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

You then check the restaurant’s bank account.

The number may not be what you expected.

For restaurant owners, that gap can be frustrating as profit and available cash seem like they should provide the same information. These two things don’t match in. A P&L measures the performance of the business’s finances for a particular time period, whereas a bank account shows the actual timing of money entering and leaving he business.

Understanding the difference can change how a business owner examines the financials of a restaurant.

Imagine what goes on during a typical week. Customers pay for meals. Paying employees is necessary. Food and drinks are issued. Rent is on the way. Credit card payments are timed. Taxes on sales have been collected, but that money is a legal obligation.

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

Looking only at revenue or the ending profit number isn’t a good way to assess the full scope of what happens.

The clue may be hidden in prime cost

When restaurant profitability starts moving in the wrong direction, food, beverage and labor costs need the attention of restaurant owners.

Cost of goods sold combined with labor is the main cost. The Bookkeeping Chefs’ instructions place the main cost between 60-65 percent of revenue for many establishments. They also stress the importance of weekly monitoring rather than waiting until the end of the month.

Effective cost management for primes is less about worrying about the exact percentages and more about being able to spot changes earlier.

Imagine that the restaurant’s performance typically within a certain range, but this past week, it went up. Perhaps overtime was added. Perhaps, the costs for beverages remained constant but food costs increased. The higher proportion of food could prompt the manager to examine purchases, waste management, portions and menu mix or even vendor invoices.

The percentage raises a concern. The answer lies in the activity of the restaurant.

Weekly reports allow for this conversation to take place as everyone is conscious of what’s transpired.

The details will be harder to recall just a few days later.

After the vendor bills are paid

The restaurant pays later for the food items it buys. This explains why that understanding profit alone isn’t the answer to every cash issue.

Invoices from vendors must be accounted for, tracked and paid. This is quite a task in the case of a business with numerous suppliers.

Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. Owners can have an accurate picture of payments that haven’t been deposited into their bank account through connected bookkeeping systems.

It’s beneficial because, when viewed as a whole, the bank balance of a restaurant might appear to be better than its actual financial position.

Today, there may be $80,000 on the account. The figure of $80,000 is little if vendors, rent, or payroll will take the majority of the coming days.

That leads naturally to cash flow forecasting.

Instead of asking “How many dollars of cash are we carrying?” the better question becomes “What is going to happen to our cash after the money we hope to receive and the obligations we already know about?”

The distinction could be important in deciding if this is the right time to replace equipment, make an extra purchase, or keep liquid funds.

It is possible that you weren’t eligible for all the money you thought.

Sales tax illustrates the point particularly well.

Restaurants collect money from customers that eventually has to be managed according to tax requirements. If these funds are put together with operating cash, it may make a false impression about the money available to spend.

Consistent records help restaurants comply with sales taxes and provide the managers a clear picture of their financial situation.

This is a reason why restaurant accounting works better when financial responsibilities aren’t considered as separate islands.

Prime cost affects margin. COGS (cost of products sold) and future payments are impacted through purchases made by vendors. Payroll has an impact on the amount of cash available and also the labor percentage. The availability of cash is influenced by the sales tax. P&Ls can be used to document the financial performance. Forecasting is also beneficial to management.

The pieces are linked.

Bookkeeping Chef employs restaurant-specific reporting and system integrations to integrate these pieces. Outsourced bookkeeping services that are specifically tailored to your needs are an ideal alternative for businesses that aren’t able to manually reconcile financial data. They will take care of a lot of the accounting duties but without taking the owner away from the financial conversation.

The last part is important.

Restaurant owners shouldn’t be able to stop studying the literature regardless of whether they’re being handled by another. The goal is for owners to get the information they need in a format that allows them to understand the situation.

Don’t be fooled into thinking that the P&L is not correct if the bank account seems tight but the P&L indicates that the restaurant has made money.

Ask about the events that occurred between them.

This one question could teach you more about your restaurant than a single number could be on its own.