The month is done. The month has ended.

After that, you can check the restaurant’s bank account.

You didn’t get the call you would have expected.

For restaurant owners, this disconnect can be frustrating because profits and cash flow appear to be the same. However, they aren’t. A P&L is a measure of the financial performance of a business for a particular time period, whereas accounts in banks show the exact timing of funds entering and leaving the business.

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

Imagine what goes on during an average week. Customers pay for meals. Employees need to be paid. Food and drinks deliveries arrive with invoices attached. Rent is close to being paid. The credit card deposit is also timed. Sales tax is collected however it comes with a responsibility.

Already the purchases for the week ahead have started.

Focusing on revenue only or the final profit figure leaves out a lot of the work.

The key to the answer may lie in the prime cost

Food, drink and labour cost are all worth a close look when restaurant profitability starts to fall.

The prime cost is comprised from both products and labor. The bookkeeping chef’s guideline places the primary cost at around 60% to 65 percent of the total revenue for many restaurants, while focusing on regular monitoring instead of waiting until the end of each month.

Effective cost management for primes is less about worrying about one particular percentage, and more about spotting changes earlier.

Imagine that the restaurant usually performs close to its target However, this week’s number is higher. Perhaps the overtime rate went up. Perhaps beverage costs were steady, but food costs increased. The manager can review menus and portions, waste along with vendor invoices and purchasing if the proportion of food is greater.

The percentage is what matters. It is in the activities in restaurants.

A weekly report can make the conversation possible, while everyone is still able to remember what happened.

The details are much more difficult to recall two or three days later.

When the vendor invoices arrive

A restaurant may purchase ingredients in the week ahead, but pay for the items in the future. This can help explain how profit alone will not be enough to answer all cash-related questions.

Invoices from vendors have to be tracked, accepted and paid. In a busy operation with multiple suppliers, managing that by hand can be an administrative task.

Automating the process for accounts payable will help to organize the process through reducing the repetition of payments and bills. These bookkeeping systems are also able to give the user a better picture of obligations which haven’t yet deposited into the bank account.

This is helpful, since the bank’s balance could appear more healthy than the restaurant’s actual financial situation.

There could be a possibility that you have $80,000 on your account at the moment. This number can mean something different if it is impacted by other variables like rent or payroll, vendors, and other obligations in the coming days.

This is the natural progression to the process of forecasting cash flows.

The most important question to ask yourself is “What happens to our funds after we have received the funds and have met our obligations that we know?”

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

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

The sales tax example is a great one.

A restaurant collects money from customers and needs to be handled in accordance with tax regulations. When these money are thought of as grouped together with operating cash, it could provide a false perception of the money available to spend.

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

This is the reason that restaurant accounting is more efficient when financial obligations aren’t thought of as separate entities.

Prime cost affects margin. COGS and future payment are affected by purchases made by vendors. Payroll impacts both labor percentage and cash. Cash flow is affected by sales tax. P&Ls report financial performance, and forecasting allows management to look ahead.

The pieces are linked.

Bookkeeping Chef integrates restaurant-specific reporting and system integrations. Specialized outsourced bookkeeping services are a great option for operators who aren’t able to manually reconcile financial data. They will take care of a lot of the accounting tasks while removing the proprietor from the financial discussion.

That last part matters.

It’s not for restaurant owners to not look at their books since someone else handles them. Owners should be provided with the information they need in a format that helps them understand what’s going on.

If the P&L shows that the establishment is profitable but the bank balance feels unbalanced, don’t assume the P&L is not accurate.

Ask what happened between them.

Answering this question can reveal more about the restaurant’s reputation than the name.