They say that cash is king and when it comes to keeping a restaurant running, it’s certainly true. But cash flow can be a tricky thing to manage when you have so many other demands on your time.
Here are seven easy cash flow management tips to help your restaurant be more profitable.
1. Have a cash flow forecast
First and foremost, have a plan. A cash flow forecast will give you plenty of warning before money goes out, so you can better manage your cash flow. Using a cash flow forecast, you will know when cash is coming in as well as going out, so you know when you can let yourself stretch and when it’s time to be frugal.
Forecasts are especially helpful when it comes to making capital expenditure decisions, or deciding whether or not to cut an expense. You can also gain insight into your business by comparing actual figures to what you forecasted.
If you see discrepancies between the figures, you know to dig deeper to see what might be happening. At the very least, you can use this year’s forecast to inform next year’s model.
Forecasting your cash flow will also allow you to create seasonal budgets, which is very important for restaurants.
2. Use your forecast to create seasonal budgets
Annual budgets are not always the most effective for businesses in the restaurant industry. The seasonal nature of business makes budgeting on a more frequent basis a necessity.
Using a cash flow forecast as a guide, it becomes easier to budget out several months ahead in advance of seasonal upswings. You have a much closer understanding of your needs and can allocate costs of seasonal staff, stock and marketing in advance of busy times. It also gives you the flexibility to adapt during periods of slow business.
3. Streamline your overheads
If you find yourself in frequent cash flow difficulties, it may be time to consider cutting back on overhead expenses. This includes payroll, inventory and utilities, among other things.
Review your energy bills and shop around to see if you can get a better deal elsewhere. Analyse your menu and see if there are items that just aren’t selling. Are there ingredients that could be better used more profitably elsewhere?
Decreasing your menu means you carry less inventory, which means your stock checks are more efficient. Redistributing ingredients also reduces wastage.
You can further reduce overheads by adopting flexible working. This allows you to have fewer people on during the slow times, but have more people in on the busy periods to help maximise sales.
4. Don’t rely on credit
Credit is useful for getting any business off the ground, but it’s dangerous if it becomes a crutch. When paying back debt becomes the largest part of your overheads, it can cause a restaurant to fall into a spiral that leads to closure, so take care!
Rather than accepting offers of credit from your suppliers, find out if they will give you a discount if you make an immediate payment. Like you, they will be concerned about their cash flow, so you may find that swallowing a big upfront cost is cheaper in the long run.
Fortunately, having an accurate cash flow forecast can help you make more upfront payments and fewer requests for credit.
5. Sort your books
Many small restaurant businesses let their bookkeeping fall to the wayside. It’s only natural. If you’re in the kitchen or serving customers all day, you rarely have time to do the books.
Ignoring your books leads to bills not being paid and invoices not chased. This leaves you out of pocket in both directions.
Inconsistent invoicing figures, inaccurate reports and forecasting lead to a general loss of financial control, which means that your money isn’t working as hard for you as it could be. Disorganised books also make your tax responsibilities harder to meet.
By keeping your books in good order, you’ll be able to generate valuable reports and generally feel more in control of your finances.
As a restaurant owner, one of your lifelines is a reliable vendor who delivers orders on time, every time. If a delivery is missed, it costs money, it costs business, it costs reputation.
Having a diverse list of vendors means you aren’t putting all your eggs in one basket. If one vendor has a problem, your whole restaurant isn’t going to close (learn from KFC’s mistake).
7. Anticipate problems before they happen
In addition to a cash flow forecast of your own, keep an eye on other things going on around you that could affect your restaurant.
There are so many factors that affect customer behavior, from national holidays to the weather, to general economic environments. Monitoring market conditions, allows you to stay ahead of the game.
Most importantly, don’t bury your head in the sand and hope the issue will go away. A cash flow crisis only gets worse if you ignore it. Keep on top of your cash flow and you’ll be able to deal with problems quickly and efficiently.
Source: QSR Magazine