The month is over. The month has ended.
Make sure to check the restaurant’s account.
The number doesn’t match the one you’d expected.
For restaurant owners, that is a problem because the cash flow and profit seem to tell the same story. They don’t. The P&L is a measure of financial performance, whereas the bank account is a reflection of when money moves in and out.
Understanding the difference will change the way a restaurant’s manager views their finances.
Think about what happens in an normal week. Customers pay for meals. The employees must be paid. You will receive invoices along with drinks and food deliveries. Rent is due. Credit card deposits are also timed. Sales tax is an obligation.
Already the purchases for the week ahead have begun.
If you focus solely on revenue and the end-profit number it’s easy to miss out on the vast amount of activity.
The clue could be hidden in the Prime Cost
If restaurant profitability begins to decrease, costs of food, beverages and labor costs must be taken in consideration.
Together, the cost of the products sold and labor comprise the primary cost. The Bookkeeping Chef’s guidance puts primary costs between 60%-65 percent for most restaurants and stresses weekly monitoring instead of staying until the end of of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Suppose the restaurant normally performs within its targets however, this week’s rate is higher. Perhaps the overtime rate went up. Perhaps beverage costs remained stable while food costs jumped. A higher percentage of food could cause the owner to look at purchasing, waste management, menu mix and portions, or vendor costs.
The percentage raises questions. The restaurant’s activity is the answer.
A weekly report can make an opportunity for conversation while everyone is still able to remember what happened.
The details will be harder to recall two or three days later.
The Vendor’s Bills are Received
The restaurant will pay in the future for the ingredients it buys. This timing helps to explain how profit alone will not be enough to answer all cash related questions.
Vendor invoices should be recorded, received, tracked, and ultimately paid. In a busy business with many suppliers, completing that by hand can be an administrative burden.
Automating the process of paying bills helps manage this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that connect can give owners a better view of their obligations, even if they have not yet been paid.
This is because the bank’s balance as a whole can appear healthier than the restaurant’s actual short-term position.
Today, there may be $80,000 on the account. The figure of $80,000 means tiny if rental, vendors or payroll make up a significant portion of the account in the next few days.
This is the reason for cash flow forecasting.
What will happen with the money we have received after we’ve received the amount we’ve hoped for and have fulfilled all of our obligations?
The distinction could be important when deciding whether this is the right time to replace equipment, make an additional purchase, or to preserve liquid funds.
The cash you received may Not be Yours
Sales tax highlights this especially well.
The money restaurant owners receive from customers is eventually going to need to be handled in line of its tax obligations. If these cash-flows are put together with operating cash, it may give a false impression of the cash available for spending.
The consistent recording system allows restaurants comply with sales tax laws and also providing an accurate picture of their financial situation.
It is for this reason that restaurant accounting works better when financial obligations aren’t thought of as separate entities.
Prime cost affects margin. COGS and future payments are affected by vendor purchases. Payroll and cash availability are affected by payroll. Sales tax impacts the availability of cash. P&Ls track financial performance, while forecasting allows management to examine the future.
The pieces join.
Bookkeeping Chef combines restaurant-specific reports along with system integrations. Bookkeeping outsourcing can be beneficial to those who don’t want to be tasked with reconciling their financial data.
That last part matters.
The idea isn’t for owners of restaurants to stop looking at their books since somebody else handles them. Owners should receive information that helps them understand what’s happening.
So if the P&L reports that the restaurant earned money but the bank account is feeling a little tight, don’t presume that one of the numbers could be wrong.
Find out what happened between you and your spouse.
Answering this question can reveal more about the restaurant, more than just a number.
