Restaurant Success Tips

No matter what the size of your business, one truth remains: cash flow is king. It’s the lifeblood of your business. Yet, while most small business owners know this truth, many still struggle with basic cash flow definitions, fundamentals, and management strategies that actually maximize benefits. 

In today’s uncertain economy, characterized by frequent market fluctuations and ever-rising interest rates, many small businesses with limited financial knowledge are struggling to stay alive, let alone thrive.

These ten tips will improve your management of the restaurant’s cash flow, and clear away any expensive issues.

Put new habits into practice with these ten best practices for cash flow management at your restaurant. 

Know Your Primary Numbers

First things first, know what cash is coming in and going out each week. Every restaurant manager should know these two numbers. List all the cash that’s going out each week and each month, including:

  • Rent, loans, or mortgage payments
  • Food and drink ingredients
  • Labor costs
  • Supplies

Your next step is to forecast the sales for the upcoming week and month. To be accurate, use your restaurant POS to show the data.

Rely on a Cash Flow Forecast

  1. A Cash Flow Forecast is made up of two parts:
  2. Sales projections
  3. Upcoming bills

Using your restaurant point of sale, predict your sales and revenue for the year. Some months are slower than others, and you’ll have more money in the bank at other times. Using a Cash Flow Forecast, you can decide when is the right time to make a capital expenditure or predict when to cut back on expenses. For example, you might find that by hiring seasonal staff during the summer, you can reduce costs with a smaller, more efficient, year-round salaried staff.

(See our tips for growing and sustaining an efficient FOH staff here.)

Make Seasonal Budgets

Another useful quality of Cash Flow Forecast is that you can create seasonal budgets and start saving money for the more cost-expensive seasons. Annual budgets can only take you so far in terms of great cash management practices, so use the forecast as a guide to allocate funds for seasonal staff, stocks, and marketing needs.

Avoid Relying on Credit

While new restaurants should use their business account to purchase raw ingredients, it would be a mistake to rely too much on credit. You don’t want a future of paying back debts instead of enjoying the profits. If using your credit to purchase, refer to sales projections to guarantee that balances can be paid back. Once you’re cash-rich, talk with suppliers about getting a discount for immediate payments. Vendors also have their own cash management issues and would appreciate the up-front payment.

Save for a Rainy Day

Prepare for unexpected expenses, like a broken stove. Start setting aside a cash reserve now for those surprise incidents. You also want to prepare for any differences in customer behavior, like national holidays or bad weather. Track market conditions to prepare for dry spells.

Business saving is possible either by increasing the income or by cutting down the expenses. If you are a business starter, a sudden increase in income is least likely to happen.

What can be done to build business savings relates to your ability to spend business funds wisely. Most new business owners are not aware of the important things that lead to business savings. The following discussion is an opportunity that should help you learn things you don’t know regarding business savings:

Inventory Management

Strong and consistent inventory management can solve many of your cash flow problems. This area is often overlooked by new restaurant owners and managers because it’s pedantic and dull, so it’s no wonder that sporadic inventory-taking is one of the 15 most common reasons restaurants fail.

Every successful restaurant manager will tell you that routine inventory control has been a reason for their success. It shows what inventory isn’t moving, what has been over-ordered, which foods are spoiling the fastest, and reveals if any theft is going on.

If you don’t already, start taking inventory on a weekly basis.

Rely on Multiple Vendors

Prepare for any incidents—like a missed delivery—by having a diverse list of vendors to rely on. You can also ensure that you’re getting the best price for your ingredients by comparing multiple vendors at once.

Inviting competition for your business is in your organization’s best interest. Vendors will go to great lengths to convince you that they alone possess your sole source solution or that you’ll always get the “best buddies” platinum service plan because of a personal relationship. 

In choosing vendors that meet the specified criteria, you will have identified overlapping providers such that if one vendor begins to slip, experience financial difficulties or (knock on wood!) goes out of business, a second vendor can pick up the slack while you qualify a new one

Ask for Deposits

Always ask for deposits when catering or hosting a large event. Set this money aside until the date of the event, as you will be required to return at least a portion of it is canceled.

Additionally, stipulate how much will not be returned if you need to prepare for the event days in advance. It’s important that your food and labor costs are covered despite cancellations. Ask anywhere between 10% and 50%, depending on how much you plan on investing beforehand.

Always use updated processing equipment to enhance efficiency and transaction security. You could be losing hundreds of customers for fear of credit card fraud if you do not start adopting better payment processing equipment.

If your processing machines are already a year old, then it definitely needs to be updated, know that new security technologies are continuously evolving, and you need to make an effort to keep up with the times; otherwise, you may lose the confidence of your customers.

Consider Overhead Cutbacks

Utilities, payroll, and inventory should be optimized for a well-run restaurant. Although less frequent than in other areas of restaurant finances, it’s good to examine if overhead expenses are too high. Watch out for redundant staffing roles on the schedule and expensive kitchen equipment, among other things. Implement one of these 20 cost-saving tricks for restaurants to lower your overhead costs.

Follow the Bookkeeping Often

Like inventory, not staying ahead of the bookkeeping is one of the reasons restaurants fail. There are many, many tasks and details you are responsible for, yet every manager or owner must find time to review the bookkeeping.

You want to double-check that invoices and bills were paid, the correct amounts were recorded, and that all numbers make sense. If you don’t make time for bookkeeping, you will lose financial control over the business. Plus, tax season will become a huge headache. With up-to-date and accurate books, you can generate valuable spending reports and be in charge.

Cash flow crises only get worse if ignored. Instead, make the necessary changes, start routine bookkeeping and inventory procedures, and forecast your sales figures to be in control of your restaurant’s cash management.

Your restaurant point of sale is a useful cash-management tool. Learn how to harness the power of your restaurant POS data to perform better.