10 Cash Flow Management Best Practices for Restaurants

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 best practices 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 that will improve your restaurant’s cash flow management and keep more money in your business. Put new habits into practice with these ten best practices of cash flow management. 

1. Monitor Your Cash Movement 

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

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?

2. Rely on a Cash Flow Forecast

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. 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 through their Lavu POS dashboard. You can select pre-approved cash advance offers 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 in restaurant cash management for future growth investments.

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.  

7. 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 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

For good restaurant cash management, 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 Your Restaurant Cash Management 

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

The first place to improve cash flow management 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 flow for your business.

Get a demo to see Lavu POS’s financial reporting in action. Get a one-on-one demo to learn how you can pull reports to support better cash flow management in your restaurant. Schedule your free demo today.