The month is over. The month is over.
Check the restaurant’s bank account.
The number doesn’t match what you’d hoped for.
Restaurant owners, this is a problem because profit and available cash seem to have the same meaning. But they don’t. The P&L is a measure of financial performance, while the bank account is a reflection of when money moves in and out.
Understanding the difference could help restaurant owners shift their perspective on restaurant finances.
Have a look at the typical week. The customers pay for food. The employees must be paid. Food and beverage deliveries arrive with invoices attached. Rent is getting closer. The time frame for the credit card deposit is different. Sales tax is collected, but it is the responsibility.
The shopping for the week ahead has already begun.
If you focus solely on revenue or the number of dollars earned at the end, it is easy to miss a the vast amount of activity.
Prime Cost Could Hold the key to the answer
If restaurant profits begin to move in the wrong direction, then food, drinks as well as labor costs require the attention of restaurant owners.
The prime cost is comprised of both the cost of products and labor. The Bookkeeping Chef’s guidance puts prices for the prime cost at around 60% to 65% for many restaurant and stresses weekly monitoring as opposed to staying until the end of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant’s efficiency is usually within the range of its goals However, this past week, it grew. Maybe overtime is up. Maybe beverage costs were stable as food costs rose. The higher proportion of food might prompt the operator to look at the purchase, waste management, portions and menu mix or vendor bills.
The percentage is the key. It is in the underlying activities in restaurants.
Weekly reports allow for this conversation to take place while everyone is still aware of what’s transpired.
Three or four weeks later, the details become much more difficult to understand.
Then the Vendor Bills Arrive
A restaurant might purchase its ingredients this week but have to pay for these items later. Because of this, it is the case that understanding profits alone can not answer all cash issues.
Vendor invoices should be recorded, received, tracked, and ultimately paid. This can be an enormous task for the case of a business with numerous suppliers.
Automating the account payable process can streamline this process by reducing the repetitive handling of bills and payments. The bookkeeping system that is connected to the internet can give the user a better view of any obligations that haven’t yet hit the bank account.
This is important since a bank’s balance when seen as a whole can appear healthier than the restaurant’s actual near-term position.
There is currently $80,000 on the account. The $80,000 amount is tiny if rental, vendors or payroll make up a large portion over the next few days.
Forecasting cash flow is a normal outcome.
What happens to the money we have received after we’ve received the amount we’ve hoped for and have met our obligations?
The distinction could be important when deciding whether this is a comfortable week to upgrade equipment, make an additional purchase, or to preserve liquidity.
And Some of the Cash Wasn’t Yours at All
The sales tax example is a great one.
Restaurants take money from their clients, which they then handle in accordance with their tax obligations. If these funds are divided into operating cash, the balance in the bank can create a misleading sense of what’s available to spend.
Regularly updated records ensure sales tax compliance as well as providing management with a more accurate perspective of the restaurant’s financials.
Restaurant accounting is more efficient when the financial obligations of each restaurant are not treated separately.
Prime cost affects margin. Vendor purchases affect COGS and future payments. Payroll affects both labor percentage and cash. The availability of cash is influenced by the sales tax. The P&L records financial performance, while forecasting aids management in looking ahead.
The pieces are connected.
Bookkeeping Chef employs restaurant-specific reporting and system integrations that help bring those pieces together. Bookkeeping outsourcing can benefit users who don’t want to work all night reconciling their financial data.
It’s the last thing that’s important.
It’s not the aim of restaurant owners to not check their books because somebody else does. Owners should receive information that will help them to know what’s going on.
If the P&L indicates that the restaurant made money, but the bank account is feeling a little tight, don’t assume any of the numbers can be wrong.
Ask about the events that occurred between them.
This one question could teach you far more about your restaurant than either number can by itself.