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
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
- A Cash Flow Forecast is made up of two parts:
- Sales projections
- 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.
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