What is Restaurant Cash Flow?

Your restaurant cash flow is a term for the money you make minus what you’ve spent on operating costs. Understanding your restaurant cash flow is important for you as an owner to help budget for expenses, and is also something that potential investors will want to see before investing in your business.

How to Calculate Restaurant Cash Flow

To put it simply, the formula for calculating restaurant cash flow is:

Cash Inflow – Cash Outflow = Total Restaurant Cash Flow

But, let’s break that down.

Determine Your Restaurant Cash Inflow

To start, add up all the money that comes into your restaurant during the accounting period you are calculating for. This includes your food and beverage sales, plus any merchandise or pantry items you sell, loans you received, money from catering or events, and any other money that comes into your restaurant.

Determine Your Restaurant Cash Outflow

Next, add up all your operating costs for the accounting period. For restaurants, this includes money spent paying off loans, buying assets for the business (a company car, for example), utilities, payroll, inventory, rent or mortgage, insurance, restaurant furniture or kitchen supplies, appliances, and more.

Restaurant Cash Flow Example

If your restaurant’s cash inflow was $500,000 for an accounting period and your operating expenses were $150,000, your calculation would look like this:

$500,000 cash inflow

$150,000 cash outflow

=

$350,000 restaurant cash flow

Calculate Your Restaurant’s Operating Cash Flow

To fully understand the health of your business, you should be calculating your restaurant’s operating cash flow as well. This is similar to the formula above, but you will only include cash inflow that comes from normal business operations – that’s generally just food and beverage sales for restaurants. By removing other incoming cash from the equation, like loans, you will get a clearer picture of your restaurant’s ability to sustain itself.

Worried about your restaurant bouncing back after COVID-19? Download our free Restaurant Recovery Handbook.

6 Restaurant Cash Flow Management Tips

1. Come Up With a Restaurant Cash Flow Forecast

By using the analytics in your restaurant POS, you can make an educated estimate on what your cash flow should look like for the upcoming year. Using the information you have from the previous year, you’ll be able to plan ahead for when you will be more likely to have some extra money to work with or when your should start to cut back on spending.

You can then use your restaurant cash flow forecast to create seasonal budgets. Relying on seasonal budgets over a flat annual budget will help you to better navigate the ups and downs, as seasonality looks different for every restaurant depending on your location, how you operate, and other factors.

2. Start Streamlining Costs

If your restaurant cash flow isn’t where you want it to be, take action to reduce your overhead costs. Talk to your utility providers and vendors to see if there are any ways to lower your costs or payments, edit down your menu by removing less popular or low-profit items, and determine which days you can cut staff earlier as evenings start to die down.

Saving Restaurant Costs During Coronavirus

3. Don’t Rely on Credit (If Possible)

Paying back debts can become a huge chunk of your restaurant cash outflow if you’re not careful. Rather than taking inventory on credit, for example, talk to your vendors about a discount on your orders if you pay in full, upfront. They also have a cash flow to think about, and a bulk cash inflow could persuade them to cut the price.

4. Get Your Books in Order

Bookkeeping probably isn’t any restaurateur’s favorite part of the job, but staying on top of your invoicing and keeping your accounting in order will give you a clearer and more accurate understanding of your business.

5. Diversify Your Vendors

Having just one vendor for a specific item, like meat or produce may be convenient when it comes to ordering, but you’ll be in a difficult situation if anything ever happens to their supply. (Remember when KFC ran out of chicken?) Working with multiple vendors will also allow you to get the best deals since you are able to compare prices and negotiate.

6. Save for Emergencies

It can be tempting to see a large cash inflow and want to spend it on something fun for your restaurant. But it’s best to set a portion aside for future emergencies so that when your hood vent kicks it or the pipes start backing up, you’re prepared for the expense and not scrambling to find cash or taking out a high-interest loan. 

Get prepared to re-open or reassess your business strategy and pivot for the post-coronavirus landscape with our Restaurant Recovery Handbook.

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Written by   |  
Stephanie is a Providence, RI native and eight-year food industry veteran. As Upserve's Content Marketing Coordinator she creates materials that help restaurateurs, managers, and service professionals succeed. When she's not writing, Stephanie is most likely traveling, cooking, or trying new restaurants.