Good cash flow management is important in any business, but for restaurants, it’s critical. Without sufficient cash flow, your restaurant may miss opportunities for hiring, marketing, technology upgrades, and more. The key is to develop good cash flow habits before bad cash flow becomes an issue. Here are some tips.
Identify problem areas
Look objectively at your overhead. Are you over-ordering food? Are there dishes on the menu that aren’t selling? Those areas are tangible and easy to spot. But more often than not, the biggest costs are hidden. Labor costs and mishandled payroll can cause cash flow issues, too. That’s why many restaurants have automated their payroll processes to increase efficiency and profitability.
Predict seasonal patterns
Restaurants often have peak times, seasonal slumps, and times where cash flow may stay relatively the same. Analyzing your patterns can help identify any business processes that could be draining funds from your company. It can also help you know when to invest, and when to economize.
Look at your past cash flow statements to see how much cash goes in and out over a specific business period. You can achieve more extensive tracking via a cash journal, which is an even more detailed record of company transactions. To gain awareness of how money is being spent, you can also design customized cash flow reports through a cloud accounting system.
Follow the money
Are you aware of how much expenses are costing you? Just like personal budgets, it’s easy to lose track of business spending. Review your expenses regularly.
One way that restaurant owners can audit their expenses is to see whether the cost is producing enough return on investment to justify keeping it. Granted, if you just invested in new software or a new hire, you'll need to give it some time before you know the answer.
You should also consider any potential investments and expenditures. For example, do you need a new website now or can it wait? By thinking an investment through rather than spending and figuring out how to pay later, business owners can alleviate future cash flow management issues.
Integrate your systems
Restaurants rely on various processes to operate. Although there may be many moving parts in your business, they don’t have to remain separate. Identifying ways to integrate your systems (for example, payroll and benefits management) is a great first step toward improving operational efficiency and cash flow management.
An integrated system can generate reports that help you predict your business needs and plan cash flow more effectively. Having a single integrated system also tends to be more accurate, since it keeps all your business records up to date and requires less effort to maintain.
Expect the unexpected
In the restaurant business, there will always be surprises. Surges in food prices, unexpected market conditions, sick employees — anything can happen. Managing your cash flow can help you:
- Absorb unexpected expenses – In restaurants, day-to-day operations are often unpredictable. You may be able to plan for expected overheads such as rent, supplies, and labor, but the loss of a repeat customer or a suddenly broken piece of equipment can throw your business off balance. Having cash flow for a “rainy day” fund gives you a cushion against unavoidable circumstances.
- Apply for loans – Bankers, lenders, and investors usually analyze cash flow related to operating activities in order to make a decision about approving loans or investments.
- Grow your business – A positive cash flow also allows you to reinvest and expand so that you can increase your profits and customer base. It enables you to innovate, try new products or services, and expand into new markets.