The trap that can send your highly profitable restaurant broke

There’s a saying in business, “You can go broke making a profit.” And another, “Cash is king. Profit is theory.”

As you know only too well, you don’t pay rent, meet payroll or pay your bills with profit.

You pay them with cash.

A restaurant can make a lot of sales, be booked out for months in advance, have delighted customers, have a great reputation, be growing, and yet still go broke.

Why? Cash flow.

The business might be profitable on paper, but have no money left in the bank. They become insolvent.

A growing food business is often hungry for cash … hungry for expensive gourmet ingredients so their customers can have an enjoyable experience.

The tragedy in this is that cash flow crises can often be averted. They can be predicted, planned for, and then contingency measures put in place.

For example, a restaurant  is bound to have busier and quieter periods and then to stay relevant will need regular investment into equipment, design and marketing. Get the timing of these wrong such that they coincide with a quarterly BAS payment and you’ll be looking for a magical unicorn.

Which would you prefer to do?

(A) Apply to internet based financiers for a short-term loan when you are urgently in need of the cash (and therefore stressed, and desperate, and unable to negotiate good terms), or

(B) Call your business banker 6 months in advance and meet with him or her to explain the coming cash crunch, the reasons behind it, and plan for the funding in a calm, relaxed, totally-in-control manner?

Not only would you get the loan approved, you’d strengthen the relationship for further funding, should it be needed to support your growth.

The bank would see you are a professional operator with a planned approach to your business, not a fly-by-the-seat-of-your-pants operator. (They see a lot of those. They don’t like doing business with them.)

Apart from the relationship with your bank, there’s the immediate effect of sleeping better at night.

We all seek a level of certainty to comfort us. Knowing what lies ahead in business and planning your cash flow gives you peace of mind and confidence in your day-to-day work that will rub off on those around you…

…in your kitchen and at home. It’s a good feeling.

This is one of the reasons we are so passionate about helping our clients put together cash flow forecasts, to help them keep their business on track and to avoid any stressful, unpleasant surprises in the coming months.

Every restaurant needs a cash flow forecast.

Another thing we often find in helping our clients build realistic cash flow forecasts, is that we can spot problems and make suggestion that help improve the business’ cash cycle. This puts money in your bank account.

For example, a combination of negotiating better terms with suppliers, and reducing stock holding and waste can have a powerful positive effect on your cash flow.

So, if a cash flow forecast is so crucial, why do many restaurants not have one?

Simple. Restaurant owners get busy. Busy pleasing customers. Busy planning the menu. Busy dealing with staff. Busy paying suppliers. Busy generating sales. Busy posting on social media.

Also, it’s easy to get ‘too close’ to your own business. “You can’t see the forest for the trees,” as the saying goes.

Utilising our Air CFO and bookkeeping services combined enables restaurants to view a rolling cashflow forecast of their business so that you can plan, invest and fund your future growth.

It’s time to see the future!