The month ended. The sales were strong, the P&L shows a profit, and nothing appears to be terribly off.

Check the restaurant’s account.

The number isn’t the one you’d expected.

Restaurant owners may be dissatisfied with this since they believe profits and cash flow should be exactly the same. These two things don’t match up. The P&L is a measurement of financial performance, while the bank account is an indication of how much money is moved in and out.

Knowing the difference can change the way a restaurant owner views their finances.

Have a look at what goes on in a typical week. The customers pay for food. Employees have to be paid. Food and beverage deliveries arrive with invoices. Rent is coming up. The timing of credit card transactions differs. Taxes on sales have been collected, but the money is subject to an obligation.

The shopping for the week ahead has already started.

Concentrating on revenue or the end-of-year profit number leaves out a lot of the work.

The key to the answer may lie in the price of the best.

The cost of food, drinks and labour costs are worth taking a closer review when the profitability of a restaurant begins to fall.

Together, the cost of items sold and labor comprise the primary cost. The bookkeeping chef’s guideline places the cost of goods sold at 60%-65% for many restaurant, and emphasizes weekly monitoring rather than waiting until the end of the month.

Effective cost management for primes involves less focus on a single percent, and more paying attention to early movement.

Suppose that normally the restaurant is performing at a high level, but this week, there’s more of a percent. Perhaps the overtime rate was increased. The cost of drinks could remain the same, while food prices increased. An increase in the percentage of food consumed could cause the owner to examine buying, waste management portions and menu mix or vendor charges.

The percentage is the most important. The answer is found in the activity of the restaurant.

Weekly reports allow for the discussion to continue even though everyone is aware of what’s happened.

Three or four weeks later, the details become much harder to reconstruct.

Then, the Vendor Bills arrive.

The restaurant is expected to pay an additional time for the items it buys. This is a reason for knowing the profit isn’t enough to answer every cash-related question.

Invoices from vendors need to be tracked, received and paid. Manually completing this task in an environment with many suppliers can become a huge administrative burden.

Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Bookkeeping systems that are connected can provide the user with a more clear picture of obligations that haven’t yet reached the bank account.

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

It could be that you have $80,000 on your account as of right now. This amount could be interpreted differently in the event that it is affected by other factors such as rent or payroll, vendors, and other obligations for the coming days.

Forecasting cash flow is a normal outcome.

Instead of asking “How much cash do we have?” the better question is “What will occur to our cash after the money we hope to receive and the obligations we are already aware about?”

This distinction is crucial in determining the appropriateness of the appropriate week to make an extra purchase replacement of equipment, or preserve the liquidity.

It is possible that you weren’t legally entitled to the full amount you thought.

The example of sales tax is a good example.

The cash restaurants receive from their patrons will eventually have to be handled in accordance of its tax obligations. If the money is mentally grouped with ordinary operating money, the bank’s balance can give a false idea of the amount there to be spent.

Regularly maintained records allow restaurants to comply with sales taxes and provide management an accurate view of their financial situation.

This is one reason restaurant accounting can be more effective when financial responsibilities aren’t treated as separate entities.

Prime cost affects margin. COGS (cost of products sold) and future payments are impacted through purchases from vendors. Both labor and cash percentages are affected by payroll. Cash flow is impacted by sales tax. P&Ls can be used to document the financial performance. Forecasting is also helpful for managers.

The pieces link.

Bookkeeping Chef incorporates restaurant-specific reporting through system integrations. Outsourced bookkeeping services that are specifically tailored to your needs are a great option for operators who do not have time to reconcile their financial data. They will take care of a lot of the accounting task while removing the proprietor from discussions about finances.

The last point is important.

It’s not the goal for restaurant owners to stop examining their books just because someone else does. It’s crucial that the owners get information so they know what’s going on.

If the P&L states that the restaurant has made money but the bank account is feeling a little tight, don’t presume that any of the numbers can be off.

What was the difference between them?

The answer to that question will reveal far more about your restaurant than a single number could by itself.