Understanding Restaurant Cash Flow

Understanding your cash flow is crucial to running a restaurant, or any small business. Simply put, that's the amount of cash coming in versus the amount of cash going out on a daily, weekly, and monthly basis. If you don’t understand this basic concept, you put yourself at financial risk.

Cash In, Cash Out

To get a handle on your cash flow, take into account what you currently owe, say for the week. Figure in all the bills that are coming up, like rent or bank loan payments, and the amounts you expect to pay out for food, other supplies, and salaries.

Now compare that figure with your forecasted sales for the week. To help you estimate upcoming sales, you should be diligent about keeping up-to-date daily business reviews.

Don’t Rely on Credit

Many food suppliers offer established customers a certain amount of credit. It might be a dollar amount or a time amount. For example, you might get a delivery of food on Monday and not have to pay for it until the following Monday.

This can be helpful when you have a large catering function coming up and need to buy food before you get paid for it. However, try not to make a habit of taking the credit. And see if your suppliers will give you a discount for immediate payment. Some suppliers do that routinely. They have their own cash flow issues to worry about.

Keep a Cash Stash

Just like a house, a restaurant comes with many unexpected expenses. Broken equipment can cost hundreds or thousands of dollars to fix or replace. Keep a stash of cash aside so that you can take care of these problems.

Keep Inventory Low

Keep an eye on your inventory to make sure you're not consistently over-buying food and liquor each week. If you’ve got extra inventory in your walk-in or dry-storage that just isn’t moving, it may be time to update your restaurant menu.

Be Careful With Deposits

If your restaurant does any sort of catering, you should take a deposit to hold the date. Depending on your catering policy, you may require anywhere between 10% and 50% for a deposit.

Set aside this money, even if the function is months away. If the customer cancels well in advance, you have to return at least a portion of the deposit. And if the event goes on as planned, you don't want to find you've spent that deposit.

The restaurant business requires a keen eye for detail. That goes for your budget too. While you shouldn't trip over the pennies to get to the dollars, you should always know how much money you are bringing in and how much is going out.