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How to Deal with Cash Flow Problems in the Restaurant Industry

Finance
Article
01/09/2018

For restaurant owners, knowing how to handle potential cash flow problems is an exceptionally important skillset. The restaurant business can be notoriously difficult to break into and, once established, maintain at a profitable level. Sadly, for some owners, an inability to contend with cash flow problems can be the breaking point from which there's no return.

The good news is that with a little planning and other proactive measures, cash flow issues don't need to be at the forefront all the time. Undertaking some long-term preparation and taking a handful of other actions can mitigate the issue – freeing you up to stay focused on your restaurant.

cash flow in the restaurant industry

Become adept at forecasting. It's not news to those in the restaurant industry that market conditions can change quickly. There's seasonality, unexpected upticks in food prices, restaurants that fall in and out of customer favor, and so on. These and other circumstances can dramatically affect cash flow.

Instead of becoming a victim of the unforeseen, learn how to forecast a budget into the coming year and beyond. Making use of past budget histories, you can seek out trends (such as times of year when business is good and when there’s less demand), and outline a budget for the new year that accounts for inventory, hiring needs, and other expenses. Also, consider anticipated trends within the restaurant industry itself, which you can research online and through trade journals.

Forecasting can lead to the creation of a full-blown restaurant business plan, one of the key tools that future business owners can use to ensure they have thought through all aspects of the competitive restaurant landscape.

Have an emergency strategy. If you are struggling with cash flow right now, it’s important to prioritize the use of your available cash. You will want to put paying your employees as your top priority, along with tax withholdings and employee benefits.

Look objectively at inventory and overhead. Cash flow issues can arise due to unnecessary expenditures or excess inventory. Take a look at areas where you can streamline, including menu items that aren't being ordered by customers, where your current inventory of supplies might be reduced, or payment for these supplies might be delayed, if your vendors will allow you to do so.

Be more aggressive in your promotional efforts. Addressing cash flow problems doesn't involve defensive strategies only. Advertising on social media can be relatively inexpensive, with the potential for strong returns. Or you can offer promotions like two-for-one dinner nights or early bird specials to entice budget-conscious patrons.

Explore financing options. Restaurants in need of available cash can also explore the option of business loans or lending firms that provide loans in the form of a merchant cash advance. Typically, these should not be the first option a restaurant owner chooses, since fees are involved in both bank loans and cash advance propositions.

For many restaurant owners, knowing how to deal with cash flow problems starts by simply getting a handle on the employee payroll process. As noted above, paying your staff should always be a priority, but cash flow issues can sometimes result from a mishandled payroll process.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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