The month has ended. The sales were good, the P&L shows a profit, and there’s nothing that appears to be suspiciously to be wrong.

Then you check the bank account of the restaurant.

The number you received wasn’t what you had hoped for.

Restaurant owners can find it difficult to reconcile this issue because they believe that cash flow and profits ought to be identical. They don’t add up. It’s not true. P&L is a gauge of financial performance. On the other hand, the bank account is a reflection of when money moves in and out.

Understanding the difference will change the way a restaurant’s manager is able to view their financials.

Take a look at what happens in a normal week. Food is paid for by customers. Employees are required to be paid. Food and beverages are delivered with invoices. Rent is on the way. Credit card payments are timed. Sales tax is collected, but it’s an obligation.

The purchase for next week has already started.

When you look only at revenue or the number of dollars earned at the end, it is easy to miss out on a great deal of activity.

Prime Cost could be the Key to the Clue

If the restaurant’s profitability starts to decline, the cost of food, beverages and labour costs must be taken into the equation.

Together, the cost of the goods sold and labor together make up the bulk of the cost. Bookkeeping Chef’s guidelines place primary costs between 60% to 65 percent for a wide range of restaurants and stresses weekly monitoring as opposed to waiting until the end the month.

Effective management of prime costs is less about obsessing over the exact percentages and more about being able to spot changes quickly.

If the restaurant typically achieves its goals, but this week, it’s an increase in percentage. Perhaps overtime was added. Perhaps beverage costs were steady However, food expenses increased. Operators may examine menus as well as waste, portions sizes as well as vendor invoices and purchasing if the proportion of food is higher.

The percentage raises questions. The underlying restaurant activity provides the answer.

Weekly reports allow for this conversation to be held as everyone is conscious of what’s transpired.

Three or four weeks later After that, the details become harder to reconstruct.

When the vendor invoices arrive

The restaurant will be able to pay in the future for the ingredients it buys. This is the reason knowing the profit isn’t enough to answer every cash issue.

Vendor invoices must be received, recorded and tracked before being paid. In a busy business with numerous suppliers, doing that manually can turn into an administrative burden.

Automating the process for accounts payable can help organize this by reducing the time-consuming handling of bills and payments. The owner can get more precise information about the payments that haven’t been deposited into their bank account through integrated bookkeeping systems.

It’s helpful because, when looked at as a whole the restaurant’s financial position could appear to be more healthy than its actual financial situation.

It could be that there are $80,000 in your account as of right now. The amount could have a different meaning when it is affected by other factors such as rent, payroll, vendors and other obligations over the next few days.

Forecasting cash flow is a common outcome.

Instead of asking “How many dollars of cash are we carrying?” the better question is “What is likely to transpire with our cash after the money we’re expecting to receive and our obligations that we already know about?”

It is essential to be aware of the difference when deciding if this week is a good opportunity to replace equipment, purchase additional items or save liquid funds.

The cash you received may Not be Yours

Sales tax illustrates the point especially well.

Restaurants receive money from customers and needs to be handled according to its tax obligations. If these funds are mixed with cash flow, the balance in a bank can be misleading about the amount of cash available.

A consistent record-keeping system helps restaurants comply with sales tax laws while also giving a clear view of their financial position.

Accounting for restaurants is more efficient when the financial responsibilities of each restaurant are not considered separately.

Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Payroll can affect both the percentage of labor and cash. Cash availability is affected by sales tax. P&Ls keep track of financial performance and forecasting lets management examine the future.

The pieces are linked.

Bookkeeping Chef combines restaurant-specific reports along with system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.

It’s the last part that matters.

It’s not the aim of restaurant owners to stop checking their books because somebody else does. Owners should be given information which will allow them to know what’s going on.

If the P&L indicates that the establishment is profitable however the balance of the bank seems unbalanced, don’t assume that the P&L may be inaccurate.

Find out what transpired between you and your spouse.

Answering this question can provide more information about the restaurant than just the number.