Ways to Improve Cash Flow Management

Proper cash flow management is critical for any business — large or small — in any industry. However, this is particularly true of restaurants, considering the incredibly small profit margins that they operate on and their constant need for fresh ingredients.

Maintaining adequate cash flow in a restaurant is much more important and difficult than most aspiring or new restaurateurs realize, and many restaurants go under as a result of poor cash flow management. Alternatively, others find themselves deep in debt to creditors or vendors, losing profits to interest and missing out on the many rewards and benefits that are offered to those who make their payments immediately.


Cut Overhead

If you spend less, you earn more, right? One of the most significant drains on restaurant cash flow is overhead that is far too high. The more you can reduce your monthly expenses, the more money you will have at the end of the month. Sounds simple? It is.

Start by analyzing every expense of your restaurant, breaking down whether or not the cost can be reduced or cut out altogether. In particular payroll and food costs should be reevaluated along with all restaurant supplies. Reevaluating your expenses monthly can help you to keep ontop of where you are losing money and where you are making the most.


Liquidate Inventory

Chances are you have a bulk reserve of cash in your freezer as backstock. Excess inventory is costly to store, count, and manage, and selling off your reserves can help solve your cashflow problems. Consider running specials or limited menus which feature dishes that will sell off your inventory.

Avoid holding stock for long periods of time, and be sure to regularly inventory your backstock. Knowing what you have available to use is half the battle. Make sure that chefs and bar managers are working hard to eliminate excess stock and that certain items aren’t consistently over ordered.


Take Advantage of Discounts

Many vendors offer discounts to businesses that pay off their bill immediately. The trouble with this, is you need to have decent cash flow to take advantage of these offers. Whenever possible, utilize these discounts to keep ahead of your bills and keep cash flow at the maximum.

If your vendors do not offer discounts for invoices that are paid immediately, look into other vendors and distributors in your area. Working with a number of different distributors can help you to diversify your delivery and payment schedules, which can also help cash flow and inventory.


Budget and Forecast

The greatest source of cash flow issues, in any business, is poor budgeting and forecasting. Keeping ahead of your cash means you need to know exactly what you have available and what you are going to be expected to spend. Careful budgeting will show you where you can cut your costs and overhead, and it will also help you to prepare for the less profitable “off-season”, if your restaurant has one. 



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