Having adequate cash flow is the bottom line for every restaurant business. Without enough cash on hand to pay suppliers, employees, rent and bills, a restaurant can’t keep its doors open, let alone attain profitability. Fortunately, there are a few strategies that you can employ to help smooth out the ups and downs of the sometimes uncertain income that can go hand in hand with being in the restaurant profession.
Restaurant Cash Flow Tip #1: Don’t Spend What You Don’t Have
Deep down, everyone knows that it’s risky business (and probably not a good idea) to spend more money than you have, yet many restaurant owners end up doing exactly that in a desperate effort to make ends meet and keep things running smoothly. No matter how tempting it might be to do so, pay your bills only on revenue that you actually have in the bank, NOT on the sales you hope you might make. Paying out money that you don’t actually have is a great way to put your business on the fast-track to failure.
Restaurant Cash Flow Tip #2: Prioritize and Spread Out Your Bills
While it is smart to sit down at the beginning of every month and make a plan for meeting your bills, it’s not necessarily wise to pay all of them at once. Many restaurant owners do this, hoping that they have either set aside enough money or that sales will float their payments, only to run into serious cash flow problems a few weeks down the road. While it’s fine to write out all of your checks in one setting, stagger when you send them off according to due date and priority to ensure that your restaurant’s cash flow is stable. Consider changing to a bi-weekly payroll, with pay days alternating with business bill days. Furthermore, consider investing in a payroll service, and leave the headache of saving for, or making incremental payroll tax payments, to the pros.
Also, prioritize your bills. If a missed payment could hurt your business’s ability to operate, such as rent and taxes, make sure these are paid first. Bills such as utilities or insurance often have a reasonable grace period, or more manageable late fee, and may be better choices to put off, if such a choice has to be made.
Restaurant Cash Flow Tip #3: Maintain Open Lines of Communication with Vendors and Financial Partners
Maintaining open lines of communication between your vendors and financial partners is a critical factor in stabilizing cash flow. Many vendors offer flexible payment options and financing and are happy to work with you as long as the payments are regularly scheduled. Establishing solid relationships with your bank and credit providers is important as well. While your bank might not give you a loan, they most certainly can clear NSF fees from bounced checks, and will be more likely to do so if you communicate with them and let them know what is going on with your business. Most cash flow blues come in a sudden storm, so setting up relationships with a reputable credit provider is important as well. If you’re working with a good company that provides working capital, stay with them and focus on building a strong relationship. People are more likely to help you if they know you before you come asking.
Managing cash flow is never going to be a simple or easy process, but being smart about your financial planning, and building solid relationships with the financial investors who can help, will go a long way toward stabilizing the ups and downs in cash flow that are part of what it means to be in the restaurant industry.
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