7 Restaurant Finance Best Practices for Increasing Cash Flow
The restaurant business, while rewarding, often walks a tightrope of financial uncertainties.
Restaurant finance considerations are unique in that leaders must navigate an industry fraught with fluctuating variables like seasonal customer flow, perishable inventory and unpredictable expenses.
In such an environment, mastering cash flow is essential. These seven restaurant finance best practices can help ensure the financial vitality of your business by increasing your cash flow.
1. Ensure Your Numbers Are Accurate
Knowing your earnings isn’t just about feeling good at the end of the day—it’s foundational data. And it’s essential that this data is accurate.
Use a robust point-of-sale (POS) system to be sure you’re tracking sales correctly and integrate that system with your accounting software for enhanced efficiency and accuracy. Ensuring your information is accurate is the basis of making informed restaurant finance decisions and improving your cash flow.
2. Forecast
Once you’re confident that you have accurate historical numbers, analyze them regularly. Monthly or even weekly financial check-ins can help you pivot strategies promptly. Drawing from this historical data, you can better anticipate the future for your restaurant’s finances.
Start by identifying patterns in revenue, expenses and seasonal trends. Maybe December is always slow because of the holidays, or maybe summer is always busy because the season brings in tourists.
Knowing these cash flow patterns helps you prepare well, ensuring predictable shortfalls don’t catch you off guard.
3. Control Expenses
Your historical cash flow data will also help you identify areas to cut costs and control expenses. Based on your numbers, are you spending more money than you have to?
Analyze your return on investment when deciding on your location and menu items. When it comes to labor expenses, be mindful of overscheduling to ensure you balance customer service and profitability.
Other options for trimming expenses in order to increase your cash flow might include:
- Going green – Investing in energy-efficient appliances and practices isn’t just eco-friendly; it’s wallet-friendly. Over time, these can bring in substantial savings.
- Improving inventory management – Overstocking perishables can drain funds. Implement a robust inventory management system to minimize waste and cut costs.
- Negotiating contracts with vendors – Building good relationships with suppliers can lead to favorable terms, bulk discounts or flexible payments. You may also consider changing vendors or revisiting contracts to reduce expenses.
4. Manage Receivables and Payables
Sound restaurant finance practices aren’t just about making sales; collecting payment in a timely manner is also critical for your cash flow.
Restaurants often extend credit to regular customers, particularly for events and catering customers. However, this courtesy can create problems if your customers don’t pay their bills promptly.
Offer multiple payment methods to customers, and if you extend credit to trusted parties, ensure timely collections. There are several ways to manage receivables, including sending reminder invoices, calling customers to remind them of their balance due, and even turning to outside collection agencies.
With vendors, see if you can negotiate terms that align with your cash flow without straining the relationship. Extending terms from 15 or 30 days to 45 or 60 days helps you maintain cash on hand and increase your financial flexibility.
5. Build Your Emergency Fund
Having a rainy-day fund is one of the most effective restaurant finance best practices. When you have a cash surplus, set aside some excess cash in an emergency fund separate from your normal operating account.
This will help prevent any unforeseen events from derailing your business and can help when any of the seasonal fluctuations you’ve already identified threaten your cash flow. Apart from avoiding a potential downturn, having a financial cushion can also better position you to take advantage of unexpected opportunities.
6. Diversify Revenue Streams
Consider additional sources of revenue to boost your bottom line and improve your cash flow. Having diversified income streams can bolster your revenue. Consider:
- Accommodating private events
- Hosting your own events
- Offering catering services
- Offering branded merchandise
7. Consider Financing
When all else fails, a line of credit or working capital loans can be a lifesaver in times of tight cash flow, helping bridge the gap without disrupting operations.
If you don’t currently have a line of credit, talk to your financial institution. The processes you set up in steps one through four (accurate numbers and forecasts, lean expenses, and solid receivables and payables) will help make your application attractive to lenders.
If you do have debt, consider whether you can restructure it. Talk to your financial institution about giving you more favorable terms, easing the monthly financial burden.
Learn More about Restaurant Finance Considerations
Running a restaurant is akin to crafting a gourmet dish. It requires the right ingredients in the right proportion, cooked to perfection. Your finances are no different. By being proactive, relying on accurate data, and always striving for efficiency, you can ensure your restaurant not only survives but thrives.
Contact a Warren Averett advisor today to learn more about implementing these restaurant finance best practices and creating a solid cash flow plan for your business.
