The month has ended. Sales were excellent, and the P&L is in profit and there’s nothing that appears to be to be seriously wrong.

Check the restaurant’s account.

The number you received isn’t the one you were expecting.

For owners of restaurants, this disconnection can be a source of frustration because the cash flow and profit seem to provide the same information. They are not. It’s not true. P&L is a gauge of financial performance. On the other hand, the bank account is a reflection of when money moves in and out.

Knowing the difference could change the way a restaurant owner examines the financials of a restaurant.

Consider what happens during an normal week. Customers pay for food. Employees are required to be paid. Invoices for food and beverages are delivered. Rent is getting closer. The timing of debits to credit cards differs. The sales tax collected has an obligation.

Already, the next week’s purchases have started.

If you just look at the amount of revenue or the final profit, then you will miss a lot of this activity.

Prime Cost could be the Key to the Solution

Food, drink and labour costs are worth taking a closer examine when restaurant profitability begins to go downhill.

Together, the cost of goods sold and the labor cost make up prime cost. The Bookkeeping Chefs’ provided instructions place the main cost between 60% and 65 percent of the revenue for many restaurants. They also suggest weekly monitoring instead of waiting until the end of the month.

It is essential to be able detect any changes in the early stages rather than worrying about the exact percentage.

If the restaurant is performing in line with its goals, but this week’s percentage rises. Maybe overtime was boosted. The price of drinks may remain the same, while food costs rose. A higher percentage of food could lead the business owner to review purchases, waste management, portions and menu mix or vendor charges.

The percent raises the issue. The activities that underlie the restaurant provide the answer.

Weekly reports allow for the discussion to continue in the midst of everyone being aware of what’s happened.

Two or three weeks later after that, the details become more difficult to decipher.

After the vendor bills are paid

Restaurants may buy ingredients this week but have to pay for them later. It’s due to this fact that understanding profits alone does not resolve all cash-related issues.

Vendor invoices need to be received, recorded, tracked, and ultimately paid. In a busy operation with multiple suppliers, managing that manually could become the company’s own administrative task.

Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that are linked to accounting systems can provide owners with a clear view of their obligations, even if they have not yet been paid.

It’s advantageous because, taken as a whole the bank balance of a restaurant may appear to be more stable than its actual short-term financial position.

The current balance could be an amount of $80,000 in the account. This amount could be different if it is impacted by other elements like rent, payroll, vendors and other obligations in the next few days.

Forecasting cash flow is a normal outcome.

The better question to ask is “What will happen to our cash once we have received the funds and have fulfilled our obligations we’ve made?”

This is an important distinction to make in determining whether or not this is the right week to make an additional purchase to replace equipment or maintain liquidity.

You might not have been legally entitled to the full amount you thought.

The example of sales tax is a good example.

Restaurants receive cash from its customers, which eventually has to be managed in accordance with tax regulations. If these cash-flows are placed in the same category as operating cash, it could provide a false perception of the money available to spend.

Consistent records help restaurants comply with sales taxes while giving the management a realistic view of their finances.

It’s for this reason that restaurant accounting is more efficient when financial responsibilities don’t are treated as separate islands.

Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Cash and labor percentage are affected by the payroll. Cash flow is affected by sales tax. P&Ls are used for recording the financial performance. Forecasting is also helpful to management.

Connect the pieces.

Bookkeeping Chef makes use of restaurant-specific reports and system integrations that help put all the pieces together. For those who don’t wish 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 from financial conversations.

It’s the final part that’s important.

The goal isn’t for restaurant owners to simply stop looking at their books since somebody else handles them. The goal is for owners to get information in a form that helps them understand the situation.

Don’t believe that the P&L is incorrect if the balance of the bank seems to be tight, however the P&L indicates that the restaurant has made money.

Find out what transpired between them.

That question can teach you far more about your restaurant than a single number could be on its own.