Cash flow is the lifeblood of any restaurant. The first time you miss payroll, you’ll immediately understand the importance of managing a pizzeria’s cash flow. Managing cash flow is crucial to the health of your restaurant. That entails forecasting and totaling all significant regular cash inflows—including sales, bank loans, interest income and other income—and then analyzing in detail the projected needs and timing of costs of goods, payroll and other payments.
Here are five tips for managing a pizzeria’s cash flow:
1. Establish separate accounts for your business and your home. This is especially important for small independent pizzerias. It’s too easy to commingle funds and spend the cash for personal reasons when it’s needed to pay your restaurant’s bills and debts. Remember: Profitability does not reflect cash—this could be called the “High Profit/No Cash” syndrome.
2. Manage your cash sensibly. You can have too much cash in your business. Cash is an asset that should be working for you at all times, gaining interest. Create a forced savings account for estimated tax payments, savings, and a three-month emergency fund. Become accountable to making routine deposits to the bank. And get in the habit of paying yourself.
3. Take a systematic approach to paying your bills. Work from actual prior period results, month-to-month and year-to-year. Leave some cash in the bank at all times. Work with your vendors so your cash account does not fluctuate with highs and lows but is somewhat consistent throughout the year. Create a system for how your restaurant pays its bills and negotiate favorable payment terms with your vendors. Your entire team should be aware of exactly how this system works and should not deviate from it without permission. Keep in mind that’s inevitable that your water heater will need to be replaced or your roof will leak or your oven will break. These known capital expenditures need to be projected as part of doing business.
4. Follow the money as it flows through your restaurant. When managing a pizzeria’s cash flow, it’s important to take the time to document your cash receipt and disbursement process. Have your accountant help you follow the money from the time a customer presents you with cash or swipes a credit card to the time you take your deposit to the bank. How does your POS system record the transaction? Who takes the deposits to the bank? Do bank statements come to your house or to the restaurant? Find out everywhere the money travels and identify ways to track its movement.
5. Leverage money effectively. When you start a new business, you will usually receive unfavorable terms from your vendors. After you’ve built a good relationship with them, though, you can start asking them to your extend your credit and payment terms. Constantly find ways to purchase in volume and receive discounts. Consider refinancing your equipment and personal loans that you took out to launch your pizzeria. Now that your pizzeria is cash-flowing, take your financial statements and find a new lender to decrease your monthly outlay for debt service through a reduced interest rate.
When managing a pizzeria’s cash flow, you want to take the time to monitor how cash, including credit-card transactions, move through your system. Don’t delegate managing cash flow to anyone but yourself until you have a proven cash flow system in place for your pizzeria.
This story was adapted from the original version by Michael Rasmussen that appeared in the March 2006 issue of PMQ Pizza Magazine.