaurant will be able to pay an additional time for the items it purchases. This explains the reason why profit alone isn’t enough to answer all cash-related questions.
Invoices from vendors need to be tracked, accepted and paid. In a business that has many suppliers, completing that by hand can be its own administrative workload.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The account owner will have a clearer view of the obligations that haven’t yet landed on their bank account through automated bookkeeping systems that are connected.
This is useful, because the bank balance can appear healthier than a restaurant’s actual financial situation.
There could be $80,000 in the account today. This amount could be interpreted differently if it is impacted by other elements like rent or other expenses, such as payroll, vendors or other obligations in the coming days.
This is the reason for cash flow forecasting.
The most appropriate question to ask is “What happens to our money after we receive it and have fulfilled our commitments we’ve identified?”
The distinction can matter in deciding if this is an appropriate time to replace equipment, make an addition purchase, or maintain liquid funds.
You may not be eligible for all the money you thought.
The example of sales tax is a good one.
Restaurants get money from customers, which they must be able to manage according to the tax requirements. If those funds are associated with operating cash, the balance in the bank can create a misleading sense of the amount available for spending.
A consistent record-keeping system helps restaurants to comply with the sales tax laws, while providing an accurate picture of their financial situation.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant do not have to be considered separately.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted due to purchases made by vendors. Payroll and cash availability are affected by payroll. Cash availability is affected by sales tax. P&Ls are used to record the financial performance. Forecasting is also beneficial to management.
Connect the pieces.
Bookkeeping Chef makes use of restaurant-specific reports and system integrations to put all the pieces together. Specialized outsourced bookkeeping services are a great option for operators who do not have time to reconcile their financial information. They will take care of a lot of the accounting work without removing the owner from financial discussions.
The last section is very important.
It’s not the intention of restaurant owners to cease checking their books just because someone does. Owners must be provided with information that helps them know what’s going on.
If the P&L says the restaurant made profits, but the account feels surprisingly unbalanced, don’t think that one of the numbers could be wrong.
Ask them about what transpired between them.
The answer to this question will tell you more about the restaurant than just an identifying number.