Having positive cash flow is essential to the running of small businesses, for example, restaurants, and retail stores. If you do not have enough cash, many crippling issues may arise. Firstly, you will be unable to pay staff, cover marketing costs, pay suppliers, or buy stock/goods. To be able to prevent these issues, it is imperative to have an efficient cash flow management. Here are some tips you can use to control the flow of cash in your business better and become more profitable.
10 Cash Flow Management Tips
#1 Prepare a Cash Flow Forecast
Creating a cash flow forecast is essential as it benefits your business in numerous ways. This forecast will warn you when money is coming in and out of your business. That way, you can better manage the inflow and outflows. A cash flow forecast is useful for making decisions on capital expenditure and deciding what expenses to eliminate. Your cash flow forecast should project your sales and revenue, and also your possible expenses. You are also able to compare forecasted figures to actual cash figures. Therefore, if you see any inconsistencies in your values, you will know to investigate. Another advantage is that it helps to create seasonal budgets. This is especially important for businesses like restaurants to have proper cash flow management.
#2 Create Seasonal Budgets
For small businesses such as restaurants and retail stores, annual budgets aren't the most effective. The annual budgets are not always the most effective for companies in the restaurant industry. These businesses tend to be seasonal. This means there will be peak seasons where more goods have to be bought and additional staff hired. Also, in slow seasons, fewer products will be purchased. Therefore, the cash flow forecast has to be done on a more frequent basis for these types of businesses. Your prediction will aid in cash flow management by allocating costs for staff management, stock, and marketing campaigns.
#3 Decrease Overhead Costs
Conserving on overhead expenses wherever you can is essential to managing cash flow in your business. Evaluating your expenses and cutting back on things like payroll, utilities, stock, etc. can significantly improve cash flow. Review utility costs and seek better alternatives or providers, also do an inventory check, and cut back on items that are not selling. You may also source cheaper alternative goods to the brand you usually use. For restaurants, decreasing your menu and redistributing ingredients is an effective strategy to cut costs. You can also implement flexible working, to have fewer people on the shift in slow seasons, and more people working in peak seasons.
#4 Don't be Dependent on Credit
Although credit is helpful for the startup of your business, it can also be a crippler, especially for restaurants or retail stores. If having large debts to pay back is a massive part of your overheads, it may lead to the closure of your business. Instead of accepting credit offers from suppliers, ask them for a discount if you make an immediate payment. If you are purchasing goods on credit, ensure your sales projection indicates you will be able to pay it back. Having a sound cash flow management system helps you make upfront payments and fewer credit requests.
#5 Manage Bookkeeping
Having someone to manage your accounting and bookkeeping processes is imperative in running your business. Ignoring your accounting leads to unpaid bills and invoices. Having inconsistencies in your invoice figures, or inaccurate forecasts leads to losses. You need to ensure that the data recorded is correct. Incorrect data also makes tax responsibilities more difficult. Therefore, ensure that you monitor your bookkeeping procedures to be more in control of your finances.
#6 Use Multiple Vendors
For businesses such as restaurants or retail stores, relying on one vendor for the supply of goods is a huge mistake. There may be times when deliveries are late or missed. This will cost you a lot of money as a business owner. Therefore, it is essential to have a list of reliable vendors that you can source goods from. That way, if your primary vendor is unable to provide the products, you are not left to operate at a loss. Also, having multiple vendors improves delivery efficiency as they compete to keep in contact with your business. Each vendor will be trying to provide the best service. Therefore you get to reap the benefits of their competitiveness.
#7 Prepare for Possible Problems
Ensure that you practice saving, in the case that you may need it for a rainy day. Always be prepared for any unexpected issues that may arise that can affect your cash flow management. Put aside a cash reserve for surprise issues that may pop up. For restaurant owners, retail store operators, or other business owners, this is a big problem. Consider a case where you encounter equipment failure; you will need to have money put aside to fix that problem. That way, you do not have to take that money out of your revenue to repair damages.
You also need to monitor market trends, as multiple factors may affect customer buying behavior. Changes in customer buying behavior may result in a loss of profit or an increase; it all depends on the situation. If a cash flow catastrophe occurs, ensure there is a plan in place to combat it before it gets worse.
#8 Inventory Management
Ensuring you have a consistent inventory management system eradicates many cash flow issues. Poor inventory management is one of the main reasons that businesses such as restaurants and retail stores. It is an area that gets disregarded due to its dull nature. However, proper inventory control is the backbone of running a business. Keeping track of goods that are not selling or products that have gone missing is essential to cash flow management. This way, you can view what items you are overstocked and understocked with. Therefore, inventory checks should be made at least every week.
#9 Ask for Deposits
For restaurant owners, asking for a deposit before catering or hosting an event is imperative. This protects against loss of money through cancellations. Also, ensure you make it known what portion of the funds will not be refunded if you had to prepare days in advance. Ensuring that labor and food expenses are taken care of is essential, even if the events get canceled.
#10 Track Cash Flow Trends and Analyze Them
Paying attention to your business's cash inflows and outflows on a weekly basis is essential. Viewing the projected versus actual cash flows is essential in analyzing the trends in your cash flow management. You may then analyze your cash flow and determine where your sales peak high and where they fall short. That way, you can adjust your spending habits.
Following the tips outlined will ensure that you have a better way of managing your cash flows. This will, in turn, ensure that your business becomes more profitable. Mismanagement of cash inflows and outflows create a variety of issues for restaurant owners and retail store operators. Therefore, a lot of thought has to be put into creating a functional cash flow management system that will benefit your business.