4 Proven Strategies for Restaurant Cash Flow Management

Proper restaurant cash flow management is critical for success. When it comes to cash flow, restaurants are unique from most other business segments. Countless events can impact a restaurant’s cash flow throughout the year. Think about the trends that significantly affect your guest traffic, ultimately affecting your sales. Holidays, weather, sporting events, and political events are just a few. Then there are gift card sales. Gift cards have a largely positive impact when you sell them, but they negatively impact cash as they’re redeemed. And, as restaurant owners and operators have recently learned, a pandemic with government restrictions can test even the most successful operations. These cash-impacting events combined with lack of proper planning are the primary culprits for why many operators’ bank accounts consistently look like an EKG chart.

Operators who are strategic with cash-impacting events can flatten the curves in their bank account. The more proactive you are, the more you can mitigate the impacts of unexpected events that influence sales and cash. In restaurant accounting, a good financial manager can help with the tactics. Here are our top 4 strategies in cash management for restaurants.

1. Forecast Sales & Stick to Budgets

Restaurant Cash Flow ManagementOne of the most effective restaurant cash flow management strategies is forecasting sales and sticking to budgets. Budgets enable operators to set goals and plan expectations for costs and revenue despite minor adjustments within a period. You should track budgets on a weekly and period basis to establish your performance against your goals. Let’s say a snowstorm prevents you from hitting your target for a specific week – utilize a forecast to ensure proper spending based on your actual sales. Remember that your overall budget for the year would not change, so you still need to aim to hit your budgeted cost. Forecasting and adjusting based on actual sales permit you to hit your budget goals continuously.

The best way to ensure you create a precise budget and accurately forecast sales is to understand your break-even points with regard to sales. Keep in mind these points significantly change year over year, so it’s a best practice to keep these numbers up to date. A break-even point will factor in your variable and fixed costs to showcase the amount of sales it will take to break even. Operators should review two types of break evens.

  • A cash flow break-even: A cash flow break-even considers your restaurant profitability, your debt servicing, government assistance, and any additional items that your Profit and Loss Statement (P&L) doesn’t show. This is important because you still need to factor them into your cash management strategy.
  • An operational break-even: An operational break-even assists in answering the following question: “Can my restaurant operationally stand on its own two feet?” i.e., Are your revenues greater than your operating costs? This is an important activity because it guides budgets, goals, and operational directives.

Knowing your break-even points is especially important if you are planning on turning your cooking passion into a home-based restaurant. This is a new entrepreneurial trend which has its own special challenges.

2. Perform Period End Financial Reviews

Managing Restaurant FinancialsA consistent Period End Close process is essential to restaurant accounting and cash management for restaurants. These reviews provide the chance to analyze metrics and identify areas of opportunity to control cash flow with audits and benchmarks. When closing out a period to review cash flow, operators should begin with reviewing their financial statements. This includes the following:

  • The Balance Sheet: The Balance Sheet shows the overall financial health of your business. If your Balance Sheet is inaccurate, the chances are that your P&L and Cash Flow statement are also incorrect. This typically means expenses are missing, and any inaccuracies can easily lead to cash flow problems. Conducting Balance Sheet reviews facilitates the isolation and cleanup of inaccuracies and provides training opportunities for your team as to why you made certain adjustments. Changes to your balance sheet directly influence your cash flow. For example, suppose you pay off a $100k loan. The payoff will not show up on your Profit and Loss Statement. While this is healthy business activity because you reduce liability on your Balance Sheet, it negatively affects your cash flow balance.
  • The Profit and Loss Statement: Your P&L represents your day-to-day operations. An operator must review their Profit and Loss Statement on a period basis because commodity prices, staffing challenges (hello current labor shortage), and consumer behavior all change constantly. Consistent P&L reviews allow operators to pivot quickly and adjust their operational practices accordingly, keeping cash flow as steady as possible. Keep in mind that profit doesn’t equal cash in hand, and that the profit from your P&L is only one small part of the items that impact your cash flow.
  • The Cash Flow Statement: This Statement presents the cash activities from both the Balance Sheet and P&L. It shows how the Balance Sheet and P&L work in conjunction, impacting your cash and operating accounts. Your Cash Flow Statement highlights where your cash is coming from and where it’s going (inflows versus outflows) within a specific period. Because restaurants don’t operate entirely on a cash basis, it’s often difficult to find your cash position from the Profit and Loss Statement and the Balance Sheet alone.

3. Assess Inventory Levels

An additional approach to restaurant cash flow management is to evaluate current inventory levels. Successfully managing inventory (especially when there are recent worldwide supply-chain disruptions) balances ensuring you have enough product to satisfy your guests and team and not overinflating inventory on the shelves. Stocking too much of the wrong product (perishable items) negatively impacts cash flow. If your restaurant doesn’t perform inventory utilizing a declining spending budget week-over-week based on your new anticipated sales, so you are not over-purchasing.

4. Impound Your Credit Card Fees and Taxes

One of the largest recurring expenses in a business, besides payroll, is merchant processing fees. Daily discounting, or debiting your transactional fees daily, is effective for managing cash flow because it eliminates spending money that isn’t yours—in the same sense, impounding your taxes daily until due fulfills the same concept.

Bonus: Cash Management for Restaurants by Days of the Week

Here are some facts about the days of the week in a restaurant as it relates to cash flow:

  • Monday: Mondays are usually slower, making it a great day to perform administrative work. Mondays provide the opportunity for your operational and financial forecasting because you can verify their accuracy later in the week. Cash is typically neutral from the weekend except for cash deposits that you’ve made from the weekend.
  • Tuesday: Tuesdays are normally a restaurant’s heaviest cash flow day because managers regularly deposit credit card sales in the mornings. It’s best to date major expenses like payroll checks for Mondays or Tuesdays. This eliminates the need for money transfers to cover the expense.
  • Wednesday: Wednesdays are optimal to perform minor bank reconciliations to establish your remaining cash. All expenses from the prior week should have cleared the bank. Wednesdays are also the best days to transfer any extra cash into savings.
  • Thursday: Thursdays are great to review your forecasts from earlier in the week and make any adjustments.
  • Friday: Fridays are the lowest cash flow day since all bills are paid, orders are placed, and paychecks are cashed.
  • Saturday-Sunday: The weekend provides the greatest chance of increasing restaurant cash flow by managing prime costs.


Author Headshot & Bio

Matt Vannini - Rasi CEO

Matt Vannini
RASI CEO & President

A fourth-generation restaurateur who is well versed in the restaurant industry. After successfully running and eventually selling his own operations, went on to work for Corporate Red Robin, training on-site GMs on effective restaurant management and operations. Previously worked for Aloha POS as a Program Manager, increasing knowledge of BOH software and how to effectively integrate such systems into everyday operations.


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