The month is finished. Sales were solid, the P&L is in profit and there is nothing suspiciously to be wrong.

Make sure to check the restaurant’s account.

It wasn’t the number you had hoped for.

For restaurant owners, that disconnection can be a source of frustration because the cash flow and profit appear to provide the same information. They don’t add together. A P&L measures financial performance over a period, while your bank account shows the timing of money actually flowing into and out of the business.

Understanding the differences will help restaurant owners adjust their view of the financials of their restaurant.

Check out what goes on in a typical week. Customers pay for food. Employees have to be paid. You will receive invoices with food and beverage deliveries. Rent is on the way. The credit card deposit is also timed. Taxes on sales have been collected, however that money has a responsibility.

Meanwhile, next week’s purchasing has already started.

If you only focus on revenues and the numbers at the end of profits, it is easy to overlook an abundance of activity.

The clue may be hidden in the price of the best.

When restaurant profitability starts moving in the wrong direction, food, beverage and labor expenses require focus.

Together, the cost of products sold and labor comprise the primary cost. The Bookkeeping Chefs’ provided advice places the cost of goods sold between 60-65% of revenues for many restaurants. They also recommend the importance of weekly monitoring rather than waiting until the end of the month.

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

Imagine that the restaurant’s performance is usually close to its goal however this week, it was higher. Perhaps overtime has also increased. Perhaps the cost of beverages remained steady as food costs rose. The higher proportion of food could lead the business owner to look at the purchase, waste management, portions and menu mix or vendor costs.

The percentage raised the question. The activities that underlie the restaurant provide the answer.

Weekly reports make that conversation possible while everyone still remembers what happened.

The details are much harder to recall after a couple of days.

The Vendor Bills are then delivered.

Restaurants may buy ingredients this week but have to pay for these items later. This is due to the fact that analyzing profits alone will not solve all cash problems.

Vendor invoices need to be accepted and logged. In a busy operation with many suppliers, completing that manually can turn into an administrative burden.

Automating accounts payable helps to streamline this process by reducing repetitive handling of bills and payment information. Systems for bookkeeping that connect to accounting systems can provide owners with a clear view of their obligations, even if they’ve not yet been paid.

This is advantageous, since the bank’s balance may appear to be healthier than the restaurant’s actual financial situation.

Today, there may be an amount of $80,000 in the account. It could mean something different in the event that payroll, rent and vendors as well as other commitments will consume a substantial portion of it over the next several days.

That leads naturally to cash flow forecasting.

The best question to ask yourself is “What happens to our cash after we have received the funds and have fulfilled the obligations we have made?”

The distinction can matter when deciding whether this is a comfortable week to replace equipment, make an extra purchase, or keep liquid funds.

The Cash You Received May Not be Yours

The sales tax example is a good example.

The cash restaurants receive from their customers is eventually going to need to be handled in line with its tax obligations. If these funds are grouped together with operating cash, they can create a false impression of the cash available for spending.

Consistent record keeping helps restaurants to comply with the sales tax laws, while giving a clear image of their financial condition.

It is for this reason that restaurant accounting can be more effective when financial responsibilities don’t are separated from other responsibilities.

Prime cost affects margin. COGS and future payments are impacted by purchases from vendors. Payroll has an impact on the amount of cash available and also the labor percentage. Taxes on sales affect cash availability. P&Ls track financial performance, while forecasting allows management to look ahead.

The pieces are linked.

Bookkeeping Chef assists in bringing the pieces together by providing restaurant-specific reports as well as system integrations. Outsourced bookkeeping can help users who don’t want to spend the night manually reconciling their financial information.

This last aspect is crucial.

The idea isn’t for restaurant owners to stop looking at the books because they are handled by someone else. Owners should receive information which will allow them to understand what’s happening.

If the P&L indicates that the restaurant is profitable but the bank balance seems unbalanced, don’t assume that the P&L could be wrong.

Ask what happened between them.

This one question could teach you far more about your restaurant than a single number could on its own.