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GETTING TO GRIPS WITH CASH FLOW

Reading Time: 5 minutes
cash flow

Cash is king is a well known saying. Some think this means just coins and notes. But when we talk about cashflow we are using the word “cash”  for all forms of payment where the customers pays at the point of purchase (whether that be by card payment or cash) as opposed to giving customers credit.

They say that cash is king and when it comes to keeping a fish & chip shop running, it’s absolutely right. But cash flow can be a tricky thing to manage when you have so many other anxieties.

Cash flow is like the heartbeat of your business, it pumps in and out and has to be scrutinised. When it’s not working correctly, it can threaten your years of hard work.

Your business is a system, as a living body, with a flow and timing that have to work day in and day out. Having cash on hand for everyday and necessary expenses keeps things moving forward. Still, it can also give the power to invest in business growth opportunities.

As an entrepreneur and business owner, your job is to keep the flow going without disruption, which means knowing your current cash position.

If you find yourself in frequent cash flow difficulties, it may be time to consider cutting back on overhead expenses. This includes payroll, inventory and utilities, among other things.

🍲 Menu Reduction & Inventory

cash flow

The way to think of stock is to visualise it as money, it’s money that you use to turn into more money but the longer it takes to turn over, the less the return on your investment is.

Examine your menu and see if there are items that just aren’t selling or are slow movers. Are there ingredients that could be better used more profitably elsewhere? Decreasing your menu means you carry less inventory. 

It might sound silly, but are those items in the freezer selling as fast as you think? If you have them in the freezer for 3-4 weeks, they will be holding up your cash. Just because it can last in the freezer a while doesn’t mean it has too, freezers are a valuable space, and they cost money to run.

Keep an eye on your inventory to make sure you’re not consistently over-buying food and packaging each week. If you’ve got extra stock in your freezer, chiller or ambient storage room that just isn’t moving, it may be time to review your menu.

Redistributing ingredients also reduces wastage, for example, can you tweak your recipes to use more of the one component.

The only time it is worth buying in bulk is if the saving is significant. Still, you have to calculate how long it will take to release that money, if you are comfortable with that then take the deal.

💷 Wages

cash flow

You can further reduce overheads by adopting flexible working. This allows you to have fewer people on during the slow times, but have more people in on the busy periods to help maximise sales.

If you open at 11.30 for lunchtime, do you need all your staff in from 10am? You could have your prep team doing potatoes or cutting fish, then serving staff could start filtering in. You should run an hourly sales report of your epos and then stagger people into the shift and out the shift, just because you have opening hours doesn’t mean you should have full crew all the time. The opposite is also true, being short-staffed might save you money but could lose you sales. 

Getting the balance right all the time is tricky, but it is definitely worth keeping on top of this weekly.

💡 Energy Prices

cash flow

This isn’t something you can do daily, but reviewing your energy bills and shopping around to see if you can get a better price elsewhere is an excellent way to make sure you are on the best deal. It does not pay to be loyal to utility companies unless they can beat the new quotes you are getting.

📒 Keeping on top of accounts

cash flow

Many of us let our bookkeeping fall to the wayside. It’s only natural. If you’re in the kitchen or serving customers all day, you rarely have time to do the books. However, ignoring your books leads to bills not being paid and invoices not chased. This leaves you out of pocket in both directions.

Disorganised books also make your tax responsibilities harder to meet. By keeping your accounts in good order, you’ll be able to generate valuable reports and generally feel more in control of your finances.

If this seems daunting, you’re better off having a bookkeeper who will do all of this for you.

🧾 VAT planning

cash flow

In this business the VAT collection is not a surprise, don’t be in the dark about your payments to HMRC.

If you are on the 20% VAT rate then it’s a good idea to set aside 1/6th of your turnover every week, this way there are no nasty surprises and you won’t be running around finding the funds. On top of this, you will have a little left in that account every quarter too. 

⏳ Time

cash flow

All of the above needs time, you won’t see instant results, but after four to six weeks you should start seeing a little more money in the bank. 

🏦 Don’t rely on credit

cash flow

Credit is useful for getting any business off the ground, but it’s dangerous if it becomes a crutch. When paying back debt becomes the largest part of your overheads, it can cause a business to fall into a spiral that leads to closure, so take care!

Rather than accepting offers of credit from your suppliers, find out if they will give you a discount if you make an immediate payment. Like you, they will be concerned about their cash flow, so you may find that swallowing a significant upfront cost is cheaper in the long run.

Fortunately, having an accurate cash flow forecast can help you make more upfront payments and fewer requests for credit.

⛈️ Anticipate problems before they happen

cash flow

In addition to a cash flow forecast of your own, keep an eye on other things going on around you that could affect your restaurant.

There are so many factors that affect customer behaviour, from bank holidays to the weather, to general economic environments. Monitoring market conditions allows you to stay ahead of the game.

Most importantly, don’t bury your head in the sand and hope the issue will go away. A cash flow crisis only gets worse if you ignore it. Keep on top of your cash flow, and you’ll be able to deal with problems quickly and efficiently.

💰 Keep a working capital reserve

cash flow

Just like a house, a restaurant or takeaway comes with many unexpected expenses. Broken equipment can cost hundreds or thousands of pounds to fix or replace. Keep a stash of cash aside so that you can take care of these problems. If you give it some time, the nest egg will build up, when you see it creeping up don’t be tempted to spend it yet.

Wrapping up

If you are keeping your cash flow information up-to-date, then you can play with the what-if situations, like:

What if we…

➡️ Want to hire a new employee?

➡️ Upgrade our frying range?

➡️ Pay for a new delivery vehicle?

➡️ Buy new epos systems?

When your decisions are based on probabilities and information, you are better equipped to mitigate risk and discover peace of mind.

In the end, it’s all about clarity. You are managing the lifeblood of the business, after all.


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