The restaurant business is unique in many ways, and one of the most impactful is its reliance on cash flow. Restaurant owners and managers need to have a thorough understanding of how much money is moving in and out of their business both in the short-term and longer term in order to anticipate problems and head them off before they occur.
At its most basic, cash flow is as simple as knowing what money you have coming in and how much money you have to pay out, as well as when each can be anticipated. For restauranteurs that means assessing your fixed payments like equipment loans, service contracts, rent and electricity, as well as the variable expenses needed to serve your customers such as what you’ll be spending with food vendors and what you’ll be paying your employees. If you chart both on a calendar and then look at what you are anticipating your sales will be for the same period of time, you can get a much clearer picture of whether your cash flow picture is healthy or if you’re facing potential trouble.
If you have been in the food business for a while, you know that good customers are often extended a certain amount of credit or grace period for remitting payments, but relying on this can get you into trouble. It certainly makes sense in instances when you have a big party coming in that you need to purchase significant supplies for ahead of time, but it is too easy to get into a habit of relying on these extensions instead of managing your cash more judiciously.
The restaurant business has its ebbs and flows that are punctuated by constant emergency repairs and other unexpected outlays of cash. Having cash on hand to address these situations can make the difference between smooth, confident operations and living with a constant sense of dread. It doesn’t take long to set aside a rainy-day fund, but it does take discipline.
Having items sit on your inventory shelves for weeks and weeks makes no sense. It means that you’re overbuying. Whether it’s liquor or food, take the time to check what isn’t moving and figure out what to do with it so that you’re using your money in a smarter way.
If your restaurant books parties ahead of time, you would be wise to request a deposit to reserve the time and make other preparations. Whatever the amount that you request (most ask for between 10 and 50 percent), make sure that you’re actually holding it for the event instead of spending it right away. Not only does this ensure that you can reimburse whatever you’ve promised in case the event gets canceled, but it also means that when it comes time to actually start spending on the supplies needed for the event you’ll have the cash on hand instead of having to scramble after having spent it months earlier.
You got into the restaurant business because you loved the food and the people, but that doesn’t meant that you can ignore the financial aspects of running your operation. Understanding budgeting and cash flow is as important as planning a menu and providing great service.
Be sure to work with your business accountant to understand how you can manage your cash flow in both the long- and short-term.
About Martinez & Shanken, PLLC
Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services. Partners Deborah Martinez and Earl Shanken work to ensure your business accounting is done with integrity and to your satisfaction.
