The month has ended. The month is done.

Then, you should check the restaurant’s bank account.

The number may not be the one you were expecting.

For restaurant owners, that gap can be frustrating as profits and cash available feel as though they should provide the same information. The two don’t line in. A P&L evaluates the how well the company’s financials have performed over a certain time and the bank account represents the timing of money actually flowing into and out of the company.

Knowing the difference could change the way an owner is looking at the restaurant’s financials.

Have a look at what happens in a normal week. Customers pay for meals. Employees have to be paid. You will receive invoices for meals and beverages delivered. Rent is due. Credit card deposits are also timed. Sales tax has been paid, but that cash is subject to an obligation.

The purchase for next week has already begun.

If you just look at the amount of revenue or income, then you’ll miss a lot of this action.

The clue could be hidden in the Prime Cost

The cost of food, drinks and labour costs merit a closer at when profitability in restaurants begins to go downhill.

Together, cost of goods sold and the labor cost make up prime cost. The Bookkeeping Chef’s guidance puts the cost of goods sold at 60%-65 percent of revenues for a variety of establishments, and emphasizes the importance of monitoring weekly rather than waiting until the closing of the month.

Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.

If the restaurant typically performs near its target however this week it’s at a higher percentage. Maybe overtime has increased. The beverage cost may be the same as food prices increased. The manager can review menus or waste, portion sizes or vendor invoices, as well as buying if the percentage of food is higher.

The percentage is a source of concern. The activities that underlie the restaurant provide the answer.

A weekly report can make that conversation possible while everyone will be able to recall what occurred.

After a few weeks after that, the details become harder to understand.

When the vendor invoices arrive

Restaurants may purchase ingredients one week and pay for them the following week. Because of this, it is the case that knowing profits alone will not solve all cash problems.

Vendor invoices should be recorded, received then tracked and finally paid. This can take an enormous task for an organization with several suppliers.

Automating the process of paying bills can help organize this by reducing the repeated handling of payments and bills. Bookkeeping systems that are connected to accounting systems can provide owners with a clear view of their obligations, even though they haven’t yet been paid.

This is useful, because the balance of your bank account may seem healthier than a restaurant’s current situation.

In the present, there could be $80,000 on the account. That number means something very different if payroll, rent and vendors as well as other obligations will consume a large portion of it over the next several days.

Cash flow forecasting is a natural outcome.

What happens to our cash once we’ve received the money that we expect and have fulfilled all of our obligations?

This is an important distinction to make when deciding on whether this is the appropriate week to make an extra purchase replacement of equipment, or to maintain liquidity.

You may not be entitled to all the money you believed.

Sales tax illustrates the point especially well.

Restaurants receive money from their customers, which they follow according to their tax obligations. If these funds are divided into operating cash, the bank balance could create a false impression of what’s in the bank to spend.

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

Restaurant accounting is more effective when the financial obligations of each restaurant do not have to be handled separately.

Prime cost affects margin. Vendor purchases impact COGS as well as future payments. Payroll affects the amount of cash available and also the labor percentage. Cash flow is affected by sales tax. P&Ls record financial performance while forecasting lets management look ahead.

Connect the pieces.

Bookkeeping Chef assists in bringing the pieces together by providing restaurant-specific reports and system integrations. Outsourced bookkeeping services that are specifically tailored to your needs are a great option for owners who don’t have the time to manually reconcile financial information. They can take care of much of the accounting task without taking the owner away from discussions about finances.

The last point is important.

The aim isn’t to get restaurant owners to not look at their accounts because someone else is handling them. It’s important that the owners are informed so that they know what’s going on.

Don’t be fooled into thinking that the P&L is wrong if the bank account appears to be in good shape, but the P&L indicates that the restaurant has generated money.

Ask what happened between them.

This question can tell you more about your company than any number.