Understanding Restaurant Cash Flow

Everything You Need to Know About Cash Flow

Restaurant owners working in kitchen
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One of the most important parts of owning a restaurant, or any small business for that matter, is understanding your cash flow. Simply put, cash flow is the amount of cash coming in versus the amount of cash going out of your business on a daily, weekly and monthly basis. If you don’t understand this basic concept of restaurant finances, you put yourself at great financial risk.

Cash In Versus Cash Out

To understand your cash flow, you must first take into account what you currently owe, say for the week. Then figure in what bills are coming up, like rent or bank loans. Then compare that figure with our forecasted sales. To help you estimate upcoming sales, you should be diligent about keeping up-to-date daily business reviews.

Don’t Rely on Credit From Suppliers

Most large food suppliers offer established restaurants a certain amount of credit, which can range from a dollar amount to a time amount. For example, you may get a delivery of food on Monday and not have to pay for it until the following week. It is very handy 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 not paying for deliveries as they arrive. And check with your suppliers for any type of discount for immediate payment.

Some companies offer 5% discounts (or something similar) for accounts paid on delivery or within a week of delivery. Anything that will help save your restaurant money is a good deal.

Keep an Emergency Cash Stash

Just like owning a house, a restaurant comes with many unexpected expenses. Broken kitchen equipment, for example, can cost you hundreds or even thousands of dollars to fix or replace. Keep a stash of cash for these problems.

Keep Inventory Low to Keep Cash Flow High

The silver lining of a slow weekend is that you don’t need to spend a lot of money on inventory. If you are consistently over-buying food and liquor each week (good for your sales rep, not so good for your restaurant) reducing your orders can help keep your cash flow high. If you’ve got a lot of 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 Customer Deposits

If your restaurant does any sort of on or off-premise catering, you should take a deposit to hold the date. Depending on your restaurant catering policy, you may require anywhere between 10% to 50% for a deposit. If the function is a few months, or even a year away, keep in mind that you need to figure that money into buying food and liquor for the event. And if the customer cancels well in advance of the function, you may have to return at least a portion of the deposit.

The restaurant business requires a keen eye for detail, from customer service to the food leaving the kitchen. It also requires a keen eye for your budget. While you should not 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, at all times.