The month has come to an end. The sales were excellent, the P&L reported a profit and there was nothing to be terribly in error.

Check the restaurant’s account.

The number isn’t exactly what you’d hoped for.

Restaurant owners might find this disconnect frustrating since they believe cash flow and profits should be exactly the same. They are not. It’s not true. P&L is a metric of financial performance. In contrast, the bank account is an indication of the time when money flows in and out.

Understanding the difference can change how a business owner looks at restaurant finances.

Imagine what happens on a typical workday. Customers pay for food. Paying employees is necessary. Food and drinks deliveries arrive with invoices attached. Rent is on the verge of being due. Credit card deposits are also timed. The sales tax collected has an obligation.

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

If you are only looking at the amount of revenue or profit, then you will miss a lot of this action.

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

When the profitability of restaurants starts to change in the wrong direction, the food, beverages and labor costs need focus.

Cost of selling goods with labor is a major cost. The Bookkeeping Chefs’ guidelines place the primary cost between 60-65% of revenues for many restaurants. They also emphasize regular monitoring of the week instead of waiting until the month ends.

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

Imagine that the restaurant normally is performing at a high level, but this week, it’s more of a percentage. Perhaps overtime was increased. Perhaps, the costs for beverages remained constant but food costs increased. The manager can review menus as well as waste, portions sizes along with vendor invoices and purchasing if the proportion of food is greater.

The percentage is the most important. The activities that underlie the restaurant provide the answer.

Weekly reports make this conversation possible and everyone still remembers what happened.

After two or three weeks, it is much more difficult to reconstruct specifics.

The Vendor’s bills arrive

A restaurant may purchase ingredients this week but pay for the ingredients in the future. This is a way to explain the reasons why profit alone isn’t enough to answer all cash-related questions.

Vendor invoices should be received, recorded then tracked and finally paid. In a busy operation with many suppliers, completing that manually can become an administrative task.

Automating accounts payable helps to streamline the process, reducing the need to handle bills in a repetitive manner and payment information. Systems for bookkeeping that connect allow owners to have a better understanding of their obligations, even if they have not yet been paid.

It’s helpful because, when considered as a whole the restaurant’s financial position may appear to be healthier than its actual financial position.

In the present, there could be an amount of $80,000 in the account. This amount could mean something different if it is impacted by other variables like rent as well as payroll, vendors and other obligations over the coming days.

This leads to the cash flow forecasting.

What will happen with our cash after we’ve gotten the cash we’ve been expecting and met all of our obligations?

This is an important distinction to make when deciding on which is the right week to buy an additional purchase replacement of equipment, or preserve liquidity.

The Cash Wasn’t Really Yours

The sales tax example is a good one.

A restaurant receives money from customers and will need to be dealt with in accordance with its tax obligations. If these cash-flows are combined with operating cash, it may provide a false perception of the amount available for spending.

Consistent records support sales tax compliance while also giving management a more realistic view of the restaurant’s finances.

It’s for this reason that restaurant accounting functions better 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 and cash availability are affected by payroll. Sales tax impacts cash availability. P&Ls track financial performance, while forecasting lets management examine the future.

The pieces are interconnected.

Bookkeeping Chef can help bring the pieces together by providing restaurant-specific reports as well as system integrations. For operators who don’t want to be slavishly reconciling financial information, outsourcing of bookkeeping can take on large portions of the accounting burden while removing the business owner from financial conversations.

The last section is very important.

It’s not our goal for restaurant owners to stop checking their books because someone does. It’s to provide owners with data in a way that will help them understand what’s going on.

When the P&L reports that the restaurant earned money but the bank account feels surprisingly insecure, don’t believe that one of the numbers must be off.

Find out what transpired between you and your spouse.

The answer to this question will give you more insight into the restaurant, more than just the number.