How to Manage Your Restaurant’s Cash Flow

Cash flow determines so much about how you run your business: It determines your budget, your opportunity for improvement, the interest of potential investors, and ultimately determines your restaurant’s growth potential.

Cash flow has such a big impact on your day-to-day and overall operations that it’s imperative to understand how it works, how to calculate it and how to adjust it if you don’t like the current numbers. The simple formula is:

Total Cash Flow = Cash Inflow – Cash Outflow

Still confusing? Let’s break it down.

Inflow and Outflow

Your inflow is all of the money you receive during a specific accounting period. This includes your normal operational revenue—food and drink sales—as well as any merchandise or pantry items you sell, revenue from catering or hosting events, loans, and any other income you’ve received during this period.

Your outflow is the opposite: All the operational costs you’ve incurred. This includes loans you’ve paid off, business assets you’ve bought, rent, utilities, payroll, inventory, furniture and supplies for the restaurant, appliances, and anything else you’ve spent money on this period.

These aren’t the only numbers to keep in mind; get a handle on your operating cash flow too. It’s not the same as your total cash flow because it doesn’t take outside income into account, instead using only the inflow from normal operations, like food and beverage sales. By ignoring outside income, like loans, you’ll have a clearer idea of your restaurant’s self-sustainability which tells you how you’re really doing. This gives you an idea of how necessary it is to cut down on outflow or increase your inflow. It’s important to be as self-reliant as you can.

Be meticulous and keep track of sales and spending when they occur, so you have an easier time calculating cash flow later. Restaurant technology has advanced to the point where Point of Sale systems can track and analyze a lot of this data for you, all localized on one smart hub so you can take a lot of the manual math out of the equation. Schedule a demo with eatOS to learn what we can do for your restaurant.

Managing Your Cash Flow

As we mentioned, Point of Sale systems can by and large handle these analytics for you. By examining your cash flow from the previous year, plan a budget for the upcoming one. Look at past trends to see if there’s particular seasons or months where you tend to bring in a little extra cash or if your sales go down at any point; then you can use that information to create seasonal budgets for the coming year. Since cash flow tends to change from quarter to quarter, it’s better to plan that way rather than creating one flat budget for the entire year.

Streamlining your overhead costs also increases your overall income. Find out if you can lower your payments to vendors or utilities, edit the menu to remove poor-selling items from the list and make room for dishes that generate higher sales, or even edit your hours so you close on nights that are repeatedly slow or open early on days when people seem interested in coming by. One surefire way to trim overhead costs is by reducing food waste throughout your restaurant.

Try not to rely too much on credit for your purchases. Debts not only account for a massive part of cash outflow each period but they can potentially tack on interest, creating an even bigger expense overall. You should consider asking your vendors if they’ll sell to you at a discount provided you pay that cost upfront, rather than taking out the full price of the goods on credit. They have their own cash flow to consider and although some will say “no thanks,” others might take you up on the deal. Consider also diversifying your vendors; although it might be convenient to use the same vendor for one group of items—for example, having a reliable produce guy—your prices will skyrocket if something happens to their supplies. Working with multiple vendors will make it easier to circumvent this problem in the future, while also giving you other prices to compare and negotiate so you can guarantee that you’re getting the best deal.

However you don’t always have to reduce your spending in order to make more money. By increasing how much you put into advertisements, for example, you can potentially draw in more customers to serve which will offset the costs and have a positive impact on sales. It’s important to promote your business! Social media marketing is huge right now, but you can also bring in guests by offering discounts on off-peak hours, Groupons that pull in large crowds and more. Connect with your guests to strengthen your relationship with them and learn what your brand name needs to do to become a household fixture.

Connect with local businesses to create cross-promotional campaigns in each other’s stores. The more businesses and organizations you partner with, the more likely they are to hire you for additional services like catering at their parties and events—if you offer catering. That’s another good way to pull in revenue. Learn how to launch catering services with your restaurant here.

The most important part of managing your cash flow is making sure your bookkeeping is accurate, up to date and well-managed. Invoicing and accounting are both extremely necessary aspects of understanding and thus managing your business. This is why it’s so helpful to have a Point of Sale system that can collect most of this data for you and analyze all of it quickly and cleanly. Always have a “rainy day” fund for emergencies so you’re not scrambling to find cash or take out loans in a pinch—You can be prepared instead.

With all the information you’ve gathered and these tips in mind, start being proactive: Save, reduce your costs and spend smarter wherever you can. Got more questions about managing your cash flow? Let us know, because we’re here to help.

Editor's Picks