How to Manage Your Restaurant's Cash Flow

For many restaurant owners, one of the most perplexing and frustrating aspects of running their restaurant is the shock of getting blindsided by an unexpected shortage of cash. All too often cash can be sufficient one week only to turn into a shortfall and potential overdraft situation the next.

Having cash flow challenges can be a real distraction from productive activities and ongoing business operations. When bank balances are too low, missing a payment due date to a key supplier can threaten deliveries and services. And never underestimate the damage to your reputation and credibility when your lenders and suppliers get in the habit of not seeing their bills paid on a timely and consistent manner.

While managing cash flow can be a constant and seemingly overwhelming challenge in unprofitable restaurants, even operations that are profitable are not immune from occasional cash deficits and can unexpectedly find themselves scampering to cover a potential bank overdraft situation as well.

This article examines how you can protect your business from getting into cash flow problems in the first place and how to get a handle on what your cash situation is likely to be weeks and even months down the road. You'll learn that one of the keys to successfully managing your cash is setting up a simple yet powerful system to project your likely cash receipts and payments to alert you to potential shortages well in advance. Having such as system can alert you if a cash crunch is coming, you know about it and have time to make adjustments and avoid a crisis.

So, how do you go about keeping up with your cash flow so you can smooth out those cash flow peaks and valleys? First let's look at the dynamics of cash and how managing cash flow differs from managing income and expenses on your profit-and-loss statement.

Why Managing Your Cash Flow Is Important In Any Business

Early in my career I was the controller for a small but rapidly growing barbecue chain. Although the company was profitable, it experienced major cash flow challenges primarily because new restaurants were underfinanced and cash flow was used to make up the difference.