The month has ended. Sales were solid, the P&L is in profit and there’s nothing that appears to be to be terribly to be wrong.

Check the restaurant’s bank account.

You didn’t get the number you expected.

Restaurant owners, this disconnect can be frustrating because profit and available cash seem like they should have the same meaning. They don’t. A P&L is a measure of the financial performance of a company for a particular time period, whereas it is a bank account that shows the exact time of money entering and leaving the company.

Understanding the different aspects can allow owners to change their view of the financials of their restaurant.

Imagine what happens on a typical workday. Customers pay for meals. Employees are required to be paid. You will receive invoices for the delivery of food and drinks. Rent is getting closer. Credit card payments are timed. Sales tax is an obligation.

The next week’s buying has already begun.

When you concentrate on revenue or the number of dollars earned at the end it’s easy to overlook a great deal of activity.

Prime Cost could be the key to the answer

The cost of food, drinks and labour costs are worth taking a closer at when profitability in restaurants begins to decline.

Prime cost is composed of both the cost of materials and labor. The bookkeeping chef’s guideline places the cost of goods sold at 60%-65% of revenue for many restaurants, while emphasizing the importance of monitoring weekly rather than waiting until the close of each month.

Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.

Imagine that the restaurant’s results are generally within its target However, this week, it went up. Maybe overtime went up. Perhaps beverage costs remained stable while food costs jumped. The chef may look over menus and portions, waste or vendor invoices, as well as purchasing if the food percentage is greater.

The percentage raises the question. The answer lies in the restaurant’s activity.

Weekly reports allow for this discussion to occur in the midst of everyone being aware of the events that have occurred.

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

Then, the Vendor Bills arrive.

The restaurant pays later for the food items it purchases. This explains why understanding profit alone doesn’t answer every cash issue.

Vendor invoices should be recorded, received, tracked, and ultimately paid. In a business that has many suppliers, completing that manually can become an administrative task.

Automating accounts payable can help organize this process by eliminating repetitive handling of bills and payment details. The owner can get an accurate picture of debts that haven’t landed in their bank accounts by utilizing automated bookkeeping systems that are connected.

It’s important because a bank’s balance when seen in isolation can look healthier than the restaurant’s actual near-term position.

Today, there may be an amount of $80,000 in the account. The $80,000 amount is tiny if rental, vendors or payroll take up a significant portion of the account in the coming days.

Cash flow forecasting is a normal outcome.

The most appropriate question to ask is “What happens to our funds after we have received the funds and have met the obligations we have made?”

The distinction can matter in deciding if this is a comfortable week to upgrade equipment, make an additional purchase, or preserve liquid funds.

You may not have been entitled to all the money you thought.

Sales tax illustrates the point especially well.

The money a restaurant receives from its customers will eventually have to be managed in accordance of its tax obligations. If the money is mentally coupled with the normal operating cash, then the balance in a bank can give an inaccurate impression of the amount of money available.

Regularly updated records ensure sales tax compliance while also providing management with a more accurate understanding of the restaurant’s financials.

Accounting for restaurant operations is more effective when the financial responsibilities of each restaurant are not treated separately.

Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted by the purchases made by vendors. Payroll can affect both the percentage of labor and cash. Cash availability is affected by sales tax. P&Ls record financial performance while forecasting allows management to see the future.

The pieces are joined.

Bookkeeping Chef integrates restaurant-specific reporting through system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourcing of bookkeeping can take on much of the accounting workload while removing the business owner of the financial discussions.

This last aspect is crucial.

It’s not for owners of restaurants to stop looking at the books because somebody else handles them. It is important that owners receive information so they can understand what’s happening.

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

What happened between the two?

This question will tell you more about your business than any other number.