The month is over. The month has ended.
Then you check the restaurant’s bank account.
The number isn’t what you’d hoped for.
This can be very frustrating for restaurant owners since they feel that profits and cash available should have the same story to tell. Both of them don’t match with each other. A P&L evaluates the financial performance over a time while the bank account reflects the actual timing of money being moved into and out of the company.
Understanding the different aspects will help restaurant owners adjust their perspective on restaurant finances.
Consider what happens during an normal week. Customers pay for food. Employees have to be paid. Food and beverage deliveries arrive with invoices. Rent is getting closer. The credit card deposit is also timed. Taxes on sales are collected but it is responsibilities.
On the other hand, the next week’s shopping has already begun.
When you look only at revenue or the number of dollars earned at the end, it is easy to miss out on a great deal of activity.
Prime Cost could be the Key to the Solution
If restaurant profits begin to move in the negative direction, then food, drinks as well as labor costs require focus.
The prime cost is comprised of both products and labor. The Bookkeeping Chefs’ advice places the cost of goods sold between 60-65 percent of the revenues for a variety of restaurants. They also recommend daily monitoring, not waiting until the end of the month.
Effective primary cost management is less about focusing on the exact percentages and more about noticing movement earlier.
Suppose the restaurant normally performs close to its target, but this week’s percentage rises. Perhaps overtime has is up. The cost of drinks could remain the same, while food prices increased. A higher percentage of food could prompt the owner to examine purchasing, waste, menu mix portions or invoices from vendors.
The percentage is a source of concern. The answer lies in the food service activity.
This is possible due to the fact that everyone can still remember what transpired.
The details are harder to remember after a couple of days.
When the vendor bills arrive
The restaurant will be able to pay later for the ingredients it buys. This is a way to explain the reason why profit alone isn’t enough to answer all cash related questions.
Invoices from vendors must be tracked, accepted and paid. Doing this manually in a busy business with many suppliers can result in a significant administrative burden.
Automating the process of paying bills helps manage the process, reducing repetitive handling of bills and payment information. Bookkeeping systems that are connected to accounting systems can provide owners with a clear picture of obligations, even if they have not yet been paid.
That’s useful because the bank’s balance as an individual can appear more healthy than the restaurant’s real-time position.
There is currently $80,000 on the account. That number means something very different if payroll, rent vendors, or other obligations will consume a large portion over the next few days.
That leads naturally to cash flow forecasting.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What is going to transpire with our cash after the money we expect to receive and our obligations that we already know about?”
This is an important distinction to make when deciding whether this is the appropriate week to make an extra purchase or replace equipment, or preserve the liquidity.
The Cash You Received May Not Be Yours
The sales tax illustrates this point especially well.
The money that restaurants receive from their customers will eventually need to be dealt with in accordance with the tax requirements. If those funds are associated with operating cash, the balance in the bank could create a false impression of what is available for spending.
A consistent record-keeping system helps restaurants comply with sales tax laws while also providing an accurate image of their financial condition.
It is for this reason that restaurant accounting functions better in situations where financial responsibilities aren’t separated from other responsibilities.
Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll can affect both the percentage of labor as well as cash. The availability of cash is influenced by sales tax. The P&L documents financial performance while forecasting aids management in looking ahead.
The pieces connect.
Bookkeeping Chef uses restaurant-focused reporting and system integrations to help connect the pieces. Outsourced bookkeeping can help users who don’t want to be tasked with reconciling their financial information.
The last point is important.
The goal isn’t for restaurant owners to stop looking at their books simply because someone else handles them. Owners need to be informed that will help them to comprehend what’s happening.
If the P&L shows that the establishment is profitable however, the balance in the bank feels tight, do not assume that the P&L must be incorrect.
Ask what happened between them.
The answer to this question will give you more insight into the restaurant’s location than an identifying number.