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Understanding the cash flow of a restaurant

Vincent Gisriel - Friday, March 15, 2013

The restaurant business is unlike almost every other business you can imagine. From the outside world, people often scratch their heads when they see the restaurant down the street closing their doors for good. They say, "We loved that place, the food was great and it was always busy. We don't understand what happened."

Most restaurant that fail run out of the CASH it takes to keep the business going. If the business owner does not understand the concept of restaurant cash flow from day one, the restaurant itself is doomed from the start. Put simply, cash flow is the amount of cash a restaurant has coming in versus the amount of cash going out.

Successful restaurants have discovered that cash flow should be monitored on a daily, weekly and monthly basis. To understand restaurant cash flow, you first must take into account what your restaurant owes for the week. By determining exactly what bills are due like rent, payroll and vendor invoices you can compare that with an estimate of upcoming sales. The key word here is ESTIMATE. That is why the strongest restaurants can always tell you how much money they pulled in last year on this day, explain special events and tell you what the weather was like. They keep a daily log so that they can estimate their cash flow.

Here are some of the major expenses that eat up a restaurant's cash flow:

  1. Payroll
  2. Rent, Mortgages or Personal Loans
  3. Vendor Bills
  4. Food Inventory
  5. The Unknown

Payroll is where most of the problems start when a restaurant is headed down the wrong path. You must pay your employees on time, every time for them to be happy and productive. They should be your first priority when it comes to paying bills.

We all know that when the rent or mortgage is due, it's due and must be paid on time. The same is true for vendor bills such as monthly phone service, Internet, electricity and water. Good cash flow days or not, they must be paid on time or these services will most likely be shut off.

Food Inventory is one of the hardest parts of the entire restaurant industry. The key to managing this is to keep your food inventory low while keeping your cash flow high. You really never know how much of one item you are going to sell in a week or how much will be left in the walk-in to spoil. So again, by keeping an extremely detailed account of how many NY Strip steaks your restaurant sold last year on this day, can really help when it comes to forecasting. The weather people on TV can't get the forecast right, so there are going to be unexpected slow days and nights due to crazy mother nature.

 Unknown expenses alway catch the unexperienced restaurant owners off guard. The restroom has a busted pipe, the freezer is down, the grill is not working on one side and we need to reprint the menus are all unexpected cash flow nightmares. Even though your initial business plan may have included a budget for repairs, maintenance and incidentals it never seems to end with these types of bills.

We have worked with restaurants all over the country and the most successful ones always say the same thing. "You must keep an emergency piggy bank fund for the restaurant" We know that this statement sounds easier to say than to produce. Thriving restaurants realize that by saving cash early on it prevents the need to scramble when things get tight.

Here at Restaurant Website Platform, we understand the cash flow patterns and challenges of your business. That is why we have structured the pricing of our custom restaurant websites to benefit you, the restaurant owner. With every website we build you also get monthly support from us to keep your website current and save you time and money. Our upgraded plans offer in-depth Internet marketing support and online reputation monitoring on review sites for restaurants at extremely affordable monthly rates.

 You won't have to come up with thousands of dollars to have an amazing website that can compete with any restaurant on your block. We want you to keep that cash fund handy so you can succeed. Our websites are $500 for design and development and start as low as $199/month. Contact us at 301.537.8500 or vincent@rwp123.com to talk about how we can help your restaurant.