The month is finished. The sales were great and the P&L had a profit, and there was no sign of anything that appeared to be terribly incorrect.

Check the restaurant’s bank account.

The number you received wasn’t what you expected.

This gap can be a source of frustration for restaurant owners as they feel that profit and cash available should tell the same tale. They don’t. A P&L evaluates the how well the company’s financials have performed over a certain time, while the bank account is a reflection of the exact timing of funds flowing into and out of the company.

Understanding the difference can alter the way a restaurant owner considers restaurant financials.

Have a look at what happens in a normal week. Customers pay for meals. Paying employees is necessary. Invoices will be sent out with food and beverage deliveries. Rent is getting closer. Deposits made with credit cards have their own timing. Taxes on sales have been collected, but the money comes with an obligation.

Already the next week’s purchases have begun.

Looking just at revenue or the end-of-year profit number does not take into account a lot of the activity.

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

The cost of food, drinks and labour cost are all worth a close look when restaurant profitability starts to fall.

Together, the cost of goods sold and the labor cost make up prime cost. The bookkeeping chef’s guideline places the cost of goods sold at 60% to 65% for many restaurant and emphasizes monitoring on a weekly basis rather than staying until the end of of the month.

Effective primary cost management is not about focusing on the exact percentages and more about recognizing changes early.

Let’s say that typically, the restaurant does well, however this week it’s more of a percentage. Maybe overtime went up. Perhaps the cost of beverages remained steady as food costs rose. The operator may review menus and portions, waste as well as vendor invoices and purchasing if the proportion of food is higher.

The percentage raises questions. The restaurant’s activity is the answer.

Weekly reports allow for this conversation to take place in the midst of everyone being aware of what’s happened.

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

When the vendor invoices arrive

The restaurant will pay in the future for the ingredients it purchases. This timing helps to explain how profit alone will not be enough to answer all cash questions.

Vendor invoices need to be received, recorded as well as tracked until they are paid. In a business that has numerous suppliers, doing that by hand can be its own administrative workload.

Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Bookkeeping systems that are connected will give the owners a clear picture of obligations, even if they haven’t yet been paid.

This is because an account balance seen as an individual can appear more healthy than the restaurant’s actual near-term position.

Today, there may be an amount of $80,000 in the account. The figure of $80,000 is little if rent, vendors, or payroll will take an enormous amount over the next few 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?

The distinction can matter in determining if this is an appropriate time to replace equipment, an additional purchase, or to preserve liquid funds.

A portion of the Cash Was Never Yours

The example of sales tax is a great one.

The money that a restaurant gets from its patrons will eventually have to be dealt with in accordance with the tax requirements. If these dollars are mentally combined with normal cash flow, the balance of the bank account could offer a false impression of the amount of money available.

The consistency of the records helps restaurants comply with sales tax requirements while providing the management a realistic view of their financial situation.

This is why it is that restaurant accounting is more efficient when financial responsibilities don’t are separated from other responsibilities.

Prime cost affects margin. COGS and future payment are affected by the purchase of vendor products. Payroll impacts both labor percentage as well as cash. Sales tax influences the availability of cash. The P&L documents financial performance forecasting can help management look ahead.

The pieces are linked.

Bookkeeping Chef utilizes restaurant-specific reporting and system integrations to help integrate these pieces. For operators who don’t want to work all night reconciling financial data, specialized outsourced bookkeeping services can handle large portions of the accounting burden without having to remove the owner from the financial conversation.

It’s the very last one that matters.

It’s not the aim of restaurant owners to not check their books because somebody does. Owners should be given information that helps them be aware of what’s happening.

If the P&L says the restaurant made money but the bank account feels extremely insecure, don’t believe that one of the numbers must be wrong.

Find out what transpired between you and your partner.

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