The restaurant industry is notoriously competitive, and has significant operational requirements when it comes to optimizing food inventory and predicting guest demand.
That's why every restaurant that wants to be successful should closely monitor their cash flow and control their restaurant budget.
To add to the challenge of mastering a restaurant budget, a restaurant’s cash flow tends to ebb and flow due to unpredictable factors and uncontrollable events such as weather and traffic.
Despite those risks, the restaurant industry can also offer great rewards: Nearly 40% of restaurant operators surveyed in early 2017 expect their sales to increase in the next six months, and 92% are optimistic for their sales this year.
Here are some strategies you can implement into your restaurant operations to better control your restaurant’s cash flow and prepare for potential cash shortages, based on best practices in the industry.
4 Ways to Master Your Restaurant Budget and Cash Flow
Based on the above slideshare, here are a few ways small business owners who run restaurants can track their budget and manage their cash flow.
1. Develop Conservative Projections
Face it - you cannot control every financial event that will impact your restaurant, but you can proactively plan for challenging business cycles.
Establish a working budget that includes the following assets:
- Your cash on hand (in the bank and actual cash).
- Money you expect to receive from customer payments, special events, and other income streams.
- Upcoming expenses for fixed costs (such as electric bills, rent, and taxes).
- Variable costs (such as payroll, supplies, and marketing).
Monitor your cash on hand on at least a weekly basis. Measure it relative to the expenses you know are coming, like rent and regular food orders. If you face cash flow shortages, you can proactively plan to decrease expenses or lean on financial tools that support cash flow, such as a merchant cash advance or low interest line of credit.
2. Leverage Cash on Hand
If your suppliers don’t require that you pay in cash, offer terms such as net 10 or net 30, or don’t offer a discount for early payment, hold onto your cash for a few more days or weeks.
Instead, pay suppliers on the day they require, or ask if they’ll offer a discount for early payment. Consider investing any cash reserves into a risk-free, interest-bearing account that allows you to keep cash liquid and accessible.
You likely won’t earn a significant amount of interest with such a conservative strategy, but you will earn a little extra cash on the side, and have a safety net in a worst-case cash shortage scenario.
3. Optimize Your Inventory
Your suppliers may offer volume pricing for some items, but if they’ll sit in your kitchen or spoil before your restaurant is able to use them, you’re sacrificing cash flow.
In other words, you're throwing money away.
Try these strategies to optimize inventory:
- Take stock of your inventory daily so you aren’t forced to make “emergency” purchases that cost more than you planned when key ingredients are out of stock.
- Implement processes to ensure kitchen staff follow standards for the amount of ingredients that are used to create dishes.
- Get creative with happy hour promotions, prix fixe menus, specialty dishes, and craft cocktails that use ingredients in danger of going to waste. Social media and text messages have made it possible to design “flash sales” that reach customers immediately, and empower restaurants to promote the products they’ll most benefit from selling.
If you're still a self-proclaimed newbie at inventory, check out our webinar on restaurant inventory best practices.
4. Design Deposit Policies Strategically
If you offer catering services for special events, design your deposits strategically! This may include a non-refundable deposit policy for cancellations.
If you have spare dining rooms, a basement, or outdoor space that goes unused most of the time, expand your business model to host special events such as cocktail hours, networking events, or fundraisers. They may require some effort on your part, but can generate a steady stream of cash flow you can rely on in times of reduced demand for your core restaurant business.
The Effect of Cash Flow on Your Restaurant Budget
Cash flow management can be one of the biggest challenges restaurant owners face, but you can be less subject to cash flow shortages with proactive planning and a little creative strategy. Try these best practices to gain more control of your restaurant business’s financial ebbs and flows, and build a more stable business model.