The month has come to an end. Sales were excellent, and the P&L shows a profit, and there’s nothing that appears to be to be seriously off.
Then, you should check the bank account of the restaurant.
The number doesn’t match what you’d expect.
This gap is a problem for restaurant owners as they feel that profit and cash on hand should be the same. The two don’t line with each other. A P&L is a measure of financial performance over a time while the bank account reflects the timing of money actually being moved into and out of the company.
Understanding the differences can help owners change their view of the financials of their restaurant.
Imagine what might happen during a typical workday. The customers pay for food. Employers must be paid. Food and drinks deliveries arrive with invoices. Rent is coming. Credit card payments are timed. The tax on sales is an obligation.
The purchasing for the coming week has already begun.
If you only look at the revenue or the final profits, you’ll be missing a lot of this action.
The Clue May Be Hiding in Prime Cost
If restaurant profits begin to move in the negative direction, food, beverage, and labor costs deserve consideration.
Cost of sales combined with labor is the main cost. The Bookkeeping Chef’s guidance puts the cost of goods sold at 60% to 65% for many restaurant and stresses weekly monitoring rather than waiting until the end the month.
It is much more crucial for you to recognize the changes before they occur rather than obsessing over a specific percentage.
Imagine that the restaurant’s performance is usually close to its goal However, this week it increased. Perhaps overtime was went up. Perhaps the cost of beverages remained steady but food costs increased. A higher percentage of food could prompt the owner to examine buying, waste, menu mix portions or vendor invoices.
The percentage raises questions. The restaurant’s activity is the answer.
Weekly reports allow for this conversation to take place even though everyone is aware of the events that have occurred.
A few weeks later The details are much more difficult to decipher.
Then, the Vendor Bills arrive.
The restaurant pays in the future for the ingredients it buys. This is a way to explain the reason why profit alone isn’t enough to answer all cash questions.
Invoices from vendors need to be tracked, received and paid. This is an enormous task for an organization with several suppliers.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The user can have better insight into the payments that haven’t been deposited into their bank accounts through the bookkeeping software that is connected to.
It’s beneficial because, when looked at as a whole the bank balance of a restaurant might appear to be better than its actual short-term financial position.
There could be a possibility that you’ve got $80,000 in your account at the moment. It could be interpreted differently when it is affected by other variables like rent or other expenses, such as payroll, vendors or other obligations over the coming days.
This is the reason for cash flow forecasting.
The better question to ask is “What will happen to our cash once we have received the funds and have fulfilled the commitments we’ve identified?”
The difference can be crucial in deciding if this is a suitable week to replace equipment, make an addition purchase, or maintain cash.
It is possible that you weren’t entitled to all the money you thought.
Sales tax illustrates this particularly well.
The money that a restaurant gets from its customers is eventually going to need to be handled in line of its tax obligations. If those funds are divided into operating cash, the balance of the bank could create a false impression of the money available for spending.
Consistent records help restaurants comply with sales taxes while giving the management a realistic view of their finances.
This is the reason that restaurant accounting functions better when financial obligations aren’t separated from other responsibilities.
Prime cost affects margin. Vendor purchases impact COGS and future payments. Payroll is a factor that affects both cash and labor percentage. Sales tax impacts the availability of cash. P&Ls can be used to document the financial performance. Forecasting can also be useful for management.
The pieces are joined.
Bookkeeping Chef can help bring these elements together, using restaurant-specific reports and system integrations. Bookkeeping outsourcing can benefit those who don’t want to work all night reconciling their financial data.
The final part is crucial.
Restaurant owners shouldn’t stop reading the books, just because they are handled by another. It’s crucial that the owners get information so they know the situation.
If the P&L reports that the restaurant earned money, but the bank account feels extremely tight, don’t presume that some of the figures must be wrong.
Find out what happened between you and your spouse.
The answer to this question will provide more information about the restaurant’s location than an identifying number.