7 Key Ways For Restaurants To Avoid Cashflow Problems

It’s common knowledge that the failure rate in the restaurant and catering sector is particularly high and there are a number of reasons for this including lack of planning, lack of capital, poor location, poor promotion and marketing and poor management of finances, staff and stock.

The main reason for failure relates to the control of business finances and in particular to cashflow. In the restaurant and catering sector you may think that since you’re being paid pretty much immediately by cash or card payment that cashflow should be no problem but it really is still very challenging.

So here are some useful things to consider to avoid running into cashflow issues:

1.     Planning and forecasting

You should have a financial plan in place so that you know what your monthly outgoings are and what your expected monthly incomings are. So as well as tracking your monthly profits you should also be tracking cashflow. Ideally you should look to budget 6 months ahead. Of course, if you’re not able to do this yourself then get in touch with an expert – your accountant will be able to help.

2.     Seasonality planning

Seasonality is a big factor for many restaurants and you need to be able to manage the finances through the quieter times as well as the busy times. Most restaurants will pay a fixed rent throughout the year so should look at adjusting staffing needs to help control the variable costs, as well as closely managing ordering and inventory levels in line with needs.

The marketing will also be influenced by seasonality and you can focus on becoming fuller during the less busy times perhaps by considering utilising online discount voucher sites and putting on special promotions just for the quieter periods.

3.     Focus on the menu

There are various things that you can do to help both profits and cashflow in relation to the menu and some of these you may already do. Clearly you don’t need to be stocking lots of high price, low margin items so you can remove these and aim to keep the menu concise. With fewer dishes you know only too well that this allows you to focus on quality.

You should keep inventory low to reduce waste and have somebody responsible for managing these stock levels and for keeping an eye on inventory costs. Remove slow moving dishes from the menu and place your high margin dishes prominently on the menu drawing attention to them.

4.     Use a selection of suppliers

It’s best to use a range of suppliers so that you are not too reliant on any one and so that you can source the best produce at the best price, negotiating for discounts where possible. Whilst you may find using just one supplier to be more convenient it’s unlikely that they’ll be the most competitively priced or best across all areas of supply. Plus you don’t want to be let down if your one supplier can’t deliver sometimes; you need to have other options to call upon.

5.     Build a cash reserve or utilise a merchant cash advance

Ideally you’ll want to have some sort of cash “buffer” in the bank to ease through any tricky months, especially since in the restaurant trade you may often pay staff weekly, meaning there’s a constant pressure on cashflow. However, if this isn’t possible then you should make sure that you have some back up line of credit such as an overdraft or company credit cards already in place, or often even better, by utilising a merchant cash advance. If your restaurant takes card payments then with a merchant cash advance this can be repaid flexibly as you take payments through your card machines. With a suitable facility in place you don’t need to stress as much if there are short periods when things are tight.

6.     Keep your books accurate and up to date

It may sound obvious but if you don’t keep your bookkeeping records up to date then how are you supposed to be able to predict what’s going to happen with your cashflow? You really need to know how much you owe, when you should be paying, and also have all of your income recorded regularly and accurately in your accounting software. This is key since you can’t see what’s going on without accurate bookkeeping records as a minimum. Having out of date financial records is not much use to you when you’re focussing on cashflow. You should have everything up to date on cloud based accounting software where you can easily access and understand the key info and reports.

7.     Set aside regular time to update yourself on the business finances

Nearly all business owners in the restaurant and catering sector are super busy so it’s understandable that having the time to do everything can be a big issue. However, the success or failure of your business may rely upon how you take care of your business finances and bookkeeping and how you manage your cashflow. Since it’s so important I recommend that you set aside regular time, it doesn’t need to be for very long, perhaps every week, so that you understand your current cashflow situation. If you don’t understand it then call your accountant and they’ll be able to help further and put you on the right path.

So if you’re one of the many restaurant owners who experience cashflow difficulties from time to time you can see that there are things that you can do to overcome the problem. Make sure you don’t bury your head in the sand and hope things will get better by themselves. You should take action, focus on some of the points above and hit the problem head on.

Even if your food and restaurant are amazing you still must have good cashflow management to give you the best chance of success.

If this article has been useful to you then please Like it or Share it with any other restauranteurs that you feel may find it interesting. If you’d like to comment on any of the points here or ask any questions then please leave in Comments and I’ll respond.