Cash flow is the lifeblood of every restaurant business. To keep your operations afloat, you must manage your cash flow properly throughout the year. Hiring a bookkeeper or an outsourced bookkeeping service will make this task more manageable. After covering cash flow considerations for restaurants, we provide tips on hiring bookkeeping help for your business.
Restaurants often have cash flow issues, which often stem from seasonal business fluctuations, problems with low profits (or losses), overstaffing, unexpected expenses, poor financial management, and keeping too much inventory in stock at any given time.
To solve these cash flow problems, a restaurant owner must consider two key components: they must look into increasing the amount of cash flowing into the business, and they must look at decreasing costs and the amount of money flowing out of the business. Ideally, you want to target both these issues at the same time.
While this may sound like a complicated endeavour, there are a few simple tips that you can follow to keep your cash flow out of the red and improve your business's overall financial health. Our bookkeeping guide for restaurants guides you through all the fundamentals of sound bookkeeping to keep your restaurant business financially healthy.
1. Create a cash flow forecast
A cash flow forecast considers a business's financial information to produce a detailed estimate of its financial situation in the future. It looks primarily at payments coming in and expenses going out of the business, such as a restaurant. You need to keep track of daily sales and expenses to understand your restaurant's cash flow patterns. Using restaurant management software or POS systems to track transactions accurately is a good idea.
A cash flow forecast is an excellent tool for projecting future revenue and expenses. It helps you understand how much cash your business needs to meet its obligations and can help you anticipate future cash flow problems before they happen.
Your cash flow forecast will include all of your revenue and expenses. Expenses will be broken down into fixed costs, such as your rent, loan payments, and insurance, and variable costs, such as payroll and food expenses.
During the COVID-19 pandemic, several restriction changes directly impacted many restaurants' cash flow. Having a forecast in place is critical to adapting to unforeseen circumstances. Plus, it will enable you to see a detailed list of all your expenses to decide where you can cut down to cope with any changes in revenue.
Forecasting will give you the flexibility to adapt to changes and issues as they arise. It allows you to determine which variable costs you can adjust based on revenue changes and which fixed costs you cannot. Creating a cash flow forecast can also help you create a seasonal budget.
How to Create a Cash Flow Forecast for a Restaurant
- Collect Historical Financial Data: Gather past income statements and cash flow statements to understand revenue patterns and expense trends.
- Project Sales Revenue: Estimate future sales based on historical data, considering factors like seasonality, market trends, and upcoming promotions or events.
- Identify Fixed and Variable Costs:
- Fixed Costs: List expenses that remain constant each period (e.g., rent, salaries, insurance).
- Variable Costs: Estimate costs that fluctuate with sales volume (e.g., food supplies, utilities).
- Schedule Cash Inflows: Determine when you expect to receive cash from sales, factoring in any delays from credit card processing or accounts receivable.
- Schedule Cash Outflows: Map out payment dates for expenses, including supplier payments, payroll, taxes, and loan repayments.
- Account for One-Time Expenses: Include planned capital expenditures or unexpected costs that may affect cash flow.
- Prepare the Cash Flow Statement:
- Create a spreadsheet with projected cash inflows and outflows on a weekly or monthly basis.
- Calculate the net cash flow by subtracting outflows from inflows for each period.
- Update the opening and closing cash balances accordingly.
- Analyze and Adjust:
- Review the forecast for potential shortfalls.
- Adjust plans by reducing expenses, increasing sales efforts, or arranging financing if necessary.
- Regularly Update the Forecast: Revisit and revise the cash flow forecast periodically to reflect actual performance and new information.
2. Create a seasonal budget
As a restaurant owner, it is no surprise that your business sales can fluctuate significantly depending on the season. Using your cash flow forecast as a guide, you can budget several months ahead of seasonal upswings or downturns. It also allows you to compare your budget to your actual numbers to determine where any discrepancies are arising from.
This gives you the advantage of increasing or decreasing your staffing and inventory levels accordingly. Based on seasonal projections, you can negotiate favourable payment terms with suppliers to improve cash flow. To manage cash flow effectively, you can request extended payment terms during the low season or discounts for early payments during the high season.
Here are the basic steps restaurants need to take to create a seasonal budget:
- Analyze Historical Data: Review past financial records to identify seasonal patterns in sales and expenses.
- Identify Seasonal Trends: Note fluctuations in customer traffic, menu item popularity, and supply costs during different seasons.
- Forecast Revenue: Estimate expected income for each season based on historical data and current market conditions.
- Project Expenses: Anticipate seasonal changes in costs such as ingredients, utilities, staffing, and marketing.
- Set Financial Goals: Define clear objectives for revenue, profit margins, and cost management for each season.
- Monitor Cash Flow: Ensure sufficient cash reserves to cover operating expenses during low-revenue periods.
- Review and Adjust Regularly: Compare actual performance against the budget and make adjustments as necessary.
3. Optimize your inventory levels
A significant amount of cash tied up in inventory can greatly affect your cash flow. Optimizing your inventory levels is an excellent way to improve the health of your cash flow. You can do this by downsizing your menu and keeping fewer items in stock, cross-utilizing ingredients in other menu items to reduce waste and save money, or removing menu items that aren't selling well.
To optimize inventory levels, restaurants could take the following steps:
- Use Just-In-Time Ordering: Order perishable items closer to when they are needed to reduce holding costs and spoilage.
- Conduct Regular Inventory Audits: Frequently count stock to maintain accurate inventory records.
- Implement Inventory Management Systems: Use software to track inventory in real-time and forecast needs.
- Analyze Sales Data: Review historical sales to predict demand and adjust orders accordingly.
- Set Par Levels: Establish minimum stock quantities for each item to trigger reordering before supplies run low.
- Practice First-In, First-Out (FIFO): Use older stock before newer arrivals to reduce spoilage and waste.
- Train Staff on Portion Control: Educate employees to serve consistent portions, minimizing overuse of ingredients.
- Monitor and Reduce Waste: Identify waste patterns and implement strategies to minimize them, such as adjusting portion sizes or refining recipes.
- Adjust Menu Offerings: Focus on high-demand dishes and consider removing slow-selling items to streamline inventory.
4. Control operating expenses
It is a good practice to regularly review operating expenses such as rent, utilities, and labour costs. Controlling these expenses, especially during slow periods, is vital for your restaurant's survival.
Look for opportunities to reduce overhead costs without compromising on quality or customer experience. This means finding the right balance in scheduling staff according to the flow of business while ensuring your staff can earn a consistent living. This means matching staffing levels with customer demand. Cross-training employees to perform additional roles can help reconcile the tension between reducing labour costs and maintaining staff earnings during slower periods. That way staff can have enough earning hours each week while the restaurant can reduce labour costs by hiring for fewer positions.
Controlling utilities may not result in massive savings, but finding ways to reduce electricity or gas consumption can lead to meaningful savings over the medium to long term. Installing energy-efficient appliances, LED lighting, and programmable thermostats to lower utility costs.
Another approach is to focus on menu design. This means having managers and senior staff in the kitchen analyze menu items to identify high-profit margin dishes and prioritize promoting these items. Reviewing ingredients in lower-margin dishes to minimize food costs would also be helpful, provided that quality does not suffer dramatically.
5. Stay current with your bookkeeping
Bookkeeping is a key to effective cash flow management. Without properly tracking your business's financial information, you won't be able to accurately determine what expenses you are incurring and whether you have sufficient cash to pay them. Bookkeeping is a business function you do not want to eliminate, even if you are experiencing cash flow problems.
It is crucial to have someone stay on top of your expenses and ensure that your bills are paid promptly so that you have real-time visibility on your revenue and expenses and can run reports to provide insight into your overall financial health.
To avoid costly penalties, you need to be well-informed about bill due dates and pay them well ahead of any deadlines. If you cannot pay the full amount on time, try negotiating with your vendors. To have full visibility, you must stay on top of all incoming invoices and track upcoming deadlines.
If you need to reduce the amount you spend on your accounting personnel, consider outsourcing!
Reasons to Outsource Your Restaurant’s Bookkeeping
1. It gives you access to experienced bookkeepers
When it comes to running a restaurant, your level of success will depend on a few critical attributes: your industry knowledge, your level of ambition, your ability to overcome obstacles, and your level of expertise. While you may be an expert in growing your restaurant business, chances are you're not as well-versed in bookkeeping.
Let's face it, even if you are good with numbers, your valuable skills are much better used elsewhere. Outsourcing your bookkeeping ensures that your restaurant's finances are left in the capable hands of an expert - someone who knows the ins and outs of managing all of your diverse fiscal matters and has a knowledge of accounting best practices.
When it comes to dealing with budgeting, accounts payable and receivable, payroll, or financial reports, a professional bookkeeper is there to help you and can provide vital insight on both the restaurant industry as a whole and your business matters as well.
2. It gives you access to someone with accounting tech experience
Accounting technology is changing all of the time. New software and advancements are happening as you read this, and staying up to date on them, all while running your restaurant, is virtually impossible. When you outsource your bookkeeping, you have access to the best accounting software and tools specifically designed to streamline your accounting process while managing your books.
Your outsourcing experts know how to use advanced systems and can automate your processes and transactions faster and more accurately than if you were to handle these matters yourself. Also, since an outsourced team is based remotely, they will utilize cloud-based technology to communicate and manage your books, making it easier to access your company's data from anywhere at any time.
An outsourced bookkeeping team can help you choose the best accounting software and tools for your business and help you set it all up, migrate your data and integrate it all with other apps. They can also help you create dashboards and custom reports to enable you to make data-driven business decisions.
3. It gives you visibility on your restaurant’s financial performance
Outsourcing your bookkeeping to a team of trained professionals means that your restaurant's financial data is always accurate and up to date. This gives you visibility on how your business is performing and allows you to accurately track all of your expenses, revenue, and the health of your cash flow.
An outsourced bookkeeper can provide you with customized reports based on your individual needs, allowing you to make better decisions about your business. They can also help you out at tax time by letting you know how much sales tax you owe, and they can remit these taxes on time to avoid any costly penalties.
4. It saves you a significant amount of money and time
There is no doubt that hiring an in-house bookkeeper can be expensive - especially when you consider the amount you will have to pay in payroll taxes, benefits, and wages. Outsourcing your bookkeeping can provide you with greater value for your money and access to the same level of experience without the added payroll costs. It also means that you don't have to deal with turnover and hiring costs, and you never have to train and manage new employees.
Outsourcing allows you to save the time it would take you to do your bookkeeping, allowing you to focus on running and growing your business operations.
5. It gives you greater financial oversight
When you decide to outsource your bookkeeping, you permit an independent third party to handle your financial affairs. By handing this over to an expert, you can have better control over your restaurant's books and avoid any fraud or embezzlement that may occur if you have them done in-house.
Handing over the tedious task of bookkeeping to an industry professional can be empowering. It will give you substantial time to focus on more critical aspects of your restaurant business, freeing up vital resources and giving you crucial insight that only a professional can offer.
Hire the Right Bookkeeper for Your Restaurant
1. Look for a bookkeeper who has knowledge and experience in the restaurant industry
Restaurant bookkeeping has unique needs, so you must consider hiring someone with knowledge and experience in the restaurant industry. An experienced restaurant bookkeeper should be able to help you set up your chart of accounts to track different costs and sales by channel accurately.
A bookkeeper with restaurant experience should also be knowledgeable about and able to handle different sales and liquor taxes, determining when to remit them and what amounts are owed. They should also have a solid understanding of your cost structure and produce reports that provide visibility into your cash flow.
Tips are another unique aspect of restaurant finances; your bookkeeper must have specific processes to manage them.
Lastly, it is important to remember that not all bookkeepers are also certified payroll practitioners; therefore, if you require payroll support, you will need to hire a bookkeeper capable of helping in this area.
2. Look for someone who has familiarity with restaurant accounting technology
Accounting technology is always changing, and therefore, it is vital that you select a bookkeeper who stays up to date with all of the technological changes.
They should be familiar with this technology and understand its integrations. Knowledge of the different POS systems, accounting software, and other available tools will ensure that they can manage your books accurately and efficiently.
3. Decide what type of bookkeeper works best for you
Above all else, one of the most important considerations when selecting a bookkeeper to manage your restaurant's finances is to decide what type of bookkeeper works best for your business’s individual needs. Some business owners decide outsourcing is best, while others choose an in-house bookkeeper.
To help you consider this, bookkeeping isn't necessarily a full-time job, especially if your restaurant operation doesn't involve multiple locations. When it comes to hiring, the traditional thought would be to hire someone full-time or part-time to work in-house, but that may not be the best solution from a financial perspective.
Often, outsourcing is better than hiring in-house for the following reasons:
- There is no need to deal with turnover, training, or managing additional employees.
- It can save you a considerable amount of money.
- It gives you access to both bookkeeping and, often, payroll expertise.
- It frees up your time and saves you from managing these tasks yourself.
Final Thoughts
As a restaurant owner, improving your cash flow can mean the difference between success and failure. The healthier your cash flow, the better able you will be to deal with any fluctuations in sales that may come your way. One of the best methods you can employ to ensure that you always have visibility into your cash flow is to keep accurate and timely bookkeeping records.
If you want to help with your restaurant's bookkeeping, contact the team at Enkel. Our experts can provide you with the bookkeeping assistance you require, assuring you that your business's finances are always well taken care of.