The month has ended. The sales were great and the P&L had a profit, and there was nothing that appeared to be seriously in error.

Make sure to check the restaurant’s account.

You didn’t get the number you expected.

This gap is a problem for owners of restaurants because they feel that profits and cash available should be the same. They don’t. A P&L examines the financial performance of a company over a certain time period, whereas an account in a bank shows the exact timing of money going into and out of the company.

Knowing the differences will help restaurant owners adjust their perception of restaurant financials.

Look at what happens during a normal week. Food is paid for by customers. Employees must be paid. Food and beverages are delivered with invoices. Rent is on the way. Credit card payments have their own timing. Sales tax is collected but it’s also an obligation.

The purchase for next week has already started.

Focusing on revenue only or the ending profit number does not take into account a lot of the activity.

Prime Cost Could Hold the key to the answer

Food, beverage and labour costs are worth taking a closer examine when restaurant profitability begins to decline.

The prime cost is comprised from both products and labor. The bookkeeping chef’s guideline places the primary cost at around 60%-65 percent of the total revenue for many establishments, and emphasizes daily monitoring, rather than waiting until the close of the month.

Effective primary cost management is less about worrying about one percentage point and more about recognizing changes in the early stages.

If the restaurant is performing at or near its goal however, this week’s rate rises. Maybe the number of overtime hours is up. Maybe the costs for beverages were stable However, food expenses increased. A higher proportion of food may lead the operator to review buying, waste, menu mix, portions or invoices from vendors.

The percentage raised the question. The underlying restaurant activity provides the answer.

A weekly report makes an opportunity for conversation while everyone is still able to remember what happened.

After two or three weeks, it is much harder to reconstruct the particulars.

The Vendor’s Bills Are Received

Restaurants might purchase food items one week and pay for them the following week. This explains the reasons why profit alone isn’t enough to answer all cash questions.

Vendor invoices should be recieved and logged. In a busy business with multiple suppliers, managing that by hand can be an administrative task.

Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The bookkeeping system that is connected to the internet can give the user a better picture of obligations that haven’t yet hit the account of the bank.

It’s important because a bank balance viewed as an individual can appear more healthy than the restaurant’s actual near-term position.

There may be $80,000 sitting in the bank account at present. The $80,000 amount is tiny if rental, vendors or payroll take up a significant portion of the account in the next few days.

That leads naturally to cash flow forecasting.

The better question to ask yourself is “What happens to our cash once we have received the funds and have fulfilled our obligations we’ve made?”

The distinction could be important in deciding if this is a comfortable week to replace equipment, make an additional purchase, or to preserve liquid funds.

A portion of the Cash Was Never Yours

The sales tax example is an excellent one.

Restaurants collect cash from its customers, which eventually needs to be handled according to its tax obligations. If these dollars are mentally combined with normal cash flow, the bank balance could offer a false impression of the amount of cash available.

Consistent records support sales tax compliance, while providing management with a more accurate perspective of the restaurant’s financials.

Restaurant accounting is more efficient when the financial responsibilities of each restaurant are handled separately.

Prime cost affects margin. COGS (cost of goods sold) and future payments are affected by purchases from vendors. The percentage of labor and cash are affected by payroll. Cash availability is affected by the sales tax. The P&L documents financial performance and forecasting assists management to look ahead.

Connect the pieces.

Bookkeeping Chef helps bring these pieces together using restaurant-specific reports and system integrations. Bookkeeping outsourcing services with specialization are an excellent alternative for those who aren’t able to reconcile their financial data. They will take care of a lot of the accounting task without taking the owner away from discussions about finances.

The last point is important.

Restaurant owners shouldn’t stop reading their books just because they are handled by someone else. It is important that owners get information so they understand what’s happening.

Don’t think that the P&L is wrong if the balance of the bank seems to be tight, however the P&L indicates that the restaurant has generated money.

Find out what transpired between you and your partner.

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