Mastering Cash Flow Forecasting to Ensure Your Restaurant’s Long-Term Success

Running a restaurant is a bit like juggling plates – there’s always something up in the air, whether it’s staff schedules, inventory, or customer satisfaction. But there’s one plate you can’t afford to let crash: cash flow. Cash flow forecasting might not sound as exciting as creating your latest culinary masterpiece, but it’s essential for the long-term success of your restaurant. After all, no matter how many rave reviews you receive, if the money isn’t flowing in the right direction, you could find yourself closing the kitchen sooner than you’d like.

In this blog, we’ll explore why cash flow forecasting is vital for your restaurant, how you can master it, and a few tips to make sure your restaurant’s finances stay as smooth as your house wine.

Why Cash Flow Forecasting is Essential
Cash flow is the heartbeat of your restaurant. It’s the money flowing in and out that keeps everything ticking over — from paying staff to restocking the kitchen. Yet, many restaurateurs focus so heavily on revenue that they forget to account for outgoings. A healthy profit on paper doesn’t always mean cash in the bank. You can have a packed house every night, but if the timing of payments from customers and payments to suppliers isn’t aligned, you could end up in financial trouble.

Cash flow forecasting allows you to predict how much money will flow in and out of your business over a given period. This foresight helps you avoid cash shortages, make informed business decisions, and plan for future growth. Without it, running a restaurant can feel like walking a tightrope without a safety net.

Get a Grip on Your Incomings and Outgoings
Before you can forecast cash flow, you need to get a clear picture of what’s coming in and what’s going out. Incomings include daily sales, catering gigs, and special event bookings, while outgoings encompass everything from rent and utilities to staff wages and food costs. One common pitfall is forgetting about less frequent expenses like equipment maintenance or seasonal staff bonuses and of course the quarterly VAT bill!

By understanding the full scope of your incomings and outgoings, you can start to build a reliable forecast. The more granular your data, the better. If your Friday night sales are consistently higher than your Monday lunch trade, factor that into your predictions. Many restaurateurs find that using accounting software like Xero helps them stay on top of this information in real-time, making forecasting much simpler.

Timing is Everything 
One of the most common cash flow issues in restaurants is timing. You might have a big weekend, but if your supplier payments are due on Monday and you haven’t received the cash from card payments yet, you could be left in a pinch. To avoid this, cash flow forecasting must include when money will hit your bank account and when payments will leave it.

Take into account any delays in receiving payments from card processors and factor in when your suppliers expect to be paid. This will help you ensure you have enough cash on hand to cover expenses at all times. A buffer is your best friend here — always aim to have a cash cushion to cover unexpected costs, like a surprise equipment breakdown or an increase in food prices.

Plan for Seasonality
In the restaurant business, cash flow is rarely consistent throughout the year. You might find that your sales peak during the holiday season or when there’s a major sporting event. On the other hand, January could be a slow month, leaving you scrambling to cover expenses. This is where seasonality plays a major role in cash flow forecasting.

Look at past data to identify seasonal trends in your sales. By understanding these patterns, you can plan ahead for the quiet times and make sure you have enough cash to see you through. For example, if December is your busiest month, you might want to put aside some of that extra revenue to cover the leaner months that follow.

Reforecast Regularly 
Even the most detailed cash flow forecast can’t predict every twist and turn. Reforecasting regularly allows you to adjust your predictions based on real-time data. Did you introduce a new dish that’s become a hit? Did a local event boost sales unexpectedly? Or perhaps the cost of your favourite supplier’s produce has gone up. These changes need to be factored into your cash flow forecast as soon as possible.

Many successful restaurant owners review their cash flow forecast monthly, if not weekly, to ensure they stay on top of any fluctuations. This regular check-in helps you spot potential cash shortages early, giving you time to make adjustments, whether that means cutting back on expenses or offering a special promotion to drive more sales.

Keep Cash Flow Healthy
Once you’ve mastered cash flow forecasting, the goal is to maintain a healthy cash flow. One effective approach is encouraging quicker payments. Introducing gift cards can be a great way to generate upfront revenue. For larger bookings, consider taking deposit payments to secure funds early. Additionally, renegotiating payment terms with suppliers to align better with your cash flow can provide more flexibility. Longer payment terms, if agreed upon, allow you additional time to collect revenue before settling payments.

Finally, don’t overlook the importance of maintaining a solid relationship with your bank. If you find yourself needing short-term finance to cover a cash flow dip, having a good rapport with your bank can make all the difference.

Conclusion: Set Yourself Up for Success
In the restaurant industry, cash flow can be the difference between thriving and just surviving. Mastering cash flow forecasting allows you to plan ahead, make informed decisions, and avoid nasty surprises. By staying on top of your incomings and outgoings, accounting for timing, and reforecasting regularly, you’ll keep your restaurant’s finances healthy and set yourself up for long-term success.

With cash flow firmly under control, you can focus on what really matters: serving up unforgettable meals and keeping your customers coming back for more.