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5 Tips to Manage Your Restaurant's Cash Flow

Will Fleming
Will Fleming

High volumes of transactions can make restaurant cash flow management seem intimidating, but it's actually straightforward.

Cash flow is always hugely important when you run a restaurant business. However, this year, as restaurants deal with mandatory shutdowns, limited dining options and fewer customers in the wake of the COVID-19 pandemic, it matters more than ever.

The good news is that, while high volumes of transactions can make restaurant cash flow management seem intimidating, in principle, it's actually fairly straightforward. 

Get accurate data.

Ensuring that your data is accurate is the foundation of cash flow management.

Good cash flow management starts with good visibility. If you don't know where cash is moving – what vendor payments you're making, what your overhead is at each location, what sales are coming in – you won't be able to make effective decisions.

Cash flow management begins with analyzing your restaurant's current cash status – determining what accounts are active, and organizing income and expenses. Once you have a baseline of organized data, you need to track your books over time to make sure that you're accounting for cash flows accurately (since expenses may recur on monthly or annual bases). Typically, you'll have 50% of your cash flow data after one month, 80% of your data after a quarter and a fairly comprehensive picture after a year.

To make this a reality, you need dependable operational processes, and you need to be able to trust that your books are capturing things accurately.

Create forecasts.

Once you have visibility into how cash is coming into and moving out of your business, you should begin to create forecasts and move from bookkeeping into restaurant accounting.

With cash flow forecasts, you'll have accurate expectations for expenditures and income over a given time period. With this information, you'll be less likely to be caught off guard without enough money in the bank to make vendor payments or hire additional seasonal staff.

Take this with a grain of salt; obviously, nobody accurately forecast 2020 – certainly not on the income side of things. But the businesses that had more accurate forecasts heading into March are in a better place today than those who were operating day to day when shutdowns happened. You can't forecast everything, but you should take use the data you have to work out reasonable expectations and use your expectations to craft seasonal budgets.

Your future restaurant business will thank you.


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Streamline expenses.

With your books accurately tracked and your forecasts made, you can begin to refine your operating procedures in order to improve your cash flows. One way to do this is to streamline your expenses.

There are countless ways to reduce your expenses in the restaurant industry, of course, and the approach you take will vary depending on your business and your environment. With that said, though, here are three approaches that I've found to be effective:

  • Adopt flexible staffing. In other words, have fewer employees on shifts during slow times and flex up your headcount during busy times. This may sound simple in principle, but it takes good data to execute effectively. Relatedly, as restaurants move forward over these next few months, it can be helpful to budget your labor costs as a percentage of sales. As sales (hopefully) scale back up, you'll scale your staffing back up accordingly.

  • Get intelligent about inventory. You should ideally be doing inventory on a daily basis, which means you should definitely be using digital inventory tracking tools. The best ones can provide artificial intelligence-based suggestions based on ordering trends to reduce waste.

  • Reduce food waste. There are plenty of ways to do this (inventory management, as we've mentioned above, will help), but one highly impactful strategy is to commit to setting daily prep level pars. This way, you'll avoid having kitchen managers decide off the cuff how much to prepare – an approach which always leads to waste.

Increase income.

Reducing expenses, of course, is the less-fun part of improving restaurant cash flow, and it's ultimately unsustainable if it's the only side of the equation you focus on. The more fun part of the process – and the part that enables you to focus on adding value instead of paring fat – is to increase your restaurant's income.

In 2020, increasing restaurant cash flow can seem like an impossible proposition, but there are some tactics you can take that may have positive effects.

Build up your delivery and takeout business.

Going forward, delivery and takeout will be much bigger drivers of sales. SmartBrief notes that a "pre-pandemic study forecast a 7.5% annual growth rate for online food delivery sales from 2020 through 2024." It's obvious that the growth rate of these sales is sure to shoot up exponentially after COVID-19, but what's especially interesting is that the growth will probably remain consistent going forward.

That's because the necessity of delivery in a pandemic has opened up the idea of delivery and takeout orders to demographics that previously weren't interested in them. My bet is that, with the box opened, there's no going back. There are plenty of logistical considerations to work out, but it's clear that if you nail this tactic, you can increase your sales.

Consider offering nonstandard products (like groceries, alcohol or merchandise).

Another interesting trend during the past few months has been the rise of restaurant-based grocery sales. Chains like Panera Bread have jumped in, while dine-in businesses like Olive Garden have marketed alcohol sales during this time.

In my view, many nonstandard products seem less likely to last over the long term; consumers likely won't purchase these things at enough scale after the pandemic to justify most product additions. With that said, there are opportunities out there, and depending on your business, it's wise to take a look.

Run promotions – carefully.

Promotions are a staple tactic in driving restaurant traffic, and they can be a huge driver in increasing sales if they're implemented effectively. Good promotions offset subsidized costs with other income. They do this by either encouraging increased traffic over the long term, or by incentivizing additional in-store purchases that offset costs.

As your restaurant business begins to climb back, promotions can be a helpful kickstart to bring clients back in.

Build a safety net.

With the previous steps accomplished, you should begin to build a safety net of cash – just in case something, you know, unexpected happens.

It will happen.

You may not be able to predict the next pandemic, but you should know that costs inevitably will arise. Kitchen equipment might break, or your suppliers might up their rates, or your lease might increase. If you have a built-up supply of cash on hand, you'll be able to weather the storms that come – even if you don’t always know exactly what's coming.

That's the power of cash flow management. It takes work, but it's not rocket science – and it certainly is worth it.

Image Credit: CherriesJD / Getty Images
Will Fleming
Will Fleming Member
I started my career in investment banking where I developed deep expertise using strategic corporate finance for company growth, transformation and restructuring. I've advised on more than $1 billion dollars in corporate finance transactions in the technology and telecom markets. Through a corporate restructuring, I became the corporate controller and treasurer of Comsat International (Lockheed Martin) where I started the beginnings of Global Shared Services (GSS). I consolidated 14 subsidiary back offices into a shared services center in Argentina. This center covered general accounting and finance activities for Lockheed Martin offices in the U.S. and Europe. This division was later moved to TeleTech (NASDAQ: TTEC) and commercialized. The group became independent in 2014 initially servicing technology and telecom customers and adding a service offering in the restaurant industry via the acquisition of SS&G's outsourcing division in 2015. Today, I lead GSS's global workforce who are leaders in providing outsourced finance and accounting services in the technology and multi-unit restaurant industries across the U.S.