With rising costs of ingredients, labor and rent, as well as the need to continually adapt to shifting consumer preferences and market trends, restaurants must carefully monitor their cash reserves. If cash dries up, a restaurant may not have enough on hand to replenish supplies or fully staff shifts, leading to disappointed customers and subpar reviews. Too much cash, on the other hand, could signify that the restaurant isn’t investing in the right places and could be leaving innovation and growth opportunities on the table — or worse, in the hands of competitors. Whether a restaurant has too much or not enough cash, or just isn’t allocating its cash properly, its financial performance can likely be improved by focusing on optimizing cash flow.

This article explores 18 strategies and tips that restaurant owners can adopt to improve how they manage their cash flow. From understanding key financial metrics and implementing efficient inventory management to leveraging technology and changing their menus, restaurants can improve how they manage their cash to create a stronger financial foundation.

What Is Cash Flow?

Cash flow is how money moves in and out of a business. It includes the cash a company generates from its operations, investments, and financing activities during a given period, as well as the cash it concurrently spends on material purchases, wages, taxes, and other expenses. After cash flow is calculated, a positive value signifies that more money is coming in than is going out, while a negative value indicates the opposite. As such, maintaining a healthy cash flow enables businesses to meet their financial obligations and better position themselves for success.

What Is Cash Flow Management?

To effectively manage cash flow, businesses must monitor, analyze, and strategically adjust their cash inflows and outflows. This rigorous approach enables companies to predict and plan for future cash needs, mitigate financial risk, maintain sufficient liquidity to pay their bills, and make sound financial decisions as they grow. Cash flow is typically reported and tracked on the cash flow statement, a core financial statement alongside the income statement and balance sheet.

Key Takeaways

  • Cash flow for restaurants includes all the money coming in and going out of the business over a given financial period.
  • Through effective cash flow management, restaurants can gain a better understanding of their financial performance to maintain stability, seize growth opportunities, and adapt to industry challenges.
  • Restaurants can create more robust and comprehensive cash flow management processes through targeted strategies such as optimizing inventory, diversifying revenue streams, and leveraging technology.

Cash Flow Management for Restaurants Explained

Restaurants must overcome unique challenges, including fluctuating seasonal sales, volatile supply availability, and high operational costs, such as rent, utilities, and labor. As a result, their cash flow management methods must address the particular characteristics of the hospitality industry by prioritizing specific metrics, including cost per dish, average plate spend, and menu pricing. Restaurants then use these metrics to establish billing, payment, and collection processes that ensure timely outgoing payments to vendors and incoming payments from catering events and third-party ordering and delivery apps. And by regularly analyzing their cash flow statements and comparing real-world results to benchmarks and forecasts, restaurant owners can identify potential cash gaps, adjust their strategies accordingly, and make proactive decisions to sustain and grow their business.

How to Calculate Cash Flow for Restaurants

Business leaders can’t manage and analyze their cash flow without first understanding the elements that contribute to it. The cash flow formula is as follows:

Cash flow = Cash from operating activities +/– Cash from investing activities +/– Cash from financing activities

Restaurant owners can complete the following steps to calculate each factor of the formula. At the end of this section is an example for a hypothetical breakfast bistro, Dan’s Pancakes.

  • Determine the time period: Choose a specific financial period, such as a week, month or quarter.
  • Calculate cash from operating activities and typical day-to-day operations:
    • Cash inflows include cash collected from food and beverage sales, catering, and other services.
    • Cash outflows include inventory purchases, payroll, rent, utilities, and other operating expenses.
  • Calculate cash from investment activities, such as buying or selling assets:
    • Cash inflows include proceeds from the sale of equipment or property.
    • Cash outflows include the purchases of new equipment, renovations, and expansions.
  • Calculate cash from financing activities, such as debt and equity transactions:
    • Cash inflows include loans, owner investments, and issued stock.
    • Cash outflows include loan payments, dividend payments, and stock buybacks.
  • Combine all components into one final sum: This total represents the net cash flow for the chosen period.

The owner of Dan’s Pancakes wants to create a monthly cash flow report. During the month, the bistro collected $60,000 from sales and spent $55,000 in operational expenses. It also invested $10,000 in new equipment purchases, took out a $15,000 loan, and made a $2,000 payment to pay off older debt. After noting these figures, the bistro owner uses the above formula to calculate net cash flow, like so:

Cash flow = ($60,000 $55,000) $10,000 + ($15,000 $2,000) = $8,000

For this month, Dan’s Pancakes shows a positive cash flow of $8,000, which Dan’s plans to use to pay off some high-interest debt, thereby improving cash flow for future periods. This breakdown of cash inflows and outflows helps restaurant owners understand how they earn and use their cash--information that will contribute to future decisions that support the long-term financial health of the business.

Common Cash Flow Management Challenges in Restaurants

Restaurant owners must navigate many industry-specific obstacles to achieve financial stability and maintain a successful business. Here are some of the most common cash flow management challenges faced by restaurants and how businesses can overcome them.

  • Seasonal variability: Restaurant sales often fluctuate throughout the year, making it difficult to maintain consistent cash flow, especially for establishments in tourist locations or those with seasonal menu items. To address this challenge and maintain liquidity during slower seasons, owners can create seasonal budgets and adjust staffing and inventory levels accordingly. For example, a beachside restaurant may reduce part-time staff during the off-season and push a winter-themed menu centered around affordable, locally available ingredients to attract customersSome restaurants may also benefit from short-term loans or business lines of credit to fund operations during slowdowns, and then pay them off during busier months.
  • High fixed costs: High fixed costs, such as rent, can strain cash flow, particularly during slow periods. To minimize these costs’ impact on cash flow, owners can track and analyze restaurant key performance indicators (KPIs) to reveal options to reduce or offset their fixed expenses during slower periods. For instance, a restaurant may negotiate a rent reduction during a slow season in exchange for a longer lease term or sublet a back office to another business when it’s not in use. Additionally, many utility providers offer balanced-budget options, where customers pay the same amount month to month and the difference is adjusted at the end of the contracted period. This method makes it easier for businesses to predict cash needs and budget accordingly.
  • Inventory management: Maintaining sufficient inventory while minimizing waste can be a significant challenge, especially for restaurants that prioritize fresh ingredients with a short shelf-life. Poor restaurant inventory management can lead to stockouts and dissatisfied customers or tie up cash in unsold inventory, resulting in negative cash flow if sales don’t keep up with supply costs. To minimize wasted stock and empty shelves, many restaurants use inventory tracking systems, collaborate with suppliers, and conduct regular audits to maintain accurate records and make better-informed purchasing decisions. A restaurant may automate its reordering process when stock drops below a preset amount, for example, and implement a “first in, first out” inventory system to optimize inventory levels and minimize spoilage.
  • Labor costs: High labor costs typically account for a significant portion of expenses, and restaurants often struggle to contain staffing costs without affecting service quality. To find what works best for their restaurant, managers can cross-train employees and implement productivity-based incentives to create a balanced, skilled workforce. For example, a restaurant may offer bonuses to employees who successfully upsell menu items or receive positive reviews, thereby encouraging exceptional service — and higher revenue — from all customer-facing employees. Many modern restaurants also reduce labor costs by outsourcing specialized tasks, such as bookkeeping or marketing, and use scheduling software to streamline employee management.
  • Unexpected expenses: Restaurants are prone to unanticipated expenses that can drain cash flow, such as ingredient shortages and broken kitchen equipment. To prepare for the unexpected, owners can take out an insurance policy or create an emergency fund to cover these unforeseen costs, rather than rely on operational cash flow. Management should also regularly inspect, maintain, and upgrade or replace equipment to reduce the risk of unexpected breakdowns. Many restaurants set aside a portion of their monthly profits in an account specifically earmarked for emergency expenses, dipping into these funds when a crisis occurs, such as a burst pipe or weather event.

18 Tips to Improve Cash Flow Management for Restaurants

Restaurants can use different strategies to manage their cash flow, depending on their location, business type and other unique factors. Below are 18 general tips that restaurant owners can evaluate to establish their cash flow management approach and, ideally, proactively improve their financial health.

1. Understand Your Financial Metrics

Restaurant owners must have a clear understanding of their financial strength, typically gained through analyzing key financial metrics, including revenue, expenses, labor or food cost percentages, cost of goods sold, and profit margins. Restaurants should also consider industry-specific KPIs, such as revenue per table, average guest spend, and table turnover when assessing cash flow. By regularly monitoring these metrics, owners can compare their performance against industry benchmarks, identify trends, and pivot operations quickly when problems arise, rather than wait until issues begin affecting operations or customer satisfaction. For example, a restaurant owner who notices a decline in revenue can investigate the cause and take corrective action, such as creating new, premium menu items to increase margins.

2. Monitor Your Profit and Loss (P&L) Statement

A profit and loss (P&L) statement, also called an income statement, provides a detailed overview of a restaurant’s incoming revenues, outgoing expenses, and overall profitability during a specified period. For instance, if a restaurant’s P&L statement reveals high food costs cutting into margins, the owner can explore ways to reduce waste and supply costs to increase profits. While the P&L statement serves as a guide into a restaurant’s profitability, it’s important to remember that it doesn’t always reflect the actual cash flow situation for businesses using the accrual basis of restaurant accounting, due to factors such as credit terms, delayed payments, and overdue balances that create a lag between transactions and real cash transfer.

3. Maintain Visibility of Cash Movements

To effectively manage cash flow and anticipate future cash needs, restaurant owners need visibility into operations and other activities that bring in or spend cash. This can be achieved through robust accounting processes, often bolstered by software, that include regularly reconciling bank statements and accounts and generating accurate cash flow statements and realistic forecasts based on up-to-date financial data. For example, if a restaurant gets weekly deposits from a third-party delivery partner, accounting software can automatically apply that revenue to the appropriate account and send a notification to relevant parties after the deposit is completed. This way, owners can maintain a real-time view of account balances when placing supply orders and paying staff. However, it’s important to remember that even sophisticated digital tools can reflect anachronistic data because of delays in credit card processing cash transfers.

4. Keep Bookkeeping Accurate and Up to Date

By maintaining accurate, timely, and detailed records of all sales, expenses, and other financial transactions, restaurant management can acquire real-time insights into their financial status. These insights allow owners to implement targeted and realistic strategies for improving cash flow that align with the business’s overall strategic goals. A family-owned pizzeria that uses accounting software to run daily sales and expense reports, for instance, can quickly identify errors, such as a recurring delivery fee miscalculation, before the error compounds and becomes a larger headache. In addition to monitoring cash flow, accurate restaurant bookkeeping helps calculate owed taxes and maintain compliance with other local financial regulations.

5. Manage Your Balance Sheet Effectively

The balance sheet, the third key financial document along with the cash flow and P&L statements, lists a company’s owned assets, owed liabilities, and owner’s equity. By regularly reviewing these elements, restaurateurs can more effectively allocate cash for investing in growth, paying down debt, or for making operational changes. This helps businesses achieve an appropriate debt-to-income ratio, a critical financial metric for securing financing and maintaining liquidity.

6. Develop a Reliable Cash Flow Forecast

Cash flow forecasts anticipate future cash needs and provide decision-makers with a roadmap so they can balance present-day and anticipated future needs. By creating and updating projections of expected cash flows based on historical data and anticipated changes, restaurateurs can optimize their cash flow to ensure that they can meet all obligations during slow periods. For example, a seasonal beachfront restaurant that forecasts a slow winter season can plan ahead by securing a line of credit so it has sufficient cash reserves to remain open and pay employees all year long. Restaurants typically generate short-term forecasts for daily or weekly operations, as well as more detailed long-term annual forecasts.

7. Implement Seasonal and Quarterly Budgets

Many restaurants’ cash flow fluctuates throughout the year, especially in regions with varied foot traffic and tourist events. Detailed quarterly or seasonal budgets can anticipate changes in sales, inventory requirements, and labor costs so owners can allocate resources and minimize the risk of expired stock or empty ingredient pantries. A ski resort, for instance, can create a winter budget that reflects expected increases in staffing, inventory levels, and revenue to better prepare for its busiest season. Additionally, these budgets can be used to create rolling forecasts as real results come in, helping restaurant owners adjust strategies mid-quarter, if necessary.

8. Set Aside Reserves During Profitable Periods

The focused budgets and forecasts mentioned in the prior tip help restaurants effectively maintain cash reserves throughout the year, including during periods of volatile demand. This includes refilling cash supplies during peak revenue periods, as well as strategically relying on reserves when investment opportunities arise or downturns occur. This way, businesses can maintain operations without straining resources or creating a cash crisis. For example, our hypothetical ski resort might retain 10% of all sales revenue in a separate bank account to use during the summer season for repairs, new equipment, and labor costs that can’t be covered by income from summer sales alone.

9. Establish a Reliable Credit Line

Business credit lines from financial institutions and lenders can provide restaurants with a safety net for unexpected expenses or short-term cash crunches. By establishing a credit line during stable financial times, restaurants can access funds when needed without disrupting daily operations. For instance, a growing restaurant chain with a $500,000 credit line can use this money to cover the costs of opening a new location and then repay it when the store opens and sales pick up. But be careful: Credit lines may come with high interest rates, fees, and strict repayment terms, and can exacerbate problems caused by inefficient cash flow processes if businesses don’t manage their debt carefully.

10. Balance Payroll Efficiently

Because payroll is often one of the largest expenses for restaurants, efficient payroll management is a major aspect of managing cash flow. Businesses should use forecasts of sales and demand based on historical data and market research to predict their upcoming labor needs, optimize their schedules, and budget for overtime. Through careful planning, restaurant owners can control their labor costs without compromising service quality or employee morale. A fast-food restaurant that uses scheduling software integrated with sales projections, for example, can reduce overstaffing during slow periods, leading to significant savings and improved cash flow. However, restaurants should be careful not to overcut labor costs, as customers value timely, knowledgeable and friendly service. Moreover, attractive wages and benefits can help retain talented and diverse employees, which is an important way to stay competitive in the restaurant industry.

11. Control and Manage Inventory Costs

There were 13 million tons of surplus food in the American foodservice sector in 2022, according to data analyzed by the nonprofit ReFed. With effective inventory management procedures, often aided by specialized software, restaurants can optimize their supply levels to reduce waste, as well as free up capital to improve their cash flow. By implementing inventory tracking systems, taking advantage of bulk discounts, regularly conducting physical counts, and comparing inventory levels with sales data, owners can make informed purchasing decisions to minimize waste from unsold or spoiled goods and avoid sold-out menu items. Additionally, restaurants should create and adhere to standardized recipe guidelines to maintain consistent ingredient use and reorders. For instance, say a farm-to-table restaurant notices that its waste removal costs have risen due to an increase in expired ingredients. After investing in an automated inventory management system, management is now able to monitor inventory levels in real time and better plan its ordering timeline, which reduces costs without affecting ingredient quality.

12. Optimize Outgoing Payments

Strategically managing outgoing cash can help restaurants improve their cash flow by carefully timing the payments relative to cash inflows and aligning them with the operation’s larger cash management strategy. This can be achieved by negotiating favorable and flexible payment terms with suppliers, claiming all relevant tax deductions, and prioritizing payments according to urgency and importance to the business. Additionally, businesses can consider holding back payments until the due date or paying in advance to take advantage of early payment discounts. For example, a small bistro that negotiates a 60-day payment term with its wine supplier can set up an automatic payment in two months, rather than tying up cash that could more effectively be used to cover today’s bills.

13. Streamline Operational Expenses

Most restaurants have some nonessential expenses that don’t directly contribute to generating profits that could be eliminated or minimized to reduce cash expenditures without impacting customer satisfaction. Restaurants should assess their administrative costs, such as office supplies and fees, to find areas that can be streamlined or eliminated entirely. Additionally, by investing in energy efficient equipment, lighting, and heating, restaurants can reduce their utility bills and create a more sustainable operation. For example, a casual dining restaurant can switch to energy-efficient LED lighting with motion sensors to reduce its monthly utility bill, trading an initial investment for long-term savings.

14. Reduce Overhead Costs Where Possible

Overhead costs, such as rent and utilities, can eat up cash that could otherwise be used for day-to-day operations and investments. To reduce or offset these costs, businesses should assess all their overhead costs and evaluate how important they are to overall operations. Some common strategies include regularly repairing equipment to avoid costly replacements, bundling or renegotiating insurance policies, renting out unused space, and outsourcing functions, such as accounting, to external parties that can complete tasks faster and/or at a lower price.

15. Diversify Vendor Relationships

Relying on a single supplier for essential ingredients, materials, or services exposes restaurants to risks, including supply chain disruptions and price hikes. These risks can lead to unexpected and sudden periods of negative cash flow. By regularly reviewing contracts and cultivating relationships with multiple vendors, restaurant owners can ensure a steady supply of goods, benefit from a diverse set of payment terms, and reduce the risk of supplier-caused cash flow disruptions. For instance, a sushi restaurant that partners with three regionally diverse seafood suppliers can easily select among multiple pricing and payment options and maintain a reliable supply of fresh fish.

16. Require Deposits for Catering and Events

A deposit policy for additional revenue streams, such as catering and event hosting, helps restaurants offset some of the initial expenses of setting up these large orders and reduces the risk of last-minute cancellations. When customers pay a percentage of the total cost as a nonrefundable deposit, restaurants secure a portion of the revenue in advance and increase the likelihood that the event will be postponed, rather than canceled, if a complication arises. The deposit percentage often varies with the size, timing, and complexity of the event and should be clearly explained to customers to avoid misunderstandings. For example, a restaurant that specializes in corporate events may require a 50% deposit at the time of booking, which covers the initial costs of planning and preparation, including decorations and acquiring unique ingredients for custom drinks and dishes.

17. Offer Cost-Effective Specials

Promotions or daily specials that use surplus or low-cost ingredients can help restaurants increase sales, better manage their inventory, and improve cash flow. These strategically designed specials can attract price-sensitive customers and give loyal customers a new and exciting reason to order something different. For instance, a restaurant with an oversupply of chicken may create a revolving "weekly chicken special" that features chicken-based soups, salads, and entrees at a special price. Restaurants can also use specials to test new items with customers before committing them to the official menu.

18. Seek Professional Financial Advice

Working with financial professionals in the restaurant industry, such as accountants or advisers, can provide restaurant owners with invaluable financial insights and advice beyond their own skill sets. These experts can be met with as needed or on an ongoing basis to help restaurants develop customized financial plans, set realistic cash flow goals and benchmarks, and provide guidance on tax planning and compliance. For example, a restaurant owner who consults with an accountant may discover new opportunities for tax deductions or credits, freeing up cash for expansion.

Tools and Technologies for Effective Cash Flow Management

Today’s restaurants can leverage various tools and technologies to streamline their financial management processes and improve cash flow. But which tools a restaurant chooses to implement can have far-reaching implications for data integrity, automation capabilities, investment returns, long-term financial health, and more. Below are three common technologies restaurants can use to enhance their cash flow management processes.

  • Accounting software:

    Restaurants use accounting software to automate tasks involved in bank reconciliation, tax preparation, invoice management, payroll, and financial reporting. These tools provide real-time visibility into a restaurant’s financial health, enabling owners, managers, bookkeepers, and any other authorized users to easily monitor all sources and uses of cash from one centralized location.

  • Point-of-Sale (POS) systems:

    Many modern point-of-sale (POS) systems go beyond simple transaction processing by connecting inventory management, sales analytics, and customer relationship management (CRM). This integration gives managers a more complete view of what does and doesn’t sell, as well as the impact sales are having on other aspects of the business. These systems also typically include several ways for customers to pay, including credit cards, payment apps, and digital wallets, to allow restaurants to serve a wide variety of customers with diverse preferences. A quick-service restaurant, for example, may use its POS system to allow customers to order additional items, such as drinks and desserts, and pay their checks right from their table, increasing average check size and table turnover without putting additional pressure on waitstaff. Despite this convenience, however, businesses should consider how payment methods differ, as some may take longer to process or come with additional fees, which can complicate or reduce cash flow.

  • Inventory management tools:

    Inventory management tools help restaurants track stock levels, monitor food costs, streamline reorder processes, identify fraud or theft, and reduce waste. Restaurants use real-time inventory usage data to suggest optimal reorder points, which can minimize spoilage while improving cash flow. For instance, an organic vegan restaurant may tap into its inventory management system’s usage analytics and demand forecasts to implement just-in-time ordering from a local farm, reducing its food waste and supply costs in the process.

Maximize Cash Flow With NetSuite Accounting

When it comes to managing cash flow to stay competitive and keep up with rising costs and seasonal demand, restaurants need to use every tool at their disposal. NetSuite offers a comprehensive suite of cloud-based financial management and accounting tools designed to help restaurants manage their cash flow and enhance their financial performance. With its financial tools, such as real-time reporting, detailed cash flow forecasting and automated billing and invoicing, NetSuite empowers restaurant owners to make data-driven decisions that maximize profitability and minimize financial risk. Additionally, the platform's centralized database and powerful analytics tools give decision-makers full visibility and actionable insights into a restaurant’s financial health, enabling them to proactively identify trends, anticipate challenges, and seize growth opportunities.

NetSuite also offers restaurant-specific modules that address the unique challenges of the hospitality industry. From inventory management and recipe costing to labor scheduling and CRM, NetSuite provides a unified platform that streamlines operations, reduces manual processes, minimizes waste, and enhances cash flow across the organization. By leveraging NetSuite’s industry-leading technology and expert support, restaurants can overcome common obstacles, increase profitability, and build long-term growth.

Effective cash flow management empowers restaurant owners to maintain enough liquidity to meet their obligations while minimizing risk and maximizing profitability. From streamlining expenses and diversifying revenue streams to forecasting future cash needs and leveraging technology, the key to long-term cash flow management success is a proactive, data-driven strategy. As the restaurant industry continues to evolve and adapt to new challenges, businesses that prioritize financial health and agility will be best positioned to both seize growth opportunities and better deliver for their customers.

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Cash Flow Management Tips for Restaurants FAQs

What are ways a restaurant might improve its cash flow position?

Restaurants can improve their cash flow position by improving inventory management to minimize dead stock, negotiating better payment terms with suppliers, and offering promotions to increase sales during slow periods. Additionally, restaurant owners can reduce unnecessary expenses by automating billing and collection processes and can explore alternative revenue streams, such as merchandise, catering, or delivery services.

What is operating cash flow in a restaurant?

Operating cash flow in a restaurant includes all the cash generated from the business’s day-to-day operations, such as food and beverage sales, minus the cash outflows related to running the restaurant, such as purchasing inventory, paying employees, and covering rent and utilities. A positive operating cash flow indicates that the restaurant is generating enough liquid cash to cover its operating expenses and short-term liabilities.

What is cash management in a restaurant?

Restaurant cash management is the set of processes and strategies that restaurant owners and managers use to optimize the flow of cash in and out of their businesses. Effective management includes monitoring cash sources and uses, forecasting future cash needs and wisely allocating cash to appropriate areas. Through robust cash management processes, restaurants can maintain their financial stability and meet their obligations, as well as retain the funds necessary to weather seasonal downturns and take advantage of potential growth opportunities as they arise.

How do you manage cash flow in a restaurant?

To manage cash flow in a restaurant, owners can regularly monitor their cash inflows and outflows, create and adhere to budgets, and maintain accurate financial records. This data-driven approach allows restaurant owners to make well-informed strategic decisions to improve their cash flow over time. They can also optimize menu pricing, manage inventory levels, and implement efficient billing and collection processes, often with the aid of software and digital management tools, to enhance visibility and find additional areas in which to improve cash flow.