The month ended. The month has ended.

You should then check the bank account of the restaurant.

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

Restaurant owners can find it difficult to reconcile this issue, as they believe that cash flow and profits must be exactly the same. But they don’t. A P&L evaluates the financial performance of a firm over a specific time period, whereas an account in a bank shows the actual timing of money flowing into and out of the business.

Understanding the difference can alter the way that a proprietor looks at restaurant finances.

Take a look at what happens during an normal week. Customers pay for meals. Employees must be paid. Food and beverage deliveries arrive with invoices. Rent is on the way. Credit card transactions have their own specific timing. Sales tax has been paid, but that cash is subject to an obligation.

The buying for next week has already begun.

Looking just at revenue or the end-of-year profit number misses much of that activity.

Prime Cost Could Hold the Key to the Clue

The cost of food, drinks and labour costs are worth a closer look when restaurant profitability starts to decrease.

Together, the cost of items sold and labor make up prime cost. The Bookkeeping Chefs’ provided instructions place the main cost between 60-65 percent of the revenue for many restaurants. They also suggest the importance of weekly monitoring rather than waiting until the month ends.

It is essential to be able to spot the changes before they occur rather than obsessing over a specific percentage.

Let’s say that a restaurant typically performs at or near its goal However, this week’s number increases. Perhaps overtime was increased. Perhaps the cost of beverages was stable while food costs grew. The higher proportion of food could prompt the manager to look at purchases, waste management, portions and menu mix, or vendor bills.

The percentage raises questions. The answer lies in the activity of the restaurant.

A weekly report can make the conversation possible, while everyone remembers the events.

The details will be harder to recall two or three days later.

The Vendor’s Bills are Received

Restaurants might purchase food items during a week and pay for them next week. This timing helps to explain how profit alone will not be enough to answer all cash questions.

Invoices from vendors must be accounted for, tracked and paid. In a busy operation with multiple suppliers, managing that manually could become an administrative task.

Automating the account payable process can assist in coordinating this process by reducing the repeated handling of bills and payments. Owners can have better insight into the debts that haven’t landed in their bank accounts by utilizing automated bookkeeping systems that are connected.

This is advantageous, since the bank balance can appear healthier than a restaurant’s actual financial situation.

Today, there may be $80,000 on the account. This amount could be different when it is affected by other factors such as rent, payroll, vendors and other obligations for the coming days.

That leads naturally to cash flow forecasting.

The better question to ask yourself is “What will happen to our cash after we receive it and have met the obligations that we know?”

It is important to know the difference when deciding if this week is the best time to replace equipment, buy more items or preserve the cash flow.

And Some of the Cash Wasn’t Really Yours

The sales tax illustrates this point in particular.

Restaurants collect cash from its customers, which eventually must be disposed of in accordance with tax regulations. If the funds are coupled with the normal operating cash, then the bank balance may be misleading about how much money is available.

A consistent record-keeping system helps restaurants to comply with the sales tax laws, while providing a realistic picture of their financial situation.

Accounting for restaurants is more efficient when the financial obligations of each restaurant are separated.

Prime cost affects margin. COGS (cost of goods sold) and future payments are impacted through purchases from vendors. Payroll affects both cash and labor percentage. Cash flow is affected by sales tax. P&Ls can be used to document financial performance. Forecasting is also helpful for management.

The pieces are connected.

Bookkeeping Chef employs restaurant-specific reporting as well as system integrations to integrate these pieces. For those who don’t wish to work all night reconciling financial information, outsourced bookkeeping services will handle much of the accounting workload without removing the proprietor from the financial conversation.

The last point is vital.

The goal isn’t for restaurant owners to simply stop looking at their books simply because someone else is handling them. It’s crucial that the owners receive information so they are aware of what’s going on.

Don’t believe that the P&L is not correct if the balance of the bank seems to be tight, however the P&L indicates that the restaurant has made money.

Find out what transpired between you and your partner.

This question will reveal more about your company than any number.