The month is over. The sales were good, the P&L is in profit and there’s nothing that appears to be suspiciously wrong.

Verify the restaurant’s bank account.

You didn’t get the call you were hoping for.

This gap is a problem for restaurant owners because they think that profit and cash on hand should speak the same truth. But they don’t. It’s not true. P&L is a measurement of financial performance, while the bank account is a record of the time when money flows in and out.

Understanding the difference will change how a restaurant’s owner considers their financials.

Imagine what goes on during a typical workday. Customers pay for meals. Paying employees is necessary. Deliveries of food and beverages arrive with invoices attached. Rent is coming. Credit card payments are timed. Sales tax is collected, but it’s also responsibilities.

Already, the next week’s purchases have begun.

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

The key may lie in the cost of prime.

If restaurant profitability begins to decrease, costs of food, beverages and labor costs must be taken into the equation.

Prime cost is composed of both products and labor. The Bookkeeping Chefs’ provided advice places the cost of goods sold between 60 and 65 percent of revenue for many establishments. They also recommend regular monitoring of the week instead of waiting until the end of the month.

Effective cost management for primes is less about worrying about one percentage point and more about noticing movement in the early stages.

Suppose that normally the restaurant is performing at a high level, but this week, it’s an increase in percentage. Perhaps the overtime rate is up. Perhaps beverage costs remained stable while food costs jumped. The chef may look over menus, waste, portion sizes as well as vendor invoices and purchasing if the food portion is higher.

The percentage is the key. The activity of the restaurant itself provides the answer.

This conversation is possible because everybody can remember the events that transpired.

Three or four weeks later after that, the details become harder to decipher.

Once the vendor invoices are received

The restaurant will be able to pay in the future for the ingredients it purchases. This explains the reasons why profit alone isn’t enough to answer all cash questions.

Vendor invoices must be recorded, received as well as tracked until they are paid. This is lots of work for an organization with several suppliers.

Accounts payable automation helps organize this process by reducing repetitive handling of bills and payment information. The user can have more precise information about the debts that haven’t landed in their bank accounts through the bookkeeping software that is connected to.

This is useful, because the bank’s balance could seem healthier than a restaurant’s actual situation in the near future.

There is currently $80,000 on the account. The figure of $80,000 is tiny if rental, vendors or payroll take up a large portion over the coming days.

This is what leads to cash flow forecasting.

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

This is an important distinction to make when deciding on whether this is the appropriate week to purchase an additional item, replace equipment, or maintain the liquidity.

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

Sales tax illustrates this in particular.

The money that a restaurant receives from its patrons will eventually have to be handled in accordance with its tax obligations. If those dollars are mentally associated with operating cash, the balance in the bank could create a false impression of what is there to be spent.

Regularly maintained records help restaurants to comply with the sales tax laws as well as providing an accurate view of their financial position.

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

Prime cost affects margin. COGS and future payment are impacted by purchases from vendors. Payroll has an impact on both the labor percentage as well as cash. Taxes on sales affect cash availability. The P&L shows financial performance, forecasting can help management look ahead.

Connect the pieces.

Bookkeeping Chef utilizes restaurant-specific reporting and system integrations to integrate these pieces. For business owners who don’t want to stay up all night reconciling financial records, outsourcing of bookkeeping can take on much of the accounting workload without removing the proprietor of the financial discussions.

The last point is vital.

It’s not our goal for restaurant owners to cease checking their books because somebody does. It’s to provide owners with information in a form that helps them understand the situation.

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

Find out what transpired between them.

The answer to that question will reveal much more about the restaurant than either number can be on its own.