The month ended. The month has ended.
Make sure to check the restaurant’s account.
The number doesn’t match what you’d hoped for.
For owners of restaurants, this gap can be frustrating as profit and available cash feel as though they should tell the same story. They aren’t. The P&L is a metric of financial performance, while the bank account is a representation of when money moves in and out.
Knowing the difference can change the way a restaurant’s manager considers their financials.
Check out what happens during a normal week. Customers pay for meals. Employees must be paid. Invoices will be sent out with food and beverage deliveries. Rent is due. Credit card payments are timed. The tax on sales is an obligation.
Already, the next week’s purchases have started.
If you just look at the amount of revenue or the final profits, you’ll overlook a significant portion of this process.
The key may lie in prime cost
If restaurant profits begin to decline, the food, beverage and labor expenses should be taken into consideration.
Cost of the goods sold with labor is the primary cost. Bookkeeping Chef’s supplied guidance places the prime cost at between 60%-65 percent of the total revenue for many restaurants, while focusing on weekly monitoring rather than waiting until the close of the month.
Effective primary cost management is less about focusing on one percentage point and more about being able to spot changes in the early stages.
Suppose that normally the restaurant does well, but this week, there’s an increase in percentage. Maybe the number of overtime hours is up. Perhaps the cost of beverages remained steady while food costs jumped. An increase in the percentage of food consumed could cause the owner to look at purchasing, waste management, menu mix and portions, or vendor charges.
The percentage is crucial. The answer lies in the activities in restaurants.
A weekly report makes an opportunity for conversation while everyone is still able to remember what happened.
After a few weeks After that, the details become more difficult to decipher.
The Vendor Bills are then delivered.
A restaurant could purchase the ingredients this week, but then pay for these items later. This is a way to explain how profit alone will not be enough to answer every cash question.
Invoices from vendors have to be tracked, received and paid. The manual process of completing this task in an organization with a lot of suppliers can become a huge administrative burden.
Automating the process of paying bills helps manage this process by reducing the need to handle bills in a repetitive manner and payment information. Bookkeeping systems that are connected can provide the user with a more clear picture of obligations that haven’t yet reached the bank account.
It’s advantageous because, viewed as a whole, a restaurant s bank balance might appear to be better than its actual financial situation.
Today, there may be $80,000 on the account. This amount could have a different meaning depending on other factors such as rent as well as payroll, vendors and other obligations over the coming days.
This naturally leads to cash flow forecasting.
What will happen with our cash after we’ve gotten the cash we’ve been expecting and have met our obligations?
This distinction is essential when deciding whether this is the best time to purchase an additional item to replace equipment or preserve the liquidity.
A portion of the Cash Wasn’t Really Yours
The sales tax illustrates this point particularly well.
The money restaurants receive from their patrons will eventually have to be handled in accordance with its tax obligations. If these funds are combined with normal operating cash, then the bank balance may offer a false impression of how much money is available.
Regularly updated records ensure sales tax compliance as well as providing management with a more accurate understanding of the restaurant’s financials.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant are not treated separately.
Prime cost affects margin. COGS and future payment are affected by the purchase of vendor products. Payroll affects the amount of cash available and also the labor percentage. Sales tax affects the availability of cash. The P&L tracks financial performance, while forecasting aids management in looking ahead.
The pieces link.
Bookkeeping Chef combines restaurant-specific reports with system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.
The last point is important.
Restaurant owners should never stop studying the literature regardless of whether they’re being handled by someone else. It’s for owners to receive the information they need in a format that helps them understand what’s happening.
If the P&L indicates that the restaurant is profitable however, the balance in the bank feels too tight, don’t think that the P&L may be inaccurate.
Find out what transpired between you and your spouse.
That question can teach you far more about your restaurant than any other number could on its own.