The month has ended. The sales were good, the P&L shows a profit, and there is nothing suspiciously wrong.

You should then check the restaurant’s bank account.

You didn’t get the call you would have expected.

Restaurant owners might be dissatisfied with this, as they believe that cash flow and profits should be the same. Both of them don’t match together. A P&L is a measure of the financial performance of a company over a specified time period, whereas accounts in banks show the actual timing of money entering and leaving he business.

Understanding the difference will change the way a restaurant’s manager thinks about their finances.

Check out what goes on in a typical week. Customers pay for meals. Employees are required to be paid. Food and drinks are sent. Rent is getting closer. The credit card deposit is also timed. The sales tax collected has an obligation.

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

If you focus only on the amount of revenue or the final profits, you’ll be missing a lot of this process.

The Key to the Mystery Could Be Hidden in the Prime Cost

If restaurant profits begin to fall, food, beverage and labor costs should be taken into the equation.

Cost of sales combined with labor is the prime cost. Bookkeeping Chef’s guidelines place the cost of goods sold at 60%-65 percent of the revenue for many establishments, and emphasizes the importance of monitoring weekly rather than waiting until the closing of the month.

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

Let’s say that a restaurant typically performs within its targets, but this week’s percentage increases. Perhaps overtime was increased. Maybe beverage costs were stable However, food expenses increased. A higher food percentage might lead the operator to review buying, waste, menu mix portions and vendor invoices.

The percentage is what matters. The activity of the restaurant itself provides the answer.

Weekly reports allow this conversation to take place even though everyone is aware of what has happened.

The details are more difficult for you to recall the next day or two.

The Vendor’s Bills Are Received

A restaurant could purchase the ingredients in the week ahead, but pay for the items later. This is due to the fact that analyzing profits alone will not answer all cash issues.

Vendor invoices should be recorded, received then tracked and finally paid. This can be a lot of work in an operation that has several suppliers.

Automating accounts payable can streamline this process, which reduces repetitive tasks such as handling payments and bills. Bookkeeping systems that are connected will give the owners a clear image of their obligations even if they haven’t yet been paid.

This is helpful, since the bank balance can appear more healthy than the restaurant’s current situation.

It might be that you have $80,000 in your account as of right now. The amount could be different when it is affected by other factors like rent or other expenses, such as payroll, vendors or other obligations in the coming days.

That leads naturally to the process of forecasting cash flows.

What will happen with our cash once we’ve received the money that we expect and have met our obligations?

This distinction is crucial when deciding the appropriateness of the appropriate time to make an additional purchase or replace equipment, or maintain liquidity.

And Some of the Cash Wasn’t Really Yours

Sales tax illustrates the point especially well.

The cash a restaurant receives from its customers will eventually need to be managed in accordance with the tax requirements. If these funds are mixed with cash flow, the balance in a bank can give an inaccurate impression of the amount of cash available.

Regularly updated records ensure sales tax compliance while also giving the management a better understanding of the restaurant’s financials.

Accounting for restaurant operations is more effective when the financial responsibilities of each restaurant are handled separately.

Prime cost affects margin. Vendor purchases impact COGS and future payments. Payroll has an impact on both cash and labor percentage. The availability of cash is influenced by sales tax. The P&L records financial performance, while forecasting helps management look ahead.

The pieces are connected.

Bookkeeping Chef uses restaurant-focused reporting and system integrations to bring those pieces together. Bookkeeping outsourcing services with specialization are an ideal alternative for those who don’t have time to manually reconcile financial data. They will take care of a lot of the accounting duties while removing the proprietor from the financial conversation.

It’s the final part that is important.

It’s not the goal for restaurant owners to stop examining their books just because someone else does. It’s for owners to receive the information they need in a format which helps them comprehend what is happening.

If the P&L indicates that the establishment is earning money however the balance of the bank seems tight, do not assume the P&L may be inaccurate.

What transpired between the two?

The answer to that question will reveal much more about the restaurant than a single number could on its own.