Managing finances while maintaining a good credit score is a substantial and sometimes cumbersome task for restaurant owners, as detailed in our previous blog, “Managing Your Credit as a Restaurant Owner”. Keeping up with a fluctuating cash flow is a huge part of the ability to easily pay bills and maintain good credit. Dealing with cash deficits one week and a cash surplus the next makes financial planning a difficult project. Fortunately, there are a number of tips from experts in the field on how you can tackle the ebb and flow of your restaurant’s cash resources.

4 common challenge areas

To ensure that you will not run into an unexpected deficit in your cash flow, work to improve on common challenge areas including:

1. Preparation- The ability to think on your feet is an indispensable part of being a restaurant owner since nothing is ever certain, but there are some ways you can plan ahead. Realize what you will need over the span of the coming year, whether that’s a new refrigerator, new dining room tables, etc. If your restaurant is busier in the summer, for example, as many restaurants are, try to make internal changes in the fall and winter. This way, you do not have to scramble for cash to make these necessary repairs during the busy season.
2. Frequent changes in payroll and other payments- Set up a weekly cash projection. The timing of things like payroll, rent, and sales taxes can make cashflow fluctuate considerably, so it is helpful to know what to expect so you have adequate time to act on anticipated cash deficits. Being hit with a surprise cash shortage can be brutal. Estimate both weekly cash inflows (sales, cash and credit card receipts, etc.) and outflows (payroll, vendors, occupancy costs, sales and liquor taxes, debt payments, etc.). Of course there is no way to accurately predict exactly what will happen, but it will be helpful to get a feel for the day-to-day ebbs and flows of your finances.
3. Menu prices and inventory surpluses- Analyze your current menu options and how their success and price relate to each other. Consider cutting or revamping menu items that are not contributing to the cash flow in a positive light. In addition, food prices are always rising, so it is important to factor in cost of resources in your menu prices as well. Profit margins will narrow if you leave your menu the same for years without any sort of analysis measuring how your options are succeeding or failing. Some restaurant owners are growing their own produce to save on cash and be more environmental!
4. Food delivery and vendor issues- To avoid problems with late food deliveries, consider diversifying your supplier list so that one vendor is not supplying the majority of your stock. Though it might cost more to give up bulk discounts and take more effort to manage more vendors, it could save you considerable amounts of stress! If a delivery is late or doesn’t come through and makes up the majority of your resources, it can be a huge issue. By spreading it out, you can more easily deal with one late delivery. In addition, you will build up your contact list by having many vendors, making it easy to contact another vendor when you need something in a pinch.

Since most restaurants are open seven days a week, managing your restaurant’s cashflow depends greatly on your organization, preparation, and time management. Keeping accurate financial statements and records will allow you to anticipate where and when your funds will fall short. Be sure to keep up relationships with banks and leasing companies if you run into a situation where cash is short but you hadn’t expected it.

Questions? Contact any member of our Hospitality Services Group.