Seven Ways To Avoid Cash Flow Catastrophes
Cash flow management is vital for any business, but in the restaurant industry, where the margin between success and failure is razor-thin, it becomes even more critical. Without a healthy cash flow, your business can quickly run into trouble. At MSF Associates, we’ve spent nearly 20 years helping food and hospitality businesses manage their finances, and we've seen firsthand the biggest causes of cash flow problems. Here are seven best practices to help you avoid these common pitfalls and maintain a healthy cash flow.
1. Understand Your Cash Flow Cycle
For any restaurant, café, or takeaway, it’s crucial to understand how cash flows into and out of your business. This includes knowing when your busiest times are, how often your suppliers need payment, and when to expect revenue from customers. Analysing your cash flow cycle, including seasonal trends and payment patterns, can help you anticipate cash shortfalls. A professional bookkeeper can assist you in mapping out this cycle, providing valuable insights to keep you ahead of any financial issues.
2. Maintain Accurate and Timely Financial Records
Accurate and timely financial records are the foundation of good cash flow management. Keeping track of daily sales, expenses, and supplier payments allows you to forecast your cash flow needs and make better decisions. Regular reconciliation of your accounts will provide you with a clear picture of your financial health, enabling you to make well-informed decisions about inventory, staffing, and other operational needs.
3. Implement Strict Credit Control Procedures
If you offer credit to corporate clients or caterers, it’s important to implement strict credit control procedures. Late payments can seriously impact your cash flow. Make sure to conduct credit checks on new clients, define clear payment terms, and send invoices promptly. Follow up on overdue accounts and consider implementing penalties for late payments to encourage compliance.
4. Optimise Your Payables Management
Just as it’s important to get paid on time, managing when and how you pay your suppliers can also have a big impact on cash flow. Negotiate longer payment terms where possible, and take advantage of early payment discounts if they offer significant savings. However, ensure you don’t deplete your cash reserves too quickly by paying too early. Balancing this can help you stabilise your cash flow.
5. Prepare for Emergencies with a Cash Reserve
Unexpected expenses can arise without warning in the food and hospitality industry, whether it’s equipment repairs or unexpected staff shortages. Having a cash reserve can help your business navigate these crises without putting your operations at risk. We recommend setting aside a portion of your cash flow into an emergency fund. The amount will depend on the financial health of your business, but having this buffer can be the difference between riding out a storm and facing a cash flow catastrophe.
6. Utilise Cash Flow Forecasting Technology
Many tools and apps are available to help businesses like yours predict future cash flows. These can be especially useful in the hospitality industry, where business can fluctuate with seasons, holidays, and local events. By using cash flow forecasting software, you can predict future sales and expenses more accurately, helping you plan for any potential shortfalls or periods of surplus.
7. Regularly Review and Adjust Your Strategies
The hospitality industry is always changing, so the cash flow strategies that worked well last year might not be as effective this year. Regularly reviewing and adjusting your cash flow management strategy is essential. Whether it’s tightening credit control during quieter months or adjusting staffing levels to match seasonal demand, working with a professional accountant or bookkeeper to refine your approach will help keep your business on solid financial footing.
Conclusion
Managing cash flow effectively is critical for restaurants, cafés, and takeaways, and it’s much more than just checking your bank balance. With nearly two decades of experience, we are here to help you protect your business from cash flow problems. Contact us today on 0113 240 4100 to learn how we can support your business and keep your cash flow healthy.
