The month is over. The sales were good and the P&L had a profit, and there was no sign of anything to be seriously wrong.
You should then check the restaurant’s bank account.
The number isn’t what you expected.
Restaurant owners might be frustrated by this as they believe cash flow and profits should be identical. These two things don’t match in. It’s not true. P&L is a measure of financial performance. In contrast, the bank account is an indication of how much money is moved in and out.
Knowing the difference can change how a restaurant’s owner considers their financials.
Imagine what might happen during an average week. Customers pay for meals. Employees have to be paid. The invoices for food and drinks are sent. Rent is on the way. Credit card deposits have their own specific timing. Taxes on sales have been collected, but that money is a legal obligation.
In the meantime, next week’s purchase has already started.
If you focus only on the revenue or the final profits, then you’ll be missing a lot of this process.
The key to the answer may lie in the price of the best.
Food, beverage and labour costs are worth taking a closer examine when restaurant profitability begins to fall.
Together, the cost of the items sold and labor together make up the bulk of the cost. The bookkeeping chef’s guideline places the cost of goods sold at 60%-65 percent for a wide range of restaurants and stresses weekly monitoring rather than waiting until the end the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Let’s say that a restaurant typically performs close to its target however, this week’s rate is higher. Maybe the number of overtime hours went up. Maybe the costs for beverages were stable, but food costs increased. An increase in the percentage of food consumed might prompt the operator to examine purchasing, waste management, menu mix and portions, or vendor charges.
The percentage is a source of concern. The underlying restaurant activity provides the answer.
A weekly report can make that conversation possible while everyone still remembers what happened.
Three or four weeks later, the details become much more difficult to reconstruct.
The Vendor’s Bills are Received
Restaurants may buy ingredients during a week and pay for them next week. That timing helps explain why knowing the profit isn’t enough to answer every cash-related question.
Vendor invoices need to be recorded, received as well as tracked until they are paid. This could be an enormous task for an operation that has numerous suppliers.
Automating accounts payable can help organize the process, reducing the need to handle bills in a repetitive manner and payment information. Bookkeeping systems that are integrated to accounting systems can provide owners with a clear understanding of their obligations, even if they haven’t yet been paid.
That’s useful because a bank balance viewed in isolation may appear to be healthier than the restaurant’s real-time position.
There might be $80,000 in the bank account at present. It could mean something different in the event that payroll, rent vendors, or other commitments consume a significant part of it in the next few days.
Forecasting cash flow is a natural outcome.
What happens to our money after we’ve received the cash we’ve been expecting and met all of our obligations?
The distinction can matter when deciding if it is the right time to repair equipment, make an additional purchase, or preserve liquidity.
It is possible that you weren’t entitled to all the money you believed.
Sales tax illustrates this in particular.
Restaurants get money from customers, which they must follow according to the tax requirements. If these funds are combined with normal operating cash, then the balance of the bank account could be misleading about how much money is available.
The consistent recording system allows restaurants to comply with the sales tax laws and also providing an accurate overview of their financial standing.
It is for this reason that restaurant accounting functions better when financial obligations aren’t considered as distinct islands.
Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted by purchases made by vendors. Payroll has an impact on the percentage of labor and cash. The availability of cash is influenced by the sales tax. The P&L shows financial performance, while forecasting aids management in looking ahead.
The pieces connect.
Bookkeeping Chef incorporates restaurant-specific reporting through system integrations. For business owners who don’t want to be slavishly reconciling financial information, outsourcing of bookkeeping can take on large portions of the accounting burden without having to remove the owner of the financial discussions.
It’s the very last one that matters.
The aim isn’t to get restaurant owners to not look at their books simply because somebody else handles them. Owners should be given information that can help them comprehend what’s happening.
When the P&L reports that the restaurant earned profits, but the account feels extremely unbalanced, don’t think that any of the numbers can be off.
Find out what happened between you and your spouse.
The answer to that question will reveal something more about the food you serve than a single number could be on its own.