Restaurant owners have a lot on their plates (pun intended). On top of all the operational tasks, you also need to pay attention to your business’ cash flow. Cash flow tracks the lifeblood of any company, regardless of industry.
Even if you’re a celebrity chef with a suite of products and a national chain, the same rings true: Without a strong cash flow, your business risks becoming one of the many that fail every year. Thankfully, with the right strategies, you can manage your restaurant’s cash flow, work toward financial stability, and continue serving your customers over the long haul. In this article, you’ll find practical tips to help you manage your restaurant’s cash flow effectively.
What is cash flow management?
Cash flow management is the process of monitoring and controlling how money moves in and out of your restaurant business. It involves understanding net cash flow, operating cash flow, and various expenses associated with running a restaurant, including rent, food and beverage costs, staff wages, utilities, and insurance.
Simply put, cash flow management means knowing how much money you have and where it’s needed at any given moment.
How to calculate your restaurant’s cash flow
Calculating net cash flow is easy—it’s just cash in minus cash out. So, if total sales for one week are $21,000 and total expenses are $18,000, your net cash flow is $3,000. Net cash flow can also incorporate cash flow from financial activities and investing activities, in which case the formula would be:
Operating cash flow + cash flow from financial activities (net) + cash flow from investing activities (net)
To calculate operating cash flow, the formula is:
Net Income + Non-Cash Expenses – Change in Working Capital
This gives you an accurate look at whether your restaurant can generate profit from normal operations (financing cash flow isn’t included).
How to improve your cash flow management
Provide tips for increasing cash flow and better managing money in and out.
1. Track your cash flow statement every month
Creating a monthly cash flow statement helps you track the money going in and out of your business and helps prevent surprises. As you get used to reviewing monthly cash flow statements, you’ll see places where you can reduce expenses. For example, to cut costs you might eliminate menu items that aren’t selling well.
2. Create cash flow forecasts
You don’t have to wait to make decisions based on cash flow. Creating a cash flow forecast will allow you to predict sales and expenses a month or more in advance. This helps you plan for busy or slow periods and facilitates budgeting, especially for things like significant renovations or purchases.
3. Build out quarterly or seasonal budgets
With your cash flow forecast in hand, you can build out quarterly or seasonal budgets that account for seasonal fluctuations common in the restaurant industry. This will help you identify and address budget and staffing needs way ahead of time.
4. Keep a close eye on inventory
Monitoring your inventory can help you minimize waste and control costs by purchasing only the necessary amount of ingredients, and replacing underutilized items with alternatives that are in higher demand. Additionally, stock up on a strategic amount of essential supplies to avoid overpaying for ingredients or equipment during emergencies.
5. Evaluate prices regularly
As costs increase for ingredients and supplies, periodically evaluate your menu prices to maintain a healthy profit margin. Calculate the profitability of each dish and strategically adjust prices where necessary to align with your expenses and maintain profitability.
6. Negotiate payment terms with suppliers
Strong cash flow may allow you to explore the possibility of negotiating payment terms with your suppliers. Seek discounts for making early payments or stagger payments to avoid significant outflows of cash at the same time. These arrangements can help optimize your cash flow and improve your business’ overall financial stability.
7. Find the right business checking account
If you can’t get discounts for early payments, make the most of your cash on hand and store it in a high-yield business checking account. This way, you’ll earn on your operating balances without having to move money between multiple business checking and savings accounts.
Effective cash flow management for restaurants
Managing cash flow strategically is essential for the financial health and sustainability of your business. You can improve your restaurant’s cash flow and maintain smooth operations by implementing the seven tips we’ve laid out above. As a restaurant owner, chances are that you know your menu inside and out. It’s important that you’re just as familiar with your cash flow numbers.
Business checking with high-yield interest, perfect for restaurants.