As we approach the end of the year, many F&B businesses are already getting concerned about consistent cash flow issues. When it comes to keeping a business running, cash is king. When cash is poorly managed, the business will grind to a halt.
Managing restaurant cash flow can be tricky, especially if you have some other demanding issues that you have to attend to. Here are some of the best practices and tips to solve your most challenging cash flow concerns.
1. Create a cash flow report and forecast
Use your current cash flow reports to help you come up with cash flow forecasts. This will help you to manage your cash flow better by warning you before any money goes out.
The cash flow forecast will let you monitor how cash is moving in and out of your business so you know when to be frugal, and when you can stretch your muscles and try new ideas.
Cash flow forecasts are particularly instrumental in restaurant cash management when you want to decide whether to cut an expense or not and also when you want to make decisions touching on capital expenditure. They are also helpful in assessing the health of your business by comparing forecasted and actual figures.
If you notice any discrepancies between the forecasted and the actual figures, you can dig deeper to find out the cause of the difference and rectify it as soon as possible.
2. Budget, budget, budget
Understanding restaurant finances is the first step in coming up with a good budget. Use your forecasts to create seasonal budgets. The figures from forecasted cash flow will also help you to come up with seasonal budgets, which are very significant tools for a restaurant business.
Annual budgets are not sufficient to effectively run a business, especially in the hospitality industry. Because restaurants are businesses that are seasonal in nature, frequent budgeting is a necessity in this business and this can only be achieved by using cash flow forecasts.
Cash flow forecasts rely on figures from previous years, meaning, they can help you to foresee what to expect during a given season and, therefore, can help you budget out in advance for the seasonal upswings.
The forecast gives a clear picture and helps in understanding your business’ needs so you can allocate resources for marketing, stock, seasonal staff, etc in the most prudent manner.
3. Reduce your overheads
If you are always facing one cash flow difficulty after another, it’s high time you consider reducing your overheads. These expenses include utilities, inventory, payroll, luxury expenses, among others.
Many hospitality consultants will tell you to review your power bills and shop around for better energy sources if available. They can also ask you to carry out a thorough audit of your equipment to see which one consumes much energy and why. You could be having some faulty equipment that draws in more power than necessary.
Another area to look at is your menu. Find out if some items are not bringing in any revenue or are slow-moving. Are there some ingredients that do not add any value or some that can be better used elsewhere? You can reduce wastage by redistributing ingredients to more profitable items. Items that don’t sell and those that move slowly are a liability to your business because they utilise your resources without bringing in any profits.
Decreasing the number of items on the menu is the best way to reduce your inventory to make stock checks easier and more efficient.
4. Diversify Food Deliveries
Dealing with food vendors and getting food items in time can be a big issue. Are you relying on only one food delivery method? Some restaurants source their food items from local growers as a way of saving money. But what would happen in case the deliveries don’t arrive in good time? It is something that can throw a business off-balance and interfere with service, and of course, with cash flow.
The best way to deal with delivery issues is to diversify – do not rely too much on just one source. Even though managing multiple vendors will require some additional effort and you may also lose on quantity discounts, it’s something worth giving a try.
In the long run, diversification will save you the headaches and stress associated with running out of stock at critical moments and if you do it right, it can help you recover the money you lose on quantity discounts.
Order from different sources so that even if one delivery fails to come through or is late, you’ll have some items to work with. Having multiple vendors is also another way of ensuring you get better deals when your vendors get to know they are competing for your attention. This can also make them serve your faster and with high-quality food items.
Remember, don’t keep all your eggs in one basket. Dealing with multiple vendors gives you peace of mind. If one vendor has issues, your restaurant will not close down because you’ll have other vendors to run to.
5. Don’t rely on credit
The best idea when it comes to managing restaurant cash flow is to always buy in cash. Buying on credit is mostly necessary for startups that are struggling to lay a foundation, but once a business is established, it is dangerous if it becomes a habit. When debts form a large percentage of your overheads, they can cause the failure of your business.
Debt is a trap that many vendors can use to turn you into their slave, so rather than accepting credit offers from your vendors, ask them if they can offer you discounts if you pay in cash.
Just like you, the vendors will also be concerned about their cash flow and they will be more than willing to offer you favourable cash payment terms rather than having to waste time chasing debts from you.
Fortunately, if you have an accurate cash flow forecast, you’ll be able to control your finances and you’ll not see the need for credit purchases.
6. Sort your accounting books
Bookkeeping is one of the exercises that you might take for granted but it plays a big role in running your business. You might get so busy with the day-to-day activities of managing the business until bookkeeping falls by the wayside.
If this trend continues for long, you may end up with a pile of invoices to chase, unpaid bills, pending overtime payments, and more. You might end up digging in your pocket to clear some of these expenses because you failed to chase the invoices.
Bookkeeping keeps you informed about what’s going on in your restaurant at any given moment so you can take action as soon as possible.
Poor bookkeeping or lack of it leads to inaccurate forecasting and reports, inconsistent invoicing, poor financial control, and many such shortfalls. What this means is that your money will not be working hard for you to increase your profits. It may also make it difficult for you to meet your tax obligations and this will cause friction between your business and auditors and the tax authorities. Paying tax fines is an unnecessary and avoidable expense that eats into your profits.
When your accounting books are up to date, you’ll be able to generate reports that can give direction to your business. You’ll be able to take control of your cash flow and attend to the needs of your business in a good time.
7. Be Proactive – Solve issues in real-time
It is obvious that in business, problems are bound to arise once in a while. Rather than waiting for problems to happen, it’s better to anticipate them and put up necessary measures to combat them the moment they arise.
In addition to keeping an eye on your cash flow forecasts, you also need to be alert on the happenings that can affect your business. There will always be occasional emergencies and being proactive is the only way to ensure business stability. Customers get affected by many factors from the prevailing economic environment to weather and by monitoring these conditions, you can always stay on top of things.
Most importantly, having some savings for emergencies can save you in those bad days when you are down. A cash flow crisis shouldn’t be ignored with the hope that it will somehow go away. Burying your head in the sand won’t help; the only way is to face the problems and deal with them efficiently and quickly.
8. Identifying the Problem Areas
Although payroll and labour costs and the most important factors affect cash flow, many other factors are crucial but might be overlooked. You should review your business once every three months to look back at issues that you dealt with that caused some hitch in your cash flow. How did you deal with the issues? Are you prepared to deal with the same issues in case they arise again?
Problem areas may include customer service, logistics of daily operations, seating arrangements, quality (or quantity) of food, how dishes are served, and excess inventory, among others. Once you have identified the problem areas, come up with a workable strategy on how you will deal with them in future. Some of these problems never occur only once, they are recurring and they harm your cash flow.
For example, if you mishandle a payroll, unprecedented loses may arise. Ensure your accountant uses the current packages to handle payroll and other financial aspects such as inventories, reporting, and tax calculations.
9. Integrate Your Processes
Your business must be having several individual sections or departments that work more or less independently. Identify these various departments then integrate the ones that are closely related. This way, you will make things run more efficiently and you’ll reduce the cost of running several independent sections.
You can also get onboard employees who are qualified to work in more than one department. For example, you can get employees who can serve at the table while at the same time have a management qualification. During low seasons, such employees can concentrate on management duties, while during high seasons when you have so many guests, they can serve at the table. This will ensure you have a manageable number of employees which also results in a manageable wage bill.
Another way of ensuring your operations run smoothly is to combine benefits and payroll management rather than having these two functions in different departments. An integrated benefits and payroll management report makes accounts handling easier because everything will be in one place. This integration may also help you identify business patterns that you weren’t aware of before.
10. Never forget to market
In a bid to cut costs, you might be tempted to cut the budget for marketing or do away with it completely. Doing that can be suicidal to your business. Marketing and cash flow are like conjoined twins, you can’t talk about one and leave out the other.
While marketing results in cash inflow, it also results in cash outflow in the form of spending. The budget itself is derived from the cash flow statement which determines how much should be allocated for marketing.
Marketing is the backbone of your business and if done well, will result in positive cash flow. It is the only way through which your restaurant can generate income or revenue and bring in profits.
It’s marketing that creates possession, place, and time utilities for your products and it should, therefore, be given priority in your business. However, the marketing activities should be budgeted for in a manner that doesn’t cause further cash flow problems.
You should be able to determine how much marketing is just enough to bring ROI. There should be a balance between the amount allocated for marketing and the amount the marketing effort is expected to bring in.
11. Review your current food pricing
The end of the year is approaching and soon we will face 2020 with brand new challenges and promises. Before going to a new year, you need to review your current processes and see which ones need to be improved. And this includes your pricing.
Are you going to maintain your current prices or are you planning to reduce or increase them? Well, the answers to these questions depend on how your business is performing with your current price levels.
Prices of commodities are constantly increasing due to inflation. Even your vendors might be planning to increase their prices next year. Apart from the increase in commodity prices, your employees might also be expecting a pay raise with an explanation that the cost of living is rising. You also have your personal expenses that need to be taken care of.
All these issues are beyond your control. That’s why you need to review your food pricing and make a decision as to whether continuing with your current pricing model will address these issues adequately. If not, you can decide on a new price level that’s reasonable both for you and your customers.
If you have a restaurant consultant, you can bring this matter up to help you decide. They would know if the price you have in mind would work especially when compared to what’s being offered in the market.
For any restaurant business to thrive, there must be a good cash flow management system put in place. Having a good cash flow means your business is liquid enough to take care of both short term and long term needs. A sound cash flow is also an indication that your business has a possibility of expansion because you can honour your debts and try new ideas.
Another advantage of having a positive cash flow is that you’ll not be stressed about daily business operations. You’ll not have to keep worrying about where you’ll get the cash to settle your bills and even pay your employees.
Managing restaurant cash flow may not be a walk in the park if you don’t have a background in finance or accounting. That is why you may need to hire a restaurant management consultant to take care of your cash flow as you concentrate on other core business functions.
Restaurant consulting firms such as Glee can offer cost control and accounting services to help in maximising your profits and ROI. We can help with employee training, sales forecasting, menu planning, and more. Glee hospitality has been operation for the last decade and has managed to create successful restaurants all over the Gulf region. We understand the needs of our clients and work round the clock to ensure the success of your company. We can help with the operational management of your restaurant on top of other services such as payment of suppliers, preparing financial reports, and bookkeeping. Contact us today if you wish to turn your business (and cashflow) around.