When it comes to your restaurant business health and longevity, cash rules. Each financial year, unreliable cash flow leads to the shutdown of many restaurants. Even a short-term hurdle in the way revenue flows can make it challenging to make payroll, buy supplies, or pay rent. Many factors can lead to this problem, such as unexpected expenses, or even late paying clients.
Fortunately, you can avoid forming another statistic through several healthy practices.
Way of managing cash inflows and outflows in your restaurant
These cash management practices will guide you on how to grow your cash reserve:
- Create forecasts and budgets: This helps you predict any financial misfortune before it occurs, so you can put in place mitigation measures to maintain the cash flow. Do you know winter is always slow and you expect your sales to drop by 25% for 3 months? You can plan for that. Is your oven starting to show signs of it’s future demise? Plan for replacing it. Notably, you can use forecast reports offered by a majority of accounting software platforms to make this process much easier.
- Space out expenses: Your expenditure significantly determines how much cash you have in the business. To get the breathing space you need, you can spread all expenses throughout the entire financial period to avoid making huge payments that would stretch your cash reserves. Previously I’ve run payroll twice per month, and spaced rent and a credit card payment into the two other weeks. This way I know I have a giant expense per week, but not multiples.
- Audit your overhead expenses: Overheads are among the critical costs of running your business, but they are not directly linked to selling your product or service. You can boost your cash by auditing these expenses and cutting them back where possible. Overstaffing during slow periods is a great place to look for cuts.
- Be wary of credit: Create systems that offer visibility into outstanding bills or any money owed before the amounts are due. Your accounting system should be able to monitor outstanding credit. Ensure you’re monitoring your credit cards as well as vendor debts weekly.
- Keep close accounting of your books: Among the first steps to take to manage how funds flow in your business is understanding the bigger picture. By maintaining accurate financial statements, you can easily keep track of financial problems and come up with effective internal controls systems for them.
- Put in place a financial cushion: While this may seem like a pipe-dream when cash-flow is tight. The best way to avoid cash flow problems is to create a cushion. Saving just a small percentage each month and keeping it separate from your primary business account (which has a tendency to get spent) will help alleviate some cash flow concerns and hopefully help you sleep at night.