So, what is a restaurant cash flow?
Put simply, cash flow is the amount of money that comes in and goes out of a business over a specific period of time. To calculate your cash flow, add together all the costs your restaurant needs to pay out and subtract this figure from the money you have coming in.
If, over a one-month period, a restaurant has more money coming in than it has going out, it has a positive cash flow. On the flip side, if, over the same period of time, a restaurant is spending more money than it has coming in, it is said to have a negative cash flow.
Managing cash flow in pubs and bars: special considerations
Restaurants and pubs have their own set of unique challenges which can make managing cash flow difficult. During bouts of bad weather, you might experience periods of low trade as fewer customers will want to venture out. When the sun is shining, pubs are bustling, restaurants are at capacity, sales are up and food and drink is selling out. While on the surface, this may appear to be great news for your restaurant’s cash flow, stock will need to be replenished quickly, which, if your restaurant’s cash flow is normally balancing on a knife edge, could tip it over into the negative.
Learning how to balance your restaurant’s stocks, sales and incentives hinges on keeping one step ahead and co-ordinating your marketing and planning with national holidays, major sporting events and customers’ behaviours and habits.
So, how do pubs and restaurants manage the peaks and troughs in trade? The answer lies in the forecast…
Creating an effective cash flow forecast for your restaurant
A detailed cash flow forecast, or projection, helps restaurant and pub managers plan ahead to ensure all outgoing payments can be made, and slow periods of trade don’t have too much impact on their bottom line. Understanding how cash moves in and out of your restaurant or pub is the first step towards creating a reliable cash flow forecast. If you don’t know how much money is being paid in or out from one month to the next, you won’t be able to make informed decisions about purchasing equipment, hiring staff, or planning for the long term.
What you should consider when calculating cash flow forecast for a restaurant:
- Forecasts need to be made for a fixed time period - monthly is usually best.
- Get accurate data on incomings and outgoings. Software, such as Access EPoS stock and inventory management, could streamline this part of the process and ensure all data is readily available and nothing is missed.
- Reduce costs where possible. Again, this is where software could check for savings with suppliers and integrate these figures into your cash flow forecast.
After a few months, you’ll see patterns in incomings and outgoings and this should make cash flow forecasting a little easier. You’ll have a clearer picture of when you could put money into reserve to cover lulls in trade or big purchases, and also identify when some smart marketing is needed to create an uplift in sales.
Strategies to increase cash flow in restaurants
It can be difficult for restaurants to achieve a balance of a steady, reliable income from customers against a background fluctuating running costs. This is especially true in the early years of business when the cost of borrowing outweighs income.
The key to turning the tide on negative cash flow is to start making a profit as soon as possible. This means having accurate data, controlled spending and steady trade. Let’s take a closer look how:
Optimise bookings and reservations by making your restaurant visible and easily accessible to customers when they choose your venue to dine at. All-in-one booking and enquiry management systems such as Access Collins provide a portal for millions of potential customers across twenty cities to make bookings, pre-orders and online payments. Your restaurant’s covers will go up, as will your income, which is great news for quieter days and planning ahead.
Implement effective marketing campaigns and ROI tracking by getting to know your customers and what they want from a visit to your venue. When planning marketing campaigns, calculate how much income you will need to make to cover all your costs and build your plan around this. Using a CRM platform, such as Acteol can help you reach the right people, with the right message at the right time and drive the revenue you need to make your event a success. ROI data from your event - which customers responded, what they bought, and how much they spent, can be used to create targeted campaigns for the future. Ultimately, you’re looking for customers to return and spend more.
Streamline payment processes and inventory management
Paperwork can add an extra layer of burden to restaurant managers and owners. Issues can range from mislaid checks to over- and under-ordering stock, and errors in recipe costing. When combined, these issues, and more, can have a negative impact on cash flow - not to mention customer service. Customers don’t want a long wait for food only to be told their order has been lost and the dishes they want are not available.
Access EPoS system can greatly reduce instances of error and, after the initial outlay, will save a restaurant money in the long run. Starting with the customer, an EPoS system can be used to take the order which is sent directly to the kitchen. It records this transaction and automatically adjusts inventory levels, cutting the risk of stockouts or overstocking. EPoS systems can also be used for customer and supplier payments, completing the loop on the entire process.
Keep order management and payment systems efficient
From a customer’s perspective, the restaurant industry is about passion, experimentation, and, if celebrity chef cooking shows are anything to go by, ingredients being casually thrown into pans with alarming amounts of olive oil and butter. The truth is a little different - each menu item needs to be carefully measured to cut down on waste and generate the most profitable yield. Similarly, orders should link directly to the items on your menu and how popular they are - the more you need, the greater the quantity you need to buy.
It sounds easy, and the good news is that it can be made even easier with technology like procurement software, such as Procure Wizard. While restaurant food brings passion and flavour to the table, Procure Wizard brings precision and profitability. Order management combined with real time pricing ensures you get the best produce at the best price and payments are scheduled to your restaurant’s needs.
Balance payroll and cash flow
When you’ve got to grips with your restaurant’s cash flow forecasts and the pattern of incomings and outgoings, check how you could stagger payments so not everything is going out at the same time. Payroll, suppliers, utilities and rent are going to be some of your biggest expenses so it makes sense to spread them out across the month.
Pay close attention to staff scheduling and base numbers on the needs of the day. Check back with your cash flow forecast as this will help you identify busier days and get schedules done in advance. Again, this will help you monitor shifts and payroll accordingly.
If, by the end of the accounting period, your restaurant is in good health with a positive cash flow, you can start to build a cash reserve by putting aside a percentage of income each month. This cash reserve can be left to accumulate, act as a buffer during lean periods or to mitigate the impact of sudden, unexpected costs.
Overcoming common cash flow challenges in the hospitality industry with best practice
We’ve looked at the importance of being detailed and accurate when compiling your restaurant’s cash flow forecast but there are many more issues which, individually, may play a small part, but when combined together can have a big impact on profitability.
‘Tis the season - We’re not just talking about Christmas. Seasonality can cause fluctuations in trade as well as the availability of staff to pull extra shifts during national holidays and celebrations. Plan schedules ahead of time and plug any gaps in advance. If staff are to receive a higher rate of pay for working bank holidays, or you need to hire agency staff to cover peak times, make sure to factor extra costs and training requirements into your cash flow forecast. During the quieter new year period when people have resolved to cut out carbs, alcohol, or both, scale shifts back to what is absolutely necessary. While we’re on the subject of seasonal costs - look at engineering your menu to make the most of seasonal produce and lower prices.
The price is right - Use Access software to your advantage and shop around for suppliers offering the best price on goods your restaurant buys most. Do they offer bulk discounts? If so, buy what you can but still look for the best deal on other products - it’s unlikely that one supplier will have the best deals on everything.
Are your menu and inventory working together? - Less is more as far as menus are concerned. Ditch the dishes not delivering on taste and focus on a smaller, expertly-procured menu that customers will love while saving you money and reducing food waste. Keep an eye on portion sizes, too. If plates are being returned half-eaten is it because there’s too much food or is something off with the flavour profile? Get creative with your dishes, use seasonal produce and experiment to see if you could achieve more with less ingredients. Adjust your inventory accordingly and you should see a saving at the end of the month.
Improving restaurant cash flow with technology
In this article we have looked at what cash flow means and how to calculate it. Take net outgoings away from net income and you’ll know whether or not your restaurant is a profitable business with a foot already in the door of long-term success.
Most of it is down to planning and as a restaurant owner or manager, you’ll be used to planning everything right down to the smallest detail. However, everyday planning, ordering, scheduling and budgeting can be tedious and time consuming but technology can relieve the pressure of these tasks and bring them together into one easy-to-monitor format.
If you’re ready to invest in support that will help you make informed decisions about managing your restaurant’s cash flow, consider getting in touch. Our innovative, integrated technology will be there to support you both behind the scenes, and when you are front of house, interacting with customers and delivering memorable experiences.
If you’d like to know more, get in touch.
