Every restaurant owner is familiar with the mantra “cash is king.” Having a healthy cash flow can make the difference between staying afloat or facing potential financial drowning. A downturned economy, lost customers, difficulty finding investors, or a natural disaster are all events that can bring a healthy cash flow to a mere dribble.
What do you do if you find yourself in a cash crunch?
1. Triage
Prioritize the usage of available cash. Put your employees first by giving payroll top priority, as well as tax withholdings and employee benefits. These types of costs are priority one when cash gets tight. Then, take a look at what upcoming payments and bills you have for the next 90 days (sometimes less). Are there any commitments or vendors that could be negotiated to be paid at a later date or by partial payment? Slash any expenses as much as you can. Also keep an eye on your POS reports to look for potential cash loss from employees who might be committing fraud.
2. Focus on Your Inventory
Inventory managment is a good starting point for managing cash flow. Is your restaurant in good shape with inventory? Are there items you can delay ordering? By making sure every order is exactly what you need, you can reduce waste and expenses.
3. Manage Your Receivables
Don’t consider your accounts as revenues until your customers pay you.Be sure to let your accounting staff understand the goals that you have for collecting old receivables and what incentives they can give to customers who are willing to pay early.
4. Manage Overhead Costs
Be honest with yourself about how much overhead your business can handle. Can you push back advertising commitments or other contracts? Make tough decisions about cutting overhead quickly, and don’t let bloated overhead continue to sink your ship for months on end.
5. Consider Selling Non-Essential Assets
The short-term benefit of selling an asset is quick cash. Selling a piece of equipment to generate short term cash may not be worth it in the long run when one day you’ll have to buy back the asset and potentially lose money in the process, but if you hold non-essential assets, the quick cash could be invaluable.
6. Manage Your Credit Cards
Make sure you understand outstanding balances and credit limits for cash advances versus purchases. Consider charging expenses to cards with available merchandise credit, but no available cash advance credit. The idea is to maximize your available cash advances when you need them.
7. Make a Preemptive Strike
Your CPA can be your life preserver. Having regular cash flow statements and reviewing them with your accountant can help you identify potential problem areas down the road. Often businesses that are having cash flow issues hesitate to call their CPA because they want to control fees; however, this is on key advisor who is most likely to be able to keep you alive to fight another day.
8. Talk to Your Banker
Your banker wants to see your business do well and grow. Talk to your banker to find out if there are any short term financial solutions to help you stay afloat.
9. Don’t Panic
Getting a full picture of your current situation will help ease your anxiety. And having a plan to get your business back on track will allow you to focus on your customer and future.
