The month is finished. The sales were decent and the P&L showed a profit and there was nothing to be seriously incorrect.
Make sure you check the account of the restaurant.
The number isn’t exactly what you’d hoped for.
For restaurant owners, that disconnect can be frustrating because profits and cash available feel as though they should provide the same information. They don’t add together. A P&L is a measure of financial performance over a period, while the bank account is a reflection of the timing of money actually going into and out the business.
Understanding the difference can change how a business owner considers restaurant financials.
Take a look at what happens in a normal week. Customers pay for meals. Employers must be paid. Food and beverage deliveries arrive with invoices attached. Rent is on the verge of being due. Credit card deposits are also timed. Sales tax is an obligation.
The purchase for next week has already begun.
Focusing on revenue only or the ending profit number leaves out a lot of the work.
The Clue May Be Hiding in the Prime Cost
If the profitability of restaurants begins to decline, the cost of food, beverages and labour expenses should be taken into the equation.
Together, the cost of items sold and labor make up prime cost. The Bookkeeping Chef’s guidance puts the cost of goods sold at 60%-65 percent for most restaurants and stresses weekly monitoring as opposed to waiting until the end the month.
Effective cost management for primes involves less focusing on a single percentage and more attention to the any early movements.
Suppose the restaurant normally performs at or near its goal however this week’s performance is higher. Maybe overtime was boosted. The price of drinks may have remained the same while food costs increased. The chef may look over menus and portions, waste, vendor invoices, and purchasing if the food percentage is greater.
The percentage is what matters. The activities that underlie the restaurant provide the answer.
This conversation is possible because everyone can still remember what transpired.
After two or three weeks, it becomes harder to reconstruct the details.
Then, the Vendor Bills arrive.
Restaurants may buy ingredients in the week ahead, but pay for these items in the future. It’s because of this timing that analyzing profits alone will not address all cash issues.
Vendor invoices should be recorded, received then tracked and finally paid. This is an enormous task for the case of a business with several suppliers.
Automating the accounts payable process can help organize this by reducing the repeated handling of payments and bills. These bookkeeping systems are also able to provide the user with a more clear picture of obligations that haven’t yet hit the account of the bank.
This is important since a bank balance viewed in isolation can look healthier than a restaurant’s current position.
There might be $80,000 in the account as of today. The $80,000 amount is tiny if rental, vendors or payroll make up a large portion over the next few days.
Cash flow forecasting is a natural result.
What will happen with the money we have received after we’ve received the amount we’ve hoped for and fulfilled all our obligations?
The distinction could be important in determining if this is the right time to replace equipment, make an extra purchase, or keep the liquidity.
The Cash You Received May Not Be Yours
The example of sales tax is a good example.
The cash restaurant owners receive from customers is eventually going to need to be handled in line to its tax obligations. If those funds are associated with operating cash, the balance of the bank could create a false impression of the amount there to be spent.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
This is one reason restaurant accounting can be more effective when financial obligations aren’t viewed as separate islands.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll affects the percentage of labor and cash. Cash flow is affected by the sales tax. P&Ls keep track of financial performance and forecasting lets management examine the future.
Connect the pieces.
Bookkeeping Chef makes use of restaurant-specific reports and system integrations to help connect the pieces. Outsourced bookkeeping services that are specifically tailored to your needs are an ideal option for owners who do not have time to reconcile their financial information. They can take care of much of the accounting task but without taking the owner away from the financial conversation.
That last part matters.
It’s not the intention of restaurant owners to cease checking their books just because someone else does. It is important that owners get information so they are aware of the situation.
So if the P&L says the restaurant made money, but the bank account feels extremely tight, don’t presume that any of the numbers can be wrong.
Find out what happened between you and your partner.
Answering this question can reveal more about the restaurant’s reputation than an identifying number.