The month is finished. The month has ended.
Check the bank account of the restaurant.
You didn’t get the call you expected.
This can be very frustrating for owners of restaurants because they feel that profits and cash availability should have the same story to tell. They don’t. The P&L is a metric of financial performance. On the other hand, the bank account is an indication of the time when money flows in and out.
Understanding the differences can allow owners to change their perception of restaurant financials.
Check out the typical week. Customers pay for food. Employees need to be paid. Invoices will be sent out with drinks and food deliveries. Rent is on the verge of being due. Credit card payments are timed. Sales tax is collected but it comes with responsibilities.
The shopping for the week ahead has already started.
Focusing on revenue only or the ending profit number misses much of that activity.
Prime Cost could be the Key to the Clue
When the profitability of restaurants starts to change in the wrong direction, food, beverage as well as labor costs require the attention of restaurant owners.
Prime cost is composed of both materials and labor. The Bookkeeping Chefs’ advice places the cost of goods sold between 60% and 65 percent of revenue for many restaurants. They also suggest weekly monitoring instead of waiting until the end of the month.
Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.
Imagine that the restaurant’s efficiency is typically within a certain range However, this week, it was higher. Perhaps overtime was added. The beverage cost may have remained the same while food costs increased. The manager can review menus and portions, waste or vendor invoices, as well as purchasing if the proportion of food is higher.
The percentage raises the question. The answer lies in the underlying activity in the restaurant.
This conversation is possible because everyone will be able to remember what happened.
Three or four weeks later After that, the details become more difficult to understand.
The Vendor’s Bills Arrive
The restaurant pays an additional time for the items it purchases. This is a reason for understanding profit alone doesn’t answer every cash question.
Vendor invoices have to be recorded, received then tracked and finally paid. In the course of manual processing, a busy business with many suppliers can be a massive administrative burden.
Automating the process of paying bills helps manage this process by eliminating the need to handle bills in a repetitive manner and payment details. Connected bookkeeping systems can also provide the user with a more clear picture of debts that haven’t yet reached the bank account.
This is advantageous, since the bank’s balance could appear to be healthier than the restaurant’s actual financial situation.
It is possible that there are $80,000 in your account at the moment. That number means something very different if payroll, rent and vendors commitments consume a significant amount over the next few days.
Forecasting cash flow is a natural result.
Instead of asking “How much cash do we have?” the better question is “What is going to happen to our cash after the cash we anticipate to receive and the obligations we are already aware about?”
The difference can be crucial when deciding whether this is the right time to repair equipment, make an additional purchase, or preserve the liquidity.
You may not have been eligible for all the money you thought.
The example of sales tax is a great one.
Restaurants take money from their clients, which they be able to manage according to the tax requirements. If these funds are divided into operating cash, the balance of the bank can create a misleading sense of the amount in the bank to spend.
Records that are consistent support sales tax compliance as well as giving the management a better understanding of the restaurant’s financials.
It is for this reason that restaurant accounting functions better when financial obligations aren’t treated as separate islands.
Prime cost affects margin. COGS (cost of products sold) and future payments are impacted through purchases made by vendors. The percentage of labor and cash are affected by the payroll. The availability of cash is influenced by the sales tax. P&Ls are used to record financial performance. Forecasting can be helpful for management.
The pieces are joined.
Bookkeeping Chef utilizes restaurant-specific reporting as well as system integrations to bring those pieces together. Bookkeeping outsourcing can be beneficial to owners who do not wish to be tasked with reconciling their financial records.
It’s the last part that matters.
It’s not the goal for restaurant owners to stop examining their books because someone else does. Owners must be provided with information that will help them to know what’s going on.
Don’t think that the P&L is wrong if the bank account appears to be in good shape, but the P&L indicates that the restaurant has generated money.
Find out what transpired between them.
The answer to this question will reveal more about the restaurant’s reputation than the name.