The month is over. Sales were solid, the P&L indicates a profit and there’s nothing that appears to be to be seriously incorrect.
Verify the restaurant’s bank account.
You didn’t get the number you were hoping for.
Restaurant owners, this disconnect can be frustrating because profits and cash available appear to have the same meaning. They are not. A P&L examines the financial performance of a company over a specified period of time, while accounts in banks show the exact timing of money going into and out of the company.
Understanding the difference can alter the way a restaurant owner thinks about their finances.
Consider what happens during an ordinary week. Customers pay for meals. Employees have to be paid. The invoices for food and drinks are sent. Rent is getting closer. Deposits made with credit cards have their own specific timing. Sales tax is an obligation.
Already the purchases for the week ahead have begun.
Focusing on revenue only or the final profit figure leaves out a lot of the work.
Prime Cost could be the key to the answer
If restaurant profits begin to move in the negative direction, food, beverage and labor costs need attention.
Prime cost is composed from both materials and labor. Bookkeeping Chef’s guidelines place the cost of goods sold at 60%-65 percent for most restaurants and stresses weekly monitoring rather than staying until the end of of the month.
It is much more crucial for you to recognize changes earlier than worrying about an exact percentage.
If the restaurant typically achieves its goals, but this week, there’s at a higher percentage. Maybe overtime also increased. The cost of drinks could be the same as food prices increased. A higher food percentage might cause the manager to look at purchasing, waste, menu mix, portions and vendor invoices.
The percentage is the key. The underlying restaurant activity provides the answer.
This is possible due to the fact that everyone is able to recall what happened.
Two or three weeks later after that, the details become more difficult to understand.
The Vendor’s bills arrive
Restaurants may buy ingredients this week, but then pay for the ingredients in the future. That timing helps explain why profits alone won’t be able to answer every cash issue.
Vendor invoices must be received, tracked and paid. In a busy business with many suppliers, doing this manually could become its own administrative workload.
Automating the process of paying bills helps manage the process, reducing the need to handle bills in a repetitive manner and payment information. These bookkeeping systems are also able to provide the user with a more clear image of the obligations that haven’t yet reached the bank account.
This is useful, because the bank’s balance may appear to be healthier than the restaurant’s real near-term situation.
It could be that there is $80,000 in the account as of today. The figure of $80,000 is tiny if rental, vendors or payroll take up a significant portion of the account in the next few days.
Cash flow forecasting is a natural result.
Instead of asking “How many dollars of cash are we carrying?” the better question is “What is likely to be the fate of our cash following the money we expect to receive and the obligations we are already aware about?”
This is an important distinction to make in determining whether or not this is the appropriate week to make an additional purchase, replace equipment, or maintain the liquidity.
A portion of the Cash Wasn’t Really Yours
Sales tax highlights this especially well.
The money restaurant owners receive from patrons will eventually have to be managed in accordance to its tax obligations. If these dollars are mentally coupled with the normal cash flow, the balance in a bank can give an inaccurate impression of how much money is available.
Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.
Accounting for restaurant operations is more effective when the financial obligations of each restaurant are not handled separately.
Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Payroll has an impact on both the labor percentage and cash. The availability of cash is influenced by sales tax. P&Ls record financial performance while forecasting lets management take a look ahead.
The pieces connect.
Bookkeeping Chef can help bring these pieces together using restaurant-specific reports and system integrations. If you don’t want to stay up all night reconciling financial data, specialized outsourcing bookkeeping services can take care of much of the accounting workload without removing the owner of the financial discussions.
The last point is vital.
The idea isn’t for restaurant owners to stop looking at their books since somebody else handles them. It is important that owners are informed so that they are aware of the situation.
So when the P&L reports that the restaurant earned money but the bank account feels surprisingly insecure, don’t believe that one of the numbers must be wrong.
Ask about the events that occurred between them.
This question will tell you more about your business than any number.