The month is now over. The sales were strong, the P&L shows a profit, and nothing appears seriously to be wrong.

After that, you can check the bank account of the restaurant.

The number isn’t what you expected.

This gap can be a source of frustration for restaurant owners because they believe that profit and cash flow should tell the same tale. The two don’t line with each other. A P&L measures financial performance over a period while your bank account shows the time frame of money flowing into and out of the business.

Understanding the difference will help restaurant owners adjust their perspective on restaurant finances.

Imagine what could happen during an ordinary week. Food is paid for by customers. Employees are required to be paid. You will receive invoices with drinks and food deliveries. Rent is getting closer. Credit card payments are timed. The sales tax collected has an obligation.

Already the next week’s purchases have begun.

If you only look at the revenue or the final income, then you’ll be missing a lot of this activity.

The clue could be hidden in the Prime Cost

Food, drink and labour cost are all worth a close examine when restaurant profitability begins to go downhill.

Cost of sales combined with labor is the prime cost. The Bookkeeping Chefs’ provided instructions place the main cost between 60 and 65 percent of the revenues for a variety of restaurants. They also emphasize regular monitoring of the week instead of waiting until the end of the month.

It is more important to be able to spot the changes before they occur rather than obsessing over certain percentages.

If the restaurant is performing within its targets however this week’s performance is higher. Perhaps the overtime rate went up. Maybe beverage costs were stable However, food expenses increased. A higher percentage of food could prompt the owner to examine purchase, waste, menu mix, portions, or vendor invoices.

The percentage is a source of concern. The answer is found in the restaurant’s activity.

This is possible due to the fact that everyone will be able to remember the events that transpired.

After a period of two to three weeks, it gets more difficult to reconstruct specifics.

After the vendor bills are paid

Restaurants can purchase ingredients during a week and pay for them the next. It’s because of this timing that knowing profits alone will not answer all cash issues.

Invoices from vendors need to be tracked, accepted and paid. This could be an enormous task for an organization with many suppliers.

Accounts payable automation helps organize this process by reducing the need to handle bills in a repetitive manner and payment information. The owner can get better insight into the obligations that haven t hit their bank accounts through automated bookkeeping systems that are connected.

It’s beneficial because, when viewed as a whole, the balance of a restaurant’s bank account may appear to be more stable than its actual financial situation.

It might be that you have $80,000 in your account as of right now. This number could mean something different if payroll, rent and vendors commitments will consume a substantial part of it in the next several days.

That leads naturally to cash flow forecasting.

The best question to ask is “What happens to our funds after we receive it and have fulfilled the obligations we’ve made?”

This distinction is essential when deciding on whether or not this is the right week to buy an additional purchase or replace equipment, or keep the liquidity.

A portion of the Cash Wasn’t Really Yours

The sales tax illustrates this point particularly well.

Restaurants take money from their clients, which they follow in accordance with the tax requirements. If these dollars are mentally added to operating cash, then the bank balance may be misleading about how much cash is available.

Regularly updated records ensure sales tax compliance, while providing management with a more accurate view of the restaurant’s finances.

This is the reason restaurant accounting can be more effective when financial obligations aren’t viewed as separate entities.

Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll can affect both the percentage of labor as well as cash. Taxes on sales affect cash availability. P&Ls record financial performance while forecasting lets management look ahead.

Connect the pieces.

Bookkeeping Chef integrates restaurant-specific reporting along with system integrations. Outsourced bookkeeping services that are specifically tailored to your needs are an excellent option for owners who don’t have time to reconcile their financial data. They can handle a large portion of the accounting duties without taking the owner away from the financial discussion.

The last sentence is vital.

The aim isn’t to get owners of restaurants to stop looking at their books since someone else handles them. It’s crucial that the owners receive information so they understand the situation.

So when the P&L says the restaurant made profits, but the account feels extremely insecure, don’t believe that any of the numbers can be incorrect.

Find out what transpired between you and your spouse.

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