Cash Flow Management Best Practices & Tips for Restaurants

While the income statement does a good job at providing information about the restaurant’s financial happenings over a period of time, it’s not enough on its own to properly understand the restaurant’s performance. An income statement does not include the assets restaurant cash flow and liabilities owned by a restaurant, and thus, does not provide a complete picture. Another useful quality of cash flow forecasting for restaurants is that you can create seasonal budgets and start saving money for the more cost-expensive seasons.

Since sales happen every day, whereas expenses tend to trickle in over weeks and months, it’s tricky to truly know where you stand. If a restaurant owner calculates and tracks prime cost (direct material cost plus direct labor cost), over time, they’ll gain deeper insights into the factors that are most affecting their costs. That will help them come up with cost-saving steps to improve the restaurant’s profit margins. A four-week accounting period would look at four weeks at a time, each starting on a Monday and ending on a Sunday. With a monthly accounting period, on the other hand, July of last year and July of this year would have a different number of Fridays and Saturdays. This wouldn’t be a big deal in other industries, but it’s essential to note in the restaurant business.

How to Calculate the Break-Even for a Restaurant

Some items will provide you with a lower food cost-to-profit ratio than others. Once you identify these items, consider promoting them or offering them as suggestive sales. A chart of accounts is a list of all the financial accounts a company uses in its internal accounting. It includes a brief description of each account, notes about each account’s type, and account balance summaries. The accrual method, on the other hand, records transactions as they happen, regardless of when payment occurs.

Incoming cash includes revenue earned from sales of food and beverages, merchandise, rental income, as well as less common sources such as income from loans, financial assets, and investments from owners and partners. It’s tedious work, but taking regular inventory can solve cash flow problems before they start. Identify over-ordered stock, which foods are most often wasted, or whether you have an in-house theft problem.

Cash Beginning Balance

The Net Profit/Loss shown on the Cash Flow Statement isn’t what is reflected in your bank account. In the snippet example below, expenses exceeded revenue for the period, however, YTD, there is still a profit. Not all sales provide cash to the bank on the same day of the sale – for example, A/R and Third-Party Delivery Services.

Investors will want to look at these statements when judging whether or not to put money into a business. Owners can use cash flow figures to determine how to invest any available cash back into the business. Therefore, a statement compared with past statements and other financial reports can be arranged into a cash flow projection format. These are all important factors that should be analyzed on a regular basis to have a good understanding of your restaurant’s performance. Consider launching a cash discounting program to cut credit card processing fees. Customers pay less and your business avoids the expense overhead of credit card processing fees.

Restaurant Cash Inflow & Outflow Example

To make sure a low-cash balance doesn’t prevent you from paying your bills, set up a reliable credit line with a trusted financial partner. Having access to cash when you need it can keep you in business if a slow period rolls in. To make quick work of your cash flow statement, you want restaurant accounting software that integrates with your POS and pulls out the data for easy categorization and review. The restaurant cash flow statement records incoming and outgoing cash over a defined period of time, typically a quarter or fiscal year. Once you have a handle on your restaurant’s cash flow forecasts, you can look at staggering payments so a number of them aren’t taken out at once. Your restaurant may be selling out every night, but if you’re spending more cash than you’re bringing in, you have a problem.

• You’ll also want to know operating cash flow, which is the amount of cash that your restaurant’s daily operations generate.
• You need to keep up with it and double-check that invoices and bills are paid, the correct amounts are recorded, and that you are tracking all important restaurant accounting financials.
• Now calculate the percentage of your prime costs against your total sales.
• For the non-cash transactions, your accountant will consult your balance sheet, recording changes in assets and liabilities.
• Knowing your break-even points is especially important if you are planning on turning your cooking passion into a home-based restaurant.
• When building a cash flow statement, the third section required refers to financing the business and stock activity.

While the P&L and Balance Sheet are critical to understanding your financial health, they in themselves do not show the true impacts of cash. It represents a combination of activities resulting from the daily operations illustrated on the Income & Expense Statement (P&L) and the business’s overall activities and “health” as represented on the Balance Sheet. Being aware of these figures will help you prevent a cash flow crisis before it starts.

Finally, a restaurant must also consider the expected inflow and outflow of cash from accounts receivable (AR) and accounts payable (AP). For instance, a restaurant may have trusted customers who are allowed to owe money and would therefore have a significant figure of monies owed that ought to be considered in the OCF as AR. On the other hand, tradespersons, suppliers, and any other service providers with bills still to be paid make the AP figure. However, given the cost and value of specialist equipment restaurant’s have, it can also be useful to calculate and anticipate depreciation of your kitchen and bar.