No matter the size of your restaurant, one truth remains: cash flow is king. Restaurant cash flow management is 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 rising interest rates, many small businesses with limited financial knowledge are struggling to stay alive, let alone grow. 

To make sure your restaurant can succeed, here are ten cash flow management tips for improving restaurant cash flow and giving your business what it needs to survive and thrive. 

10 Restaurant Cash Flow Management Best Practices 

We’re sharing ten tips for restaurants that will improve your cash flow and keep more money in your business. Put new habits into practice with these ten best practices of cash flow.  We understand the importance of maintaining a strong cash flow for restaurants, as it directly impacts the success and sustainability of your business. Therefore, we have compiled ten highly effective tips that will undoubtedly increase cash flow and help you retain more money within your establishment. By implementing these recommended strategies, you can establish new habits that will ensure a steady and healthy cash flow for your restaurant. Let us delve into these ten management best practices for restaurants that will revolutionize the financial stability and amount of cash in your business.  Use these 10 best tips to help create an effective cash flow management plan.

1. Monitor Your Cash Movement 

Some of the key expenses to consider when running a restaurant:

  1. Rent, loans, or mortgage payments: This includes the regular payments made towards the lease or mortgage of the restaurant space.
  2. Food and drink ingredients: This comprises the costs of purchasing raw materials, ingredients, and beverages required for the restaurant’s menu offerings.
  3. Labor costs: This includes the wages and salaries paid to the restaurant staff, including cooks, servers, bartenders, dishwashers, and any other employees.
  4. Supplies: This category encompasses various supplies required to run the restaurant smoothly, such as cleaning products, disposable items (napkins, disposable cutlery), kitchen utensils, and packaging materials.
  5. Utilities: This includes costs associated with electricity, gas, water, trash collection, telephone, internet, and any other utility bills.
  6. Marketing and advertisement expenses: This includes the costs of any advertising campaigns, promotions, website maintenance, social media management, or marketing materials.
  7. Maintenance and repairs: This category covers any expenses related to the repair and maintenance of equipment, appliances, or the physical infrastructure of the restaurant.
  8. Insurance premiums: This includes payments made for various insurance policies, such as property insurance, liability insurance, workers’ compensation insurance, etc.
  9. Licensing and permits: This includes fees paid to obtain and renew necessary licenses, permits, and certifications required to operate a restaurant legally.
  10. Debt servicing: If the restaurant has any outstanding loans or debts, the monthly installments or interest payments should be included.
    Miscellaneous expenses: This can encompass any other expenses that do not fall into the above categories, such as professional fees (accounting, legal), software subscriptions, office supplies, etc.

By meticulously tracking and analyzing these expenses, restaurant managers can gain a comprehensive understanding of their cash flow statement identify areas of potential cost savings, and make informed decisions to ensure financial stability and profitability. 

An essential tool for monitoring cash coming in and out of your business is a point-of-sale (POS) system. A modern restaurant POS allows you to easily pull reports on food costs, sales, vendor orders, and even labor costs. 

Learn More: Which Accounting Reports Should Your Restaurant Keep?

restaurant cash flow

2. Rely on a Cash Flow Forecast

A cash flow forecast will give you a better understanding of what cash is coming in. A cash flow forecast is made up of two parts: sales projections and upcoming bills. Using your restaurant POS, you can predict your sales and revenue for the year to have more control over your restaurant’s cash flow management. Some months are slower than others, and you’ll have more money in the bank at other times.  

Using a restaurant 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.

Learn More: Learn How to Make Accurate Restaurant Sales Forecasts

3. Make Seasonal Budgets

Another useful quality of cash flow forecasting for restaurants 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.

4. Set up a Reliable Credit Line

Because restaurants can be seasonal or cyclical, it helps to have an option for what to do during a slow period. To make sure a low-cash balance doesn’t prevent you from paying your bills, set up a reliable credit line with a trusted financial partner. Having access to cash when you need it can keep you in business if a slow period rolls in. 

Look into an option like Lavu Capital to find easy and affordable on-demand financing for your restaurant. Lavu, in partnership with Parafin, now offers restaurants cash advances for working capital through their Lavu POS dashboard. You can select pre-approved cash advance offers with flexible payment terms in your Lavu dashboard and receive funds directly to your bank account in 1-2 business days. There is no interest, no minimum payment, and no late fees. Learn more about Lavu Capital. 

5. 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 restaurant owners are not aware of the important things that lead to business savings. Saving to increase cash will ultimately help improve your restaurant’s cash flow. 

6. Practice Inventory Management

Consistent restaurant inventory management can solve many 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 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. 

For help getting started with inventory management at your restaurant, download this free Food & Beverage Inventory Template that shows you how to streamline your inventory processes and set up a system to save extra cash.  

7. Rely on Multiple Vendors

To manage your cash one way to improve is to prepare for any incidents—like a missed delivery—by having a diverse supplier list to rely on. You can also ensure 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

8. 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 if it is canceled.

Additionally, it’s best practice to 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 payment 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.

9. Cut Overhead Where You Can

To manage cash flow, regularly review your expenses to see if there are any ways to reduce overhead costs. Two places where you can usually cut restaurant overhead are credit card processing expenses and staffing costs. 

Consider launching a cash discounting program to cut credit card processing fees. Cash discounting provides a discount to customers when they pay in cash. It’s a win-win for your business and your customers. Customers pay less and your business avoids the expense overhead of credit card processing fees. See if Lavu’s Cash Discount Program might be right for your restaurant.  

Second, consider if you can cut back on staffing costs by using self-ordering kiosks. Self-ordering kiosks allow customers to place orders on their own while you cut staffing costs or move employees over to tasks that make more money for your business. To learn more about the benefits of self-ordering kiosks, check out the free ebook How the Self-Ordering Restaurant Kiosk Is Changing the Way We Eat Out. 

10. Keep Your Bookkeeping Up-to-Date

Like inventory, not staying ahead of bookkeeping is one of the reasons restaurants fail. You need to keep up with it and double-check that invoices and bills are paid, the correct amounts are recorded, and that you are tracking all important restaurant accounting financials.

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.

improve restaurant cash flow

What are three causes of poor cash flow? 

  1. Inadequate sales or revenue: One of the primary causes of poor cash flow is a lack of sales or revenue generating activities. If a business is not generating enough income, it will struggle to cover ongoing expenses and meet its financial obligations.
  2. High expenses: Another common cause of poor cash flow is excessive expenses. If a business is spending more than it is earning, it will quickly deplete its cash reserves and face cash flow problems. This can be a result of overspending on non-essential items, inefficient operations, or poor financial management.
  3. Slow-paying customers: Delayed or late payments from customers can significantly impact a company’s cash flow. If a business is not receiving payments on time, it may face challenges in paying its own bills, suppliers, and employees. This can be due to customers having their own cash flow issues, inefficiencies in the billing and collection process, or ineffective credit management policies. 

Why is it difficult to improve cash flow?

Improving cash flow can often be a challenging task due to several high-level reasons. Firstly, one of the main obstacles is the inherently unpredictable nature of business operations. Fluctuating sales, seasonal trends, and economic uncertainties can significantly impact the inflow of cash, making it difficult to project and manage effectively. Additionally, businesses often face delays in receiving payments from customers, which can further hinder cash flow. Moreover, expenses and overhead costs can be recurring and inflexible, requiring businesses to find ways to optimize their spending while still meeting operational needs. Furthermore, external factors such as changing market conditions, competition, and regulatory requirements can also impact cash flow, making it hard to consistently improve the inflow of cash. Overall, these challenges highlight the complexities and uncertainties that businesses face when attempting to enhance positive cash flow. 

Improve Your Restaurant Cash Management 

Restaurant cash flow can make or break your business. Make sure you have a strong flow of cash that gives your restaurant what it needs to survive and thrive. 

The first place to improve a steady stream of cash is with your point-of-sale system. A POS system can make it easy for you to monitor sales, expenses, vendor costs, employee wages, and other important financial reports. See how a better POS system can lead to better cash management for your business.