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

It is recommended to check the restaurant’s bank account.

The number may not be what you expected.

For restaurant owners, that is a problem because profits and cash flow appear to be the same. These two things don’t match together. A P&L is a measure of the financial performance of a company over time and your bank account shows the exact timing of funds going into and out the company.

Understanding the difference will alter the way a restaurant owner is able to view their financials.

Check out what happens in a normal week. The customers pay for food. It is important to pay employees. You will receive invoices with the delivery of food and drinks. Rent is coming. The time of the credit card deposit is different. Sales tax is collected but it comes with the responsibility.

Meanwhile, next week’s purchasing has already begun.

If you just look at the amount of revenue or profits, then you’ll be missing a lot of this process.

The key to the answer may lie in the cost of prime.

If the profitability of restaurants begins to decrease, cost of food, beverages and labour costs should be taken into the equation.

Together, the cost of goods sold and labor make up prime cost. Bookkeeping Chef’s supplied guidance places the primary cost at around 60% to 65 percent of the total revenue for many restaurants, while emphasizing daily monitoring, rather than waiting until the end of the month.

Effective management of prime costs requires not focusing on one percent and more being aware of early movement.

Let’s say that a restaurant typically performs within its targets However, this week’s number is higher. Perhaps the overtime rate increased. Maybe the costs for beverages were stable while food costs grew. A higher percentage of food could lead the operator to review buying, waste, menu mix, portions or invoices from vendors.

The percentage is what matters. The answer lies in the activity of the restaurant.

The reason this conversation can be relived is because everybody can remember the details of what transpired.

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

The Vendor’s bills arrive

The restaurant pays an additional time for the items it purchases. This can help explain why profit alone is not enough to answer all cash-related questions.

Vendor invoices must be tracked, accepted and paid. This can be a lot of work in an operation that has several suppliers.

Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that connect allow owners to have a better picture of obligations, even if they’ve not yet been paid.

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

It is possible that you have $80,000 on your account as of right now. This number could mean something different if rent, payroll and vendors as well as other obligations will consume a large amount over the next several days.

This leads to cash flow forecasting.

Instead of asking “How much cash do we have?” the better question becomes “What is going to happen to our cash after the money we’re expecting to receive and the obligations we know about?”

It is crucial to understand what the distinction is when deciding if this week is a good moment to upgrade equipment, purchase additional items or to conserve liquidity.

And Some of the Cash Wasn’t Yours at All

The example of sales tax is an excellent one.

The cash a restaurant gets from its customers will eventually need to be dealt with in accordance with the tax requirements. If these dollars are mentally mixed with operating cash, then the bank balance may give an inaccurate impression of how much cash is available.

The consistent recording system allows restaurants comply with sales tax laws as well as giving a clear image of their financial condition.

This is the reason restaurant accounting can be more effective when financial obligations aren’t viewed as distinct islands.

Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll has an impact on both cash and labor percentage. Cash availability is impacted by sales tax. The P&L records financial performance, while forecasting helps management look ahead.

The pieces link.

Bookkeeping Chef assists in bringing the pieces together by providing restaurant-specific reports as well as system integrations. Bookkeeping outsourcing can be beneficial to owners who do not wish to be tasked with reconciling their financial data.

It’s the final part that matters.

It’s not the goal for restaurant owners to stop examining their books because somebody does. It’s to provide owners with information in a form that allows them to understand what’s going on.

If the P&L indicates that the restaurant is earning money however, the balance in the bank feels unbalanced, don’t assume that the P&L could be wrong.

Ask about the events that occurred between them.

The answer to that question will reveal something more about the food you serve than any number alone.