The month has come to an end. The sales were good, the P&L shows a profit, and nothing is to be seriously to be wrong.
Verify the restaurant’s bank account.
The number you received wasn’t what you expected.
For owners of restaurants, this disconnect can be frustrating because profits and cash flow seem like they should have the same meaning. However, they aren’t. A P&L measures the performance of the business’s finances over a specified period of time, while accounts in banks show the exact timing of money entering and leaving the company.
Understanding the difference can help owners change their view of the financials of their restaurant.
Look at what happens during a normal week. The customers pay for food. Employees are required to be paid. Deliveries of food and beverages arrive with invoices. Rent is coming up. The credit card deposit is also timed. Sales tax has been collected, however that money is a legal obligation.
The next week’s buying has already started.
If you focus only on the amount of revenue or profits, then you’ll be missing a lot of the activity.
The key to the answer may lie in the cost of prime.
If the restaurant’s profitability begins to shift in the negative direction, the food, beverages as well as labor costs require the attention of restaurant owners.
Cost of selling goods with labor is the main cost. The Bookkeeping Chefs’ instructions place the main cost between 60-65 percent of revenue for many establishments. They also stress the importance of weekly monitoring rather than waiting until the end of the month.
It is more important to be able to spot any changes in the early stages rather than worrying about a specific percentage.
Imagine that the restaurant’s performance usually close to its goal However, this week it increased. Maybe the number of overtime hours has increased. Maybe the costs for beverages were stable while food costs grew. The higher proportion of food could cause the owner to review buying, waste management portions and menu mix or vendor costs.
The percentage is the most important. The answer lies in the underlying activities in restaurants.
Weekly reports allow this conversation to take place in the midst of everyone being aware of what’s happened.
The details will be more difficult for you to remember two or three days later.
Then the Vendor Bills Show Up
The restaurant will be able to pay later for the food items it purchases. This can help explain the reasons why profit alone isn’t enough to answer all cash-related questions.
Vendor invoices must be received and tracked. The manual process of completing this task in a busy business with many suppliers can be a massive administrative burden.
Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that are linked will give the owners a clear understanding of their obligations, even if they’ve not yet been paid.
It’s helpful because, when taken as a whole the restaurant’s financial position may appear to be more stable than its actual financial position.
The current balance could be an amount of $80,000 in the account. The figure of $80,000 means tiny if rental, vendors, or payroll will take the majority of the coming days.
This is the reason for cash flow forecasting.
Instead of asking “How much cash do we have?” the better question becomes “What is going to transpire with our cash after the money we hope to receive and the obligations we know about?”
It is crucial to understand the difference when deciding if this week is a good time to replace equipment or buy additional products or save liquid funds.
You might not have been eligible for all the money you believed.
Sales tax illustrates the point in particular.
Restaurants receive money from their customers, which they have to follow according to the tax requirements. If the money is mentally combined with normal cash flow, the balance in a bank can provide an inaccurate picture of the amount of cash available.
Consistent record keeping helps restaurants to comply with the sales tax laws, while providing a complete overview of their financial standing.
This is a reason why restaurant accounting works better when financial responsibilities aren’t treated as separate entities.
Prime cost affects margin. COGS and future payments are affected by the purchase of vendor products. Payroll is a factor that affects both cash and labor percentage. The availability of cash is influenced by sales tax. P&Ls are used for recording the financial performance. Forecasting is also beneficial for management.
The pieces join.
Bookkeeping Chef combines restaurant-specific reports and system integrations. For business owners who don’t want to be slavishly reconciling financial information, outsourced bookkeeping services can handle the bulk of accounting tasks while removing the business owner from the financial discussion.
The last point is vital.
The goal isn’t for owners of restaurants to stop looking at their books simply because they are handled by someone else. It’s important that the owners get information so they understand the situation.
If the P&L shows that the establishment is earning money but the bank balance feels tight, do not assume that the P&L must be incorrect.
What was the difference between them?
This question will reveal more about your business than any number.
