The month is done. The sales were great, the P&L reported a profit and there was no sign of anything to be seriously incorrect.

Then, you should check the restaurant’s bank account.

This number isn’t exactly what you expected.

Restaurant owners, this disconnect can be frustrating because the cash flow and profit seem to have the same meaning. But they don’t. The P&L is a gauge of financial performance, while the bank account is a representation of the time when money flows in and out.

Understanding the difference can alter how a business owner examines the financials of a restaurant.

Imagine what might happen during an average week. Customers pay for food. Employees have to be paid. Invoices for food and drinks are issued. Rent is approaching. Deposits to credit cards are timed. Taxes on sales have been collected, but that money comes with an obligation.

On the other hand, the next week’s shopping has already started.

Focusing on revenue only or the number of profits at the end leaves out a lot of the work.

The clue could be hidden in Prime Cost

If the restaurant’s profitability starts to fall, food, beverage and labor expenses should be taken into the equation.

Together, the cost of goods sold and the labor cost make up prime cost. The Bookkeeping Chef’s guidance puts the prime cost at between 60%-65 percent of the revenue for many establishments, and emphasizes regular monitoring instead of waiting until the end of the month.

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

Imagine that the restaurant’s performance is typically within a certain range however this week it increased. Perhaps overtime was increased. The price of drinks may have remained the same while food costs rose. The higher proportion of food could cause the owner to examine purchases, waste management, portions and menu mix or vendor costs.

The percent raises the issue. The answer lies in the restaurant’s activity.

Weekly reports allow for this conversation to be held as everyone is conscious of what’s happened.

A few weeks later, the details become much harder to decipher.

The Vendor’s Bills are Received

The restaurant will be able to pay later for the food items it purchases. This is a way to explain why profit alone is not enough to answer all cash questions.

Vendor invoices must be received and tracked. In a business that has many suppliers, doing this manually can turn into its own administrative workload.

Automating the account payable process can streamline this process by reducing the time-consuming handling of bills and payments. The bookkeeping system that is connected to the internet can provide the owner with a clearer view of any obligations which haven’t yet deposited into the bank account.

It’s useful because, looked at as a whole the balance of a restaurant’s bank account might appear to be better than its actual short-term financial position.

There could be a possibility that you’ve got $80,000 in your account at the moment. It could mean something different when you consider that rent, payroll, vendors, and other commitments will consume a substantial portion of it over the next several days.

This leads naturally to cash flow forecasting.

Instead of asking “How much cash do we have?” the better question is “What will occur to our cash after the money we hope to receive and the obligations we are already aware about?”

It is crucial to understand the difference when deciding if this week is a good time to replace equipment or purchase additional items or to conserve the cash flow.

A portion of the Cash Wasn’t Yours at All

The sales tax example is a great one.

The money restaurant owners receive from patrons will eventually have to be handled in accordance with its tax obligations. If these funds are divided into operating cash, the balance of the bank can give a false idea of the amount available to spend.

Regularly maintained records help restaurants comply with sales tax laws and also providing a realistic overview of their financial standing.

Accounting for restaurants is more efficient when the financial obligations of each restaurant are separated.

Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll is a factor that affects both cash and labor percentage. Cash availability is affected by sales tax. The P&L records financial performance, while forecasting aids management in looking ahead.

The pieces are linked.

Bookkeeping Chef assists in bringing these pieces together using restaurant-specific reports and system integrations. Bookkeeping outsourcing can benefit operators who do not want to stay up all night reconciling their financial data.

The last point is important.

The aim isn’t to get restaurant owners to simply stop looking at their accounts because someone else is handling them. It’s important that the owners have access to information so that they know what’s going on.

Don’t think that the P&L is wrong if the bank account seems tight but the P&L shows the restaurant has earned money.

Ask what happened between them.

The answer to this question will provide more information about the restaurant’s location than the number.