The month is finished. The month is done.

You then check the bank account of the restaurant.

The number you received wasn’t what you expected.

This gap can be a source of frustration for owners of restaurants because they think that profit and cash availability should have the same story to tell. They aren’t. A P&L is a measure of financial performance over a period, while the bank account represents the time frame of money moving in and out of the company.

Understanding the difference can alter the way an owner examines the financials of a restaurant.

Imagine what might happen during the typical week. The customers pay for food. The employees must be paid. Food and drinks deliveries arrive with invoices. Rent is on the verge of being due. Deposits made with credit cards come with their own schedules. The tax on sales is an obligation.

Already the next week’s purchases have begun.

If you focus solely on revenue and the end-profit number, it is easy to overlook an abundance of activity.

Prime Cost Could Hold the Key to the Solution

If the profitability of restaurants begins to decline, the costs of food, beverages and labor expenses should be taken into consideration.

Prime cost is made up of both the cost of goods and labor. The Bookkeeping Chefs’ provided advice places the cost of goods sold between 60% and 65 percent of the revenue for many establishments. They also suggest daily monitoring, not waiting until the end of the month.

It is much more crucial to be able to detect changes earlier than worrying about a specific percentage.

Let’s say that typically, the restaurant is performing at a high level, however this week it’s at a higher percent. Maybe the number of overtime hours is up. The cost of drinks could have remained the same while the food expenses increased. A higher proportion of food might prompt the operator to look at the purchase, waste management, menu mix and portions, or vendor bills.

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

A weekly report makes this conversation possible and everyone is still able to remember what happened.

The details are much more difficult to recall just a few days later.

Then the Vendor Bills Show Up

A restaurant might purchase its ingredients this week, but then pay for the ingredients later. This is due to the fact that analyzing profits alone will not answer all cash issues.

Vendor invoices must be recorded, received as well as tracked until they are paid. In a business that has many suppliers, completing that manually can become the company’s own administrative task.

Automating accounts payable helps to streamline the process, reducing repetitive handling of bills and payment information. The account owner will have a clearer view of the payments that haven’t been deposited into their bank account by using the bookkeeping software that is connected to.

This is advantageous, since the balance of your bank account may appear healthier than a restaurant’s real near-term situation.

Today, there may be $80,000 on the account. That number means something very different if rent, payroll and vendors obligations will consume a large portion of it over the next several days.

That leads naturally to the process of forecasting cash flows.

What will happen with our cash after we’ve gotten the amount we’ve hoped for and have fulfilled all of our obligations?

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

You might not have been rightfully entitled to all the money you believed.

The sales tax illustrates this in particular.

The money that restaurant owners receive from customers will eventually have to be handled in line with its tax obligations. If the funds are combined with normal operating cash, then the bank balance could provide an inaccurate picture of the amount of money available.

A consistent record helps restaurants stay in compliance with sales tax regulations while also providing the management a realistic view of their financial situation.

This is the reason restaurant accounting works better when financial responsibilities aren’t treated as distinct islands.

Prime cost affects margin. Vendor purchases affect COGS as well as future payments. The percentage of labor and cash are affected by the payroll. Sales tax affects the availability of cash. P&Ls are used to record financial performance. Forecasting can also be useful for management.

The pieces are connected.

Bookkeeping Chef combines restaurant-specific reports with system integrations. For operators who don’t want to spend their nights manually reconciling financial data, specialized outsourced bookkeeping services can handle much of the accounting workload without removing the owner from the financial conversation.

It’s the final part that counts.

Restaurant owners should not stop reading the books, simply because they’re handled by someone else. It’s crucial that the owners get information so they can understand the situation.

If the P&L says the restaurant made cash, yet the bank account is feeling a little tight, don’t assume any of the numbers can be incorrect.

Find out what happened between you and your spouse.

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