The month is finished. The month is finished.

Then, you should check the bank account of the restaurant.

The number doesn’t match the one you’d expected.

This disconnect can be frustrating for restaurant owners since they feel that profits and cash flow should speak the same truth. They are not. A P&L is a measure of financial performance over a period in time, whereas the bank account reflects the timing of money actually moving in and out of the company.

Understanding the differences will help restaurant owners adjust their views on the restaurant’s finances.

Have a look at what goes on in a typical week. Customers pay for meals. Employees must be paid. Deliveries of food and beverages arrive with invoices attached. Rent is due. Credit card deposits are subject to their own timetable. Taxes on sales are collected but it is a responsibility.

The buying for next week has already begun.

When you concentrate on revenue and the final profit figure it’s easy to miss out on a great deal of activity.

The key to the answer may lie in the prime cost

The cost of food, drinks and labour cost are all worth a close at when profitability in restaurants begins to decrease.

Prime cost is made up of both materials and labor. The Bookkeeping Chefs’ provided instructions place the main cost between 60-65% of revenues for many restaurants. They also emphasize daily monitoring, not waiting until the month ends.

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

If the restaurant typically achieves its goals, but this week, it’s at a higher percent. Perhaps the overtime rate is up. Maybe the costs for beverages were stable, but food costs increased. The manager can review menus as well as waste, portions sizes along with vendor invoices and purchasing if the food percentage is greater.

The percentage is crucial. The underlying restaurant activity provides the answer.

Weekly reports make that conversation possible while everyone remembers the events.

After two or three weeks, it becomes more difficult to reconstruct particulars.

Then the Vendor Bills Show Up

Restaurants may purchase ingredients one week and pay for them the next. This is the reason knowing the profit isn’t enough to answer every cash-related question.

Vendor invoices must be recorded, received then tracked and finally paid. In a highly-competitive business with many suppliers, completing that manually can become an administrative burden.

Automating accounts payable speeds up the process by reducing the time spent on tasks that are repetitive, such as managing invoices and payment information. Connected bookkeeping systems can also provide the owner with a clearer view of any obligations that haven’t yet hit the bank account.

This is advantageous, since the bank’s balance may appear healthier than a restaurant’s actual financial situation.

There could be $80,000 in the account right now. The $80,000 amount is little if vendors, rent, or payroll will take an enormous amount over the coming days.

Forecasting cash flow is a normal outcome.

Instead of asking “How much cash do we have?” the better question becomes “What could be the fate of our cash following the cash we anticipate to receive and the obligations we know about?”

This is a crucial distinction in determining whether this is the appropriate week to purchase an additional item or replace equipment, or keep the liquidity.

The Cash Was Never Really Yours

Sales tax highlights this point in particular.

Restaurants take money from their customers, which they follow according to the tax requirements. If these funds are grouped with ordinary operating cash, the bank balance may create a false sense of the amount there to be spent.

The consistency of the records helps restaurants comply with sales tax regulations while also providing the managers a clear picture of their financials.

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

Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll has an impact on the amount of cash available and also the labor percentage. Sales tax impacts the availability of cash. P&Ls report financial performance, and forecasting allows management to take a look ahead.

The pieces are connected.

Bookkeeping Chef integrates restaurant-specific reporting with system integrations. Bookkeeping outsourcing services with specialization are an excellent option for owners who don’t have the time to reconcile their financial data. They can handle a large portion of the accounting tasks without taking the owner away from the financial conversation.

This last aspect is crucial.

It’s not our goal for restaurant owners to not check their books because somebody else does. It’s crucial that the owners receive information so they can understand what’s going on.

Don’t assume that the P&L is not correct if the accounts appear to be in a good state, yet the P&L confirms that the restaurant earned money.

Ask about the events that occurred between them.

The answer to that question will reveal much more about the restaurant than a single number could be on its own.