This article was written for Modern Restaurant Management by John Moody, Co-Founder and Chief Strategist of Restaurant365.
Restaurant365’s State of the Industry Customer Survey shows that 60 percent of surveyed customers plan to expand their businesses in 2023 despite expected increased labor and food costs.
Whether a restaurant wants to expand on its first location’s success or try a new type of venue entirely, opening a second location is a big decision. While most restaurant operators will seek outside funding to get the second location running, it still takes time for a unit to become profitable once the doors open.
Different restaurant models achieve a break-even or profitability point at varying times. Some might break-even within the first three months while others claim it could take a year or even more. It is important to consider if the first location has the cash flow to help financially carry the second location for a period of time if needed.
Below are seven tips to improve the cash flow and make the most out of a current location to ensure a steady stream of revenue to serve as a buffer through those first months.
Increase Restaurant Sales
The best way to increase a restaurant’s cash flow is to increase sales. Businesses can run promotions, such as early bird specials, to attract budget-conscious diners and use an email database to get the word out. Operators can also encourage Yelp reviews and use their social media platforms to engage with customers. Use creativity to market a restaurant on a limited budget.
Keep Inventory Low
If restaurant sales are not covering expenses or if the business has extra inventory in walk-in or dry storage that just isn’t moving, it’s a good time to start trimming back inventory. Careful forecasting can help improve order accuracy and reduce waste.
It also may be time to update the restaurant’s menu. By minimizing the menu options, a unit can limit the amount of inventory needed to order each week. Cross utilizing menu items helps reduce waste and save money.
Hold Vendors Accountable to Contract Pricing
As restaurant owners receive vendor invoices, they should use a system that can track purchased item costs to discover any contract violations. Reviewing these numbers frequently can help to hold vendors accountable to the prices they are quoting. Tracking these prices on an ongoing basis can ensure that a restaurant business is paying only the contracted amount for an item.
Make Frequent and Informed Labor Decisions
Labor has a major impact on any restaurant’s cash flow. Consequently, operators need to use forecasting to help predict the number of employees a restaurant will need each day based on recent sales and labor data. This will enable restaurants to create more purposeful schedules during these uncertain times.
Throughout the week, reevaluate the schedule and readjust forecasts based on actual sales coming in. If sales don’t meet the adjusted recovery forecast, operators may have to reduce the number of staff working—both on the floor and in the kitchen. The current situation is ever-changing, requiring managers to evaluate labor needs on a frequent basis and adjust accordingly.
Realistically Budget Payroll
Payroll fluctuations can be a big issue for restaurant operators. Carefully analyze payroll over the past six months to see if there are any trends in this short time frame. Keeping and maintaining a payroll budget can be an effective way to organize payroll and better manage cash flow for the future.
Stay on Top of Bookkeeping
Ensure that invoices are entered daily to help better manage cash flow. It’s impossible to run effective cash flow if a business is behind on data entry or missing information. Running financial reports daily will also provide insights into finances, allowing operators to determine if they need additional financial guidance.
Avoid Relying on Credit
Credit can be a useful tool for getting a restaurant business off the ground, but don’t let it become a crutch when running into cash flow issues.
Instead of accepting offers of credit from vendors, negotiate a discount on food and beverage purchases in exchange for making immediate payments. Operators may find that vendors are also concerned about their cash flow and may welcome upfront payments. While paying upfront may seem counterintuitive when cash is low, it’s preferable to adding debt to a financial situation.
Restaurant owners and operators should always know how much money they’re bringing in and how much is going out. If a restaurant needs additional cash flow to fund an expansion, it’s important to take steps that will either increase cash flow or decrease overhead costs—or ideally both.