The month is over. Sales were excellent, and the P&L shows a profit, and there’s nothing that appears to be suspiciously incorrect.

Verify the restaurant’s bank account.

You didn’t get the number you had hoped for.

This gap can be a source of frustration for restaurant owners as they think that profit and cash available should speak the same truth. They aren’t. A P&L measures the financial performance of a company over a specific period of time, while a bank account shows the exact timing of funds flowing into and out of the business.

Knowing the difference can change how a restaurant’s owner is able to view their financials.

Check out what happens during a normal week. Customers pay for food. Paying employees is necessary. Food and drinks deliveries arrive with invoices. Rent is on the verge of being due. The credit card deposit is also timed. Sales tax is collected however it comes with the responsibility.

Already the next week’s purchases have begun.

When you concentrate on revenue and the end-profit number, it is easy to miss a a great deal of activity.

The clue could be hidden in the Prime Cost

Food, beverage and labour cost are all worth a close look when restaurant profitability starts to go downhill.

Together, the cost of the items sold and labor are the main costs. Bookkeeping Chef’s guidelines place primary costs between 60% to 65% for many restaurant, and emphasizes weekly monitoring rather than staying until the end of of the month.

It is essential for you to recognize the changes before they occur rather than obsessing over a specific percentage.

Imagine that the restaurant’s performance typically within a certain range, but this past week, it was higher. Perhaps overtime has went up. The cost of drinks could have remained the same, whereas food costs increased. The operator may review menus, waste, portion sizes as well as vendor invoices and purchasing if the food percentage is higher.

The percentage is crucial. The answer lies in the restaurant’s activity.

A weekly report makes this conversation possible and everyone still remembers what happened.

Three or four weeks later after that, the details become more difficult to understand.

When the vendor bills arrive

Restaurants may buy ingredients in one week, and then pay for them next week. It’s due to this fact that knowing profits alone will not solve all cash problems.

Vendor invoices should be recieved and logged. In the course of manual processing, an environment with many suppliers could become an enormous administrative burden.

Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that connect can give owners a better image of their obligations even though they haven’t yet been paid.

This is beneficial, as the bank’s balance may appear healthier than a restaurant’s real near-term situation.

There is currently an amount of $80,000 in the account. It could mean something different if it is impacted by other variables like rent, payroll, vendors and other obligations that will be due in the next few days.

This is the reason for cash flow forecasting.

Instead of asking “How many dollars of cash are we carrying?” the better question is “What could occur to our cash after the cash we anticipate to receive and the obligations we already know about?”

The difference can be crucial in deciding if this is a comfortable week to replace equipment, an additional purchase, or to preserve liquid funds.

You may not be legally entitled to the full amount you thought.

Sales tax highlights this especially well.

Restaurants collect money from their customers, which they have to then handle in accordance with the tax requirements. If the funds are added to operating cash, then the bank balance may offer a false impression of the amount of cash available.

Consistent records support sales tax compliance, while giving management a more realistic perspective of the restaurant’s financials.

This is why it is that restaurant accounting can be more effective in situations where financial responsibilities aren’t thought of as separate entities.

Prime cost affects margin. COGS and future payments are affected by the purchase of vendor products. Payroll affects both labor percentage as well as cash. Cash availability is impacted by sales tax. P&Ls are used to track the financial performance. Forecasting is also beneficial for managers.

The pieces are connected.

Bookkeeping Chef is a restaurant-specific report that integrates along with system integrations. Outsourced bookkeeping is a great option for those who don’t want to be tasked with reconciling their financial data.

This last aspect is crucial.

It’s not the goal for restaurant owners to not check their books because somebody else does. It’s essential that owners are informed so that they can understand the situation.

If the P&L indicates that the restaurant made money but the bank account is feeling a little unbalanced, don’t think that one of the numbers could be incorrect.

What was the difference between them?

This will reveal more about your company than any other number.