Is your P&L being honest with you?
Do you ever get the sense that the P&L, the key report, is not telling you everything you need to know about your restaurant group’s performance?
Well, that’s because it isn’t. It’s doing the best it can with the information that it has, but it doesn’t have all the information. Let’s break this down and highlight some key areas where what it is telling you may be hindered by information that it can’t tell you.
Net Sales
In the restaurant world, this happens daily and credit transactions settle pretty quickly so there usually isn’t more than 2 days max before the funds land in the bank. So, while your sales probably won’t align with cash deposits over the same period, it’s normally not material.
COGS
COGS should be calculated with this formula
Beginning Inventory $$ + Purchase $$ - Ending Inventory $$.
Sounds straightforward but it’s possible it can be misleading. Most vendors allow a little float time. 7 days. Maybe 14 days. So, it is possible that what you are using is not aligning with what you are paying. Moreover, if you start skipping payments or forgetting payments, your bank account may look strong and the P&L will tell you it shouldn’t be that strong. Alternatively, if the inventory figures are false, the P&L could give you a food cost that is too low (or even too high). Typically, it is the former. You can detect this if the inventory numbers keep rising month after month. Eventually, you’re going to do a count and find out that inventory isn’t there and the P&L has been forced to lie to you.
So, to ensure COGS is as accurate as possible, pay your invoices on time and make sure your inventory counts don’t oddly rise every single month.
Labor
It is important to accrue labor by the day, otherwise, the P&L won’t tell you the performance truth. If you only post payroll when paid, you will get a misalignment between sales and the labor spent to generate those sales. This is especially acute with calendar period months vs fiscal period months. Without proper accrual, your labor numbers will bounce around on the P&L and not provide a true picture.
Debt
The P&L does not reflect principal payments on debt. If you are maintaining debt, particularly short term amortization debt, you could literally be profitable but not profitable enough to make your payments. You could end up going under, simply because you aren’t making ENOUGH. So, along with the P&L, take stock of your debt payments so you don’t get crushed. Additionally, avoid point of sale loans. These are loans advanced by the point of sale company such as square and are repaid by direct taking of a percent of your sales. I’ve never seen a company go down this route that doesn’t end up eventually going under. Once you start, the effective interest rates are so high and the payments happen daily, that it’s nearly impossible to get out from underneath them. Consider closing the shop before going down that route.
Sales Tax
Sales tax isn’t a P&L item but it sits in your bank account for up to 50 days giving the appearance of greater success than is reality. Don’t get fooled. Pay attention to the sales tax liability on your balance sheet and avoid spending the money. The sales tax collectors will wreak havoc with you.
Other big payments
Pay attention to and plan for other large annual payments such as insurance, franchise tax, etc. Make sure these are accrued monthly to your P&L so your expenses properly match the revenue they are generating for the month but also pay attention to the balance sheet so you remain aware of the renewals and the amounts. Again, if you spend that money, you could end up kicking off a downward spiral. Make sure you pay attention to your balance sheet liabilities before redirecting cash elsewhere.
Overall, pay attention to the Balance Sheet, P&L, Cash Flow Statement, monthly profit and cash flow forecasts and daily cash flow forecasts.
Sweetdata USA provides this as part of our outsourced finance department. Give us a call today if you need help.