The month is over. The sales were great and the P&L was profitable and there was no sign of anything to be terribly off.

Verify the restaurant’s bank account.

The number may not be exactly what you’d hoped for.

For restaurant owners, that gap can be frustrating as profits and cash flow seem to provide the same information. They don’t add with each other. A P&L examines the financial performance of a company over a specific time period, whereas a bank account shows the exact timing of money flowing into and out of the company.

Knowing the difference can change how a restaurant’s owner thinks about their finances.

Think about what happens in an normal week. The customers pay for food. The payment of employees is essential. Deliveries of food and beverages arrive with invoices attached. Rent is due. The time of the credit card deposit is different. The sales tax collected has an obligation.

Meanwhile, next week’s purchasing has already begun.

When you concentrate on revenue or the number of dollars earned at the end it’s easy to overlook lots of activities.

Prime Cost could be the Key to the Solution

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

The prime cost is comprised of both goods and labor. Bookkeeping Chef’s provided guidance places the cost of goods sold at 60% to 65% for many restaurant and stresses weekly monitoring rather than waiting until the end of the month.

Effective management of prime costs requires not focusing on one percent, and more paying attention to any early movements.

Imagine that the restaurant’s performance is generally within its target However, this past week, it went up. Perhaps the overtime rate is up. Maybe beverage costs were stable, but food costs increased. An increase in the percentage of food items could lead the operator to review the menu, purchases, waste, mix portions and vendor invoices.

The percentage raises a concern. The underlying restaurant activity provides the answer.

Weekly reports make this conversation possible and everyone is still able to remember what happened.

The details are harder to recall after a couple of days.

When the vendor invoices arrive

Restaurants can purchase ingredients one week and make payments the following week. This is a reason for understanding profit alone doesn’t answer every cash-related question.

Vendor invoices must be recorded, received then tracked and finally paid. This can take quite a task in the case of a business with numerous suppliers.

Automating accounts payable helps to streamline the process, reducing repetitive handling of bills and payment information. Bookkeeping systems that are integrated can give owners a better picture of obligations, even if they’ve not yet been paid.

It’s useful because, taken as a whole a restaurant s bank balance could appear to be more healthy than its actual financial position.

Today, there may be an amount of $80,000 in the account. The figure of $80,000 means little if rent, vendors, or payroll will take up a large portion over the coming days.

This leads to the cash flow forecasting.

Instead of asking “How many dollars of cash are we carrying?” the better question is “What will occur to our cash after the cash we anticipate to receive and the obligations we already know about?”

This distinction is essential in determining whether this is the best time to make an extra purchase or replace equipment, or maintain the liquidity.

A portion of the Cash Was Never Yours

Sales tax illustrates this especially well.

A restaurant collects cash from its customers, which eventually will need to be dealt with in accordance with its tax obligations. If these funds are placed in the same category as operating cash, the bank balance may create a false sense of what’s available to spend.

Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.

It’s for this reason that restaurant accounting functions better in situations where financial responsibilities aren’t thought of as separate entities.

Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll has an impact on the amount of cash available and also the labor percentage. Cash flow is impacted by sales tax. P&Ls record financial performance while forecasting lets management see the future.

The pieces are interconnected.

Bookkeeping Chef is a restaurant-specific report that integrates through system integrations. Outsourced bookkeeping services that are specifically tailored to your needs are an excellent alternative for those who do not have time to reconcile their financial information. They can handle a large portion of the accounting duties while removing the proprietor from the financial conversation.

The last sentence is vital.

It’s not the aim of restaurant owners to cease checking their accounts because someone does. Owners should receive information that helps them understand what’s happening.

Don’t think that the P&L is wrong if the balance of the bank seems to be tight, however the P&L shows the restaurant has earned money.

Ask about the events that occurred between them.

This will reveal more about your business than any number.