The month has ended. The sales were decent, the P&L had a profit, and there was nothing that appeared to be seriously incorrect.
Make sure to check the restaurant’s account.
The number you received isn’t what you expected.
Restaurant owners can be dissatisfied with this since they believe cash flow and profits ought to be the same. However, they aren’t. A P&L evaluates the financial performance of a business over a certain period of time, while it is a bank account that shows the exact time of money moving into and out of he business.
Understanding the differences can allow owners to change their perception of restaurant financials.
Have a look at what happens in a normal week. Customers pay for food. The payment of employees is essential. You will receive invoices with food and beverage deliveries. Rent is on the verge of being due. Credit card deposits are also timed. The tax on sales is an obligation.
The shopping for the week ahead has already started.
Looking just at revenue or the final profit figure isn’t a good way to assess the full scope of what happens.
Prime Cost Could Hold the key to the answer
When the profitability of restaurants starts to change in the wrong direction, food, drink, and labor costs deserve focus.
Cost of the goods sold with labor is the main cost. The bookkeeping chef’s guideline places prime cost at roughly 60%-65 percent of the revenue for many establishments, and emphasizes weekly monitoring rather than waiting until the close of the month.
Effective management of prime costs is less about obsessing over one particular percentage, and more about being able to spot changes early.
Imagine that the restaurant’s performance generally within its target however this week, it went up. Maybe overtime increased. The cost of drinks could remain the same, while food costs increased. A higher food percentage might prompt the owner to examine purchasing, waste, menu mix portions and vendor invoices.
The percentage raises the question. The activities that underlie the restaurant provide the answer.
This is possible due to the fact that everyone can still remember what happened.
The details are much harder to recall two or three days later.
The Vendor’s Bills Are Received
Restaurants might purchase food items one week and make payments the following week. This is due to the fact that understanding profits alone does not answer all cash issues.
Vendor invoices have to be received, recorded as well as tracked until they are paid. In a busy operation with many suppliers, completing that manually can become an administrative task.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The owner can get a clearer view of the payments that haven’t been deposited into their bank accounts through integrated bookkeeping systems.
It’s beneficial because, when looked at as a whole a restaurant s bank balance might appear to be better than its actual financial position.
Today, there may be $80,000 on the account. This number can be different depending on other factors like rent or other expenses, such as payroll, vendors or other obligations for the coming days.
Cash flow forecasting is a natural result.
What will happen with our cash after we’ve gotten the money that we expect and have fulfilled all of our obligations?
This is an important distinction to make when deciding on which is the best time to make an extra purchase, replace equipment, or to maintain the liquidity.
You might not have been rightfully entitled to all the money you thought.
Sales tax illustrates the point in particular.
Restaurants receive money from customers which needs to be handled in accordance with tax regulations. If those dollars are mentally divided into operating cash, the balance of the bank can create a misleading sense of what is in the bank to spend.
Regularly maintained records allow restaurants to comply with sales taxes and provide management an accurate view of their finances.
Accounting for restaurants is more efficient when the financial obligations of each restaurant are considered separately.
Prime cost affects margin. COGS and future payment are affected by vendor purchases. Payroll impacts both labor percentage as well as cash. Sales tax influences the availability of cash. P&Ls record financial performance while forecasting allows management to take a look ahead.
The pieces link.
Bookkeeping Chef combines restaurant-specific reports along with system integrations. Outsourced bookkeeping services that are specifically tailored to your needs can be a good option for owners who do not have time to reconcile their financial data. They can handle a large portion of the accounting task without taking the owner away from the financial conversation.
That last part matters.
It’s not the intention of restaurant owners to stop checking their books just because someone does. Owners should be given information that helps them comprehend what’s happening.
Don’t think that the P&L is not correct if the balance of the bank seems to be tight, however the P&L shows the restaurant has earned money.
What transpired between the two?
The answer to that question will reveal more about your restaurant than either number can on its own.