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

Make sure to check the restaurant’s account.

You didn’t get the call you had hoped for.

Restaurant owners, this disconnect can be frustrating because profits and cash flow seem like they should have the same meaning. They don’t. The P&L is a gauge of financial performance, while the bank account is a representation of when money moves into and out.

Understanding the difference can alter how a restaurant’s owner considers their financials.

Look at what goes on in a typical week. The customers pay for food. Employees must be paid. Food and beverages are delivered with invoices. Rent is coming up. The timing of credit card deposits differs. Sales tax is collected but it is a responsibility.

Already, the next week’s purchases have begun.

If you are only looking at the revenue or the final profit, then you will be missing a lot of this process.

Prime Cost Could Hold the Key to the Answer

Food, drink and labour costs are worth taking a closer look when restaurant profitability starts to fall.

Prime cost is made up from both materials and labor. The Bookkeeping Chef’s guidance puts the cost of goods sold at 60% to 65 percent for most restaurants and emphasizes monitoring on a weekly basis as opposed to staying until the end of the month.

It is crucial to be able detect any changes in the early stages rather than worrying about an exact percentage.

If the restaurant typically performs near its target but this week, it’s more of a percentage. Perhaps overtime has is up. The price of drinks may have remained the same while food costs rose. A higher proportion of food could lead the business owner to review buying, waste management portions and menu mix or even vendor invoices.

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

This is possible due to the fact that everyone is able to recall what transpired.

The details are much more difficult to recall the next day or two.

The Vendor’s bills arrive

Restaurants may purchase ingredients in one week, and then make payments the following week. This is a way to explain how profit alone will not be enough to answer all cash-related questions.

Vendor invoices must be received and tracked. In a busy operation with many suppliers, completing that manually can become its own administrative workload.

Automating the accounts payable process will help to organize the process by reducing the time-consuming handling of bills and payments. The owner can get a clearer view of the obligations that haven t hit their bank account through connected bookkeeping systems.

This is useful, because the bank’s balance could seem healthier than a restaurant’s actual financial situation.

There could be $80,000 in the bank account at present. The figure of $80,000 means little if rent, vendors or payroll make the majority of the next few days.

That leads naturally to cash flow forecasting.

The better question to ask yourself is “What will happen to our money after we have received the funds and have met our obligations that we know?”

This is a crucial distinction when deciding on whether this is the appropriate time to make an additional purchase or replace equipment, or maintain liquidity.

The Cash You Received May Not Be Yours

The example of sales tax is a good example.

A restaurant collects money from customers that eventually will need to be dealt with according to its tax obligations. When these dollars are mentally combined with operating cash, it could give a false impression of the amount of money that is available for spending.

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

This is the reason restaurant accounting is better when financial obligations aren’t viewed as distinct islands.

Prime cost affects margin. COGS (cost of goods sold) and future payments are affected by the purchases from vendors. Payroll is a factor that affects both cash and labor percentage. Cash flow is impacted by sales tax. P&Ls report financial performance, and forecasting allows management to look ahead.

The pieces are interconnected.

Bookkeeping Chef integrates restaurant-specific reporting along with system integrations. Specialized outsourced bookkeeping services are an excellent option for operators who don’t have time to reconcile their financial data. They are able to handle the bulk of the accounting duties without removing the owner from financial discussions.

It’s the final part that is important.

It’s not the goal for restaurant owners to stop examining their accounts because someone does. Owners should be given information that can help them know what’s going on.

Don’t be fooled into thinking that the P&L is correct if your bank account appears to be in good shape, but the P&L indicates that the restaurant made money.

What was the difference between them?

Answering this question can tell you more about the restaurant than just a number.