The month is finished. The sales were good and the P&L showed a profit and there was no sign of anything to be terribly in error.

Make sure you check the account of the restaurant.

It wasn’t the number you expected.

This can be very frustrating for restaurant owners because they think that profit and cash availability should be the same. They don’t. A P&L is a measure of the financial performance of a company over time in time, whereas your bank account shows the timing of money actually being moved into and out of the company.

Understanding the difference can help owners change their views on the restaurant’s finances.

Take a look at the typical week. The customers pay for food. Employees have to be paid. Food and beverages are delivered with invoices attached. Rent is due. Deposits to credit cards are timed. Sales tax is an obligation.

Already the purchases for the week ahead have started.

If you only focus on revenues and the numbers at the end of profits, it is easy to miss a lots of activities.

The Key to the Mystery Could Be Hidden in the Prime Cost

The cost of food, drinks and labour costs merit a closer at when profitability in restaurants begins to decrease.

Together, cost of goods sold and labor together make up the bulk of the cost. The Bookkeeping Chefs’ guidance places the prime cost between 60 and 65 percent of the revenue for many restaurants. They also emphasize daily monitoring, not waiting until the month ends.

Effective prime cost management is less about worrying about the exact percentages and more about spotting changes early.

Imagine that the restaurant’s results are usually close to its goal however this week it increased. Maybe overtime increased. The cost of drinks could be the same as food costs increased. The chef may look over menus as well as waste, portions sizes along with vendor invoices and purchasing if the proportion of food is higher.

The percentage is a source of concern. The answer is found in the activity of the restaurant.

A weekly report makes that conversation possible while everyone remembers the events.

After a period of two to three weeks, it gets more difficult to reconstruct the specifics.

Then the Vendor Bills Show Up

The restaurant will be able to pay in the future for the ingredients it buys. Because of this, it is the case that analyzing profits alone will not solve all cash problems.

Vendor invoices must be received, tracked and paid. In a busy operation with many suppliers, completing that by hand can be an administrative burden.

Automating the process of paying bills helps manage the process by cutting down on the need to handle bills in a repetitive manner and payment information. The bookkeeping system that is connected to the internet can provide the owner with a clearer picture of debts that haven’t yet hit the account of the bank.

This is beneficial, as the bank’s balance may appear healthier than a restaurant’s actual situation in the near future.

The current balance could be an amount of $80,000 in the account. The $80,000 figure means very tiny if rental, vendors, or payroll will take up a large portion over the next few days.

This is the reason for cash flow forecasting.

Instead of asking “How much cash do we have?” the better question is “What could occur to our cash after the cash we anticipate to receive and the obligations we already know about?”

It is crucial to understand the difference before deciding if this week is an ideal time to replace equipment or buy more items or save the cash flow.

The Money You Received Could Not Be Yours

The sales tax example is an excellent one.

A restaurant receives money from customers which needs to be handled in accordance with its tax obligations. If the funds are added to operating cash, then the balance of the bank account could offer a false impression of how much cash is available.

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 more efficient when financial obligations aren’t viewed as separate entities.

Prime cost affects margin. COGS (cost of goods sold) and future payments are affected through purchases from vendors. Payroll impacts both labor percentage as well as cash. Taxes on sales affect the availability of cash. P&Ls track financial performance, while forecasting lets management take a look ahead.

Connect the pieces.

Bookkeeping Chef incorporates restaurant-specific reporting with system integrations. For operators who don’t want to work all night reconciling financial information, outsourcing bookkeeping services can take care of large portions of the accounting burden while removing the business owner of the financial discussions.

The last sentence is vital.

It’s not the goal for restaurant owners to not check their books because somebody does. Owners should be given information that helps them comprehend what’s happening.

So if the P&L states that the restaurant has made money but the bank account seems to be a bit tight, don’t assume some of the figures must be off.

Find out what transpired between them.

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