The month is done. The sales were good and the P&L was profitable and there was no sign of anything that appeared to be seriously incorrect.

After that, you can check the restaurant’s bank account.

It wasn’t the number you had hoped for.

This can be very frustrating for owners of restaurants because they believe that profit and cash availability should have the same story to tell. They don’t. A P&L examines the financial performance of a firm over a specified time period, whereas a bank account shows the exact time of money flowing into and out of the company.

Understanding the differences can help owners change their perspective on restaurant finances.

Imagine what happens on an average week. The customers pay for food. Employees have to be paid. The invoices for food and beverages are handed out. Rent is nearing. Credit card payments are timed. Taxes on sales are collected but it comes with responsibilities.

Already, the next week’s purchases have started.

Focusing on revenue only or the final profit figure isn’t a good way to assess the full scope of what happens.

Prime Cost Could Hold the Key to the Answer

Food, beverages and labor costs are worth taking a closer look when restaurant profitability starts to decrease.

Together, the cost of products sold and labor are the main costs. The Bookkeeping Chefs’ provided advice places the cost of goods sold between 60% and 65% of revenues for many establishments. They also suggest daily monitoring, not waiting until the month ends.

It is crucial to be able detect the changes before they occur rather than obsessing over certain percentages.

Let’s say that a restaurant typically performs within its targets However, this week’s number increases. Maybe overtime also increased. The price of drinks may have remained the same, whereas food prices increased. A higher percentage of food might prompt the operator to consider examining the purchase, waste management, portions and menu mix or vendor bills.

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

Weekly reports allow this discussion to occur even though everyone is aware of what’s happened.

After a few weeks After that, the details become more difficult to reconstruct.

The Vendor’s Bills Arrive

The restaurant will be able to pay in the future for the ingredients it buys. This timing helps to explain why profit alone is not enough to answer all cash-related questions.

Vendor invoices have to be recorded, received then tracked and finally paid. This can be quite a task in an organization with numerous suppliers.

Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. These bookkeeping systems are also able to give the user a better view of any obligations which haven’t yet deposited into the account of the bank.

This is because a bank balance viewed as an individual can appear more healthy than the restaurant’s actual near-term position.

It might be that there are $80,000 in your account as of right now. It could mean something different if rent, payroll and vendors as well as other obligations will consume a large portion over the next several days.

This is what leads to cash flow forecasting.

The most important question to ask is “What will happen to our cash once we have received the funds and have fulfilled our obligations we’ve made?”

It is important to know the difference when deciding if this week is the best moment to upgrade equipment, buy additional products, or conserve liquid funds.

The money you receive may Not be Yours

The example of sales tax is a great one.

The money a restaurant receives from its customers will eventually have to be handled in line with the tax requirements. If these funds are grouped with ordinary operating cash, the balance of the bank could create a false impression of what’s in the bank to spend.

The consistency of the records helps restaurants comply with sales taxes while giving the management a realistic view of their financial situation.

Accounting for restaurants is more efficient when the financial obligations of each restaurant do not have to be handled separately.

Prime cost affects margin. COGS (cost of goods sold) and future payments are affected due to purchases from vendors. Payroll can affect the percentage of labor and cash. Cash flow is affected by the sales tax. P&Ls record financial performance while forecasting lets management look ahead.

Connect the pieces.

Bookkeeping Chef incorporates restaurant-specific reporting and system integrations. For business owners who don’t want to be slavishly reconciling financial information, outsourced bookkeeping services will handle much of the accounting workload while removing the business owner from financial conversations.

That last part matters.

Restaurant owners should never stop going through the manuals simply because they’re handled by another. It’s important that the owners get information so they are aware of what’s happening.

If the P&L states that the restaurant has made money, but the bank account feels extremely unbalanced, don’t think that any of the numbers can be wrong.

Find out what happened between you and your spouse.

The answer to that question will reveal more about your restaurant than any number on its own.