Restaurants can face unique challenges when it comes to successfully calculating cash flow. First, it may be difficult to predict how much cash will come in every day. Second, food costs can fluctuate significantly based on the underlying price of beef, chicken, dairy and other staples. Third, cash flow shortfalls can appear very suddenly, leaving you few options and even less time to fill them.
Despite these challenges, there are certain practices you can implement that may help maintain positive cash flow in your restaurant.
Optimize Your Menu
The first step in improving restaurant cash flow is to increase the amount of cash you generate from each cover. The process starts with taking a close look at your menu items.
Identify items with very high food costs. Your goal should be to keep food costs under 30 percent of the price, so a $19 entree would consist of ingredients costing $5.70 or less. Consider eliminating any items that exceed this cost threshold or adjusting the recipe to bring food costs down. Note that you don’t want to simply use cheaper ingredients, which can affect quality and the desirability of your restaurant; instead, it maybe better to eliminate the dish or reformulate it.
Add higher margin items to complement the existing menu. Consider increasing the number of non-alcoholic beverages, which can represent one of the most profitable menu items available. If you have a license, also consider adding wine pairings to your dishes, another high margin item.
Optimize Your Schedule and Availability
Empty restaurants don’t make money. Take a closer look at your capacity and how many covers you have during different hours each day of the week. Perhaps you need to modify your open and close times or consider a split. Some restaurants have found that splitting the schedule (closing between lunch and dinner) can be helpful in terms of managing labor costs.
Another option is to provide customers with incentives for coming at less popular times. Offering specials on the menu or discounted drinks are just some of the basic ways to increase traffic during off-peak times without diluting your brand.
Finally, take into account seasonality. Does the size of your local population change during different times of the year? Are you near a college or a summer vacation destination? Many successful restaurants that are affected by seasonality modify their menu and schedule significantly during low seasons.
Negotiate Better Terms With Vendors
Behind every successful restaurant, you’ll likely find successful vendors. Premium cuts of meat, the freshest fish, hearty produce, crisp linens—these can be important for a successful restaurant, and all may come from third party providers.
Many vendors can be willing to offer you payment terms in exchange for your business. This can be a great way to secure credit, which may be paid off as your restaurant’s cash comes in from customers. Vendors may also offer volume discounts as your purchases grow.
Try to ensure that all your agreements provide a method for you to confirm if a vendor’s charges are correct. Billing mistakes are frequent, and you may be overcharged for something. Establish a clear process for recouping any overpayments in a timely manner.
Choose Your Credit Provider Carefully
Restaurants may sometimes need a quick, short-term loan to cover payroll during weeks when sales were slow. There are many different types of loan products available to restaurateurs, and the terms can vary significantly. Try to be absolutely clear on the interest being charged, the payment terms and the process by which the creditor will get paid.
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