Tips on Managing Your Restaurant’s Cash Flow

Jessica Elliott

Jessica Elliott

Jessica couples her 24 years of restaurant and hospitality industry experience with meticulous research to deliver insight into technology, operations, and marketing topics. Her optimized copy helps companies engage their audience while strengthening their communication with clients, employees, and management.

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One of the biggest reasons for restaurant failure is money troubles. However, the ongoing economic and social disruption left many companies struggling with cash flow issues. While you can’t plan for everything, ongoing restaurant financial management helps you create seasonal budgets and prepare for emergencies.

Learn how to use your data and accounting system to design a system that supports healthy cash flow. Take control of your finances using these tips on managing your restaurant’s cash flow.

What is your restaurant’s cash flow?

All the cash coming into your business minus all funds going out represents your cash flow. You may calculate it daily, weekly, or monthly using a cash flow statement. Being aware of this number helps you avoid surprises and prevent significant problems.

Business owners use a cash flow forecast, which breaks expenses down into fixed and variable costs. With regular reporting, you’ll have ample warning that you need to tighten your pocketbooks by reducing expenses or delaying payments so you can continue to pay vendors and employees.

Why do business owners face cash flow problems?

Cash flow issues stem from losses or unexpected decreases in your sales, holding onto too much inventory, having high labor to sales ratio, or surprise expenses that wipe out your profits. If you don’t regularly track your cash flow, it’s easy to get caught off-guard due to seasonal changes or jumps in supply costs. Plus, many business owners put off entering invoices, giving them an inaccurate cash flow forecast.

Top tips on managing your restaurant’s cash flow

Balancing a budget is sure easier said than done. Between daily sales, supplier price changes, and fluctuating labor costs, it’s tough to make the numbers match up. Stave off problems with cash flow reporting and identify ways to increase revenue and decrease expenses to ensure you have enough liquidity to pay your bills.

1. Increase cash flow visibility

The more cash flow data you have, the easier it is to make decisions and create seasonal budgets. Use your restaurant management software and accounting program to:

  • Accurately record, categorize, and code transactions.
  • Oversee accounts payable information.
  • Create custom revenue reports to help predict future income.
  • Calculate and print cash flow statements, balance sheets, and income statements.
  • Track key performance indicators (KPIs), including prime costs.

2. Maintain accurate inventory data

Keeping extra inventory, especially high-dollar items like alcohol, reduces your cash flow. You may be over-ordering or experiencing less demand for specific products. Take stock of expensive items daily using digital inventory tracking tools, and identify possible theft issues or improper use.

Pinpoint any ingredients that don’t get much use, and try to eliminate as many as possible. The same goes for paper and cleaning supplies. You may save money by buying bulk items and refilling individual containers. But avoid buying in bulk if it takes up too much of your available cash and doesn’t produce enough savings to make up for the shortfall.

3. Boost revenue streams

To make up for budget deficits, the best thing to do is to increase revenue streams. This isn’t easy to do, especially when adding a revenue stream requires buying supplies. However, you can estimate your financial risks and select ideas guaranteed to bring in additional cash. During COVID-19, restaurants innovated by:

  • Selling and delivering grocery items
  • Promoting other services like catering, delivery, or carry out
  • Offering meal kits or heat and serve family menu items
  • Developing branded merchandise like hats, shirts, or cookbooks
  • Partnering with local businesses to provide two-for-one services
  • Advertising low cost, high-value dishes
  • Boosting gift card sales through special promotions

4. Review supplier invoices

Your staff already double checks every order to ensure you receive precisely what you’re paying for. But, invoices may have errors, making it essential to review the numbers. This is especially important if you have multiple sites, as you may use one vendor for something like your dumpsters. Still, upon closer inspection, you might realize you’re paying more for the same services at another location.

Or your employees checked off the inventory you received, but instead of your regular product, your supplier sent a higher-priced version. You also may have contract pricing for certain items. These numbers occasionally get messed up when a vendor switches software, people change job positions, or their pricing updates before your current contract ends.

Use an inventory management system that lists prices to compare what you pay per item every month. Each of these issues is easily remedied by calling your supplier and asking for a credit. And since you’re reviewing invoices, consider checking with other suppliers to see if you can find your ingredients or paper supplies at a lower price. Or leverage your research to negotiate with existing vendors for lower prices.

5. Reduce expenses

Although you can’t alleviate high fixed expenses, you can take steps to decrease variable costs. A few key ideas to consider include:

  • Identify underperforming menu items that use ingredients not found in other dishes, and remove them from your menu.
  • Assess your food waste to make sure you’re not prepping too much food in advance or throwing out incorrectly made orders.
  • Stop handing out condiments or silverware with carry-out and delivery orders. Instead, your order-taker should ask if your customer needs it.
  • Analyze your recipes and plate costs while staying on top of ingredient prices to ensure accurate food cost reports.
  • Install digital timers for heat, air conditioning, and lights to save on energy costs by turning on key systems shortly before opening.

6. Add fees to recover the costs of services

From third-party delivery fees to increased credit card transaction costs, fees can quickly take a bite out of your profits. While passing fees along to your customers isn’t ideal, and it’s an action you should carefully analyze before doing it.

Many restaurants use a delivery fee or carry out fee to cover the costs of takeout containers, extra labor expenses, or fees charged by delivery companies. Or consider raising menu prices and offering a small discount to those who pay cash versus paying by credit card.

7. Get your restaurant crew onboard

If you start cutting back to balance your budget, it may cause worry or negative chatter among your staff. The best way to avoid this and enlist their help is by being transparent. Let them know why you’re cutting back and how they can help. For instance, employees can assist with:

  • Staying aware of how many extra items they’re taking out to tables, like stacks of napkins versus one extra napkin per person.
  • Developing recipe and portion control guidelines for kitchen staff and ask kitchen management for accountability.
  • Retraining back of the house staff to identify waste or catch things like employees running half loads of dishes.
  • Encouraging front of the house teams to upsell high-margin drinks, desserts, and meals regularly.

8. Optimize scheduling to reduce labor costs

Restaurant labor is by far your biggest expense. As a restaurateur, you already run tight shifts. But if you run into a shortfall, you’ll want to analyze every detail and look for areas to lower costs. For example, consider cross-training staff to take advantage of downtime.

You can cut a higher wage employee early, leaving the prep work for another team member. Front of house workers can carry tubs to the dish room or help portion ingredients. Encourage teamwork and an all-in approach to keep operations running with less staff.

Your accounting reports also come into play here. You should continually update your sales forecast and look at historical data to make sure you’re scheduling the right amount of people per shift. Your management team should watch real-time labor and sales data and cut staff accordingly.

Furthermore, using restaurant scheduling tools can help you plan for peak times and optimize your employee schedules. A flexible app saves you time while giving team members ways to pick up or switch shifts or submit time-off slips quickly.

9. Analyze your restaurant’s menu

Your menu likely includes items that get good sales but require expensive ingredients or more labor than other dishes. Other recipes are costly to create and may not sell at high rates. Then you have dishes with high-profit margins. These are often menu staples built on standard inventory supplies. On the other end, you have menu items that are cheap to produce but not top sellers.

Go through each item on your menu. Look at the costs associated with them, along with your sales data. Analyze your costs versus menu price, and when necessary, adjust your menu pricing for a few main items or several items all at once.

For low-profit margin items, consider eliminating them from the menu or only offering them as occasional promotional items.

Take control by managing your restaurant’s cash flow

Overseeing your restaurant’s cash flow isn’t an easy job. But it’s vital to your success. Stay on top of your finances by creating reliable systems and habits for office, floor, and kitchen teams. Increasing financial visibility and deploying cost-saving measures benefits you while protecting your business.

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