Mar 07

Why a cash flow budget is vital for restaurant and cafe owners

The restaurant and café industries are tough ones to succeed in. Margins are usually tight, and so you need a good grip on your finances (along with a solid understanding of your key business drivers).

A cash flow budget can help make your restaurant or café a success

While that may seem obvious, a lot of restaurants fail because of bad financial management. Some owners see all that money in the business account and think everything’s fine. Unfortunately, they forget they need most of it to cover expenses—superannuation payments for employees, GST they owe the tax office, wages tax withheld, loan repayments, asset replacement, etc. So while the bank account may look healthy, their cash flow may well be on life support.

It’s time to create a budget

The most common way to track a business’ cash flow is with a cash flow budget—a seasonalised monthly plan that lets you compare your expenditure to your budget so you can adjust it accordingly.

Because in the beginning there will be a lot more cash going out than coming in.

You’ll need to spend a lot just getting your restaurant ready to open its doors. And as much as you’d like it to be booked out from Day One, there’s no guarantee it will happen. In fact, it will probably take a while for your restaurant to gain momentum.

And don’t forget that the flood of customers you have one month may slow to a trickle the next.

How a budget can help you survive

Having a budget will help you plan for it all. Chances are you won’t get your cash flow budget perfect the first time—it’s hard to predict accurately—but any plan is better than none. It will guide you, and help you deal with any major expenses on the horizon.

And by comparing your actual results against your cash flow budget each month, you’ll be able to adjust it and stay on the front foot.

Your cash flow budget should be:

  • simple to use
  • easy to understand for both you and third parties (such as the bank)
  • based on monthly projections
  • able to compare budget to actuals
  • conservative (don’t be too ambitious with your numbers—they need to be realistic)
  • conscious of timing, particularly with regards to Australian Taxation Office (ATO) and superannuation obligations.

There’s plenty of software out there that can help you create a cash flow budget and make your monthly comparisons. But what’s more important (especially if it’s your first restaurant or café) is to get help from someone experienced at preparing cash flow budgets who also understands the restaurant and cafe world. It will reduce the chances of making a mistake or leaving something out.

Cash flow is the lifeblood of your business. And you need it to flow as smoothly as possible.

How to stop spending money that isn’t yours

Budgeting can get tricky when you’re making irregular payments—ATO obligations, superannuation, personal tax instalments, etc. So it’s a good idea to work out the minimum amount you need to cover them, and then put that amount aside each week. Create a separate bank account (think of it as your tax account), and transfer the money across at the end of the week.

And if you end up transferring more than you actually need to? Well, think of it as extra savings.

One more tip

To avoid being hit with large cash outgoings, find out if you can make smaller payments more often. For example, you might be able to:

  • pay your employees’ superannuation monthly
  • register for monthly employee PAYG tax payments
  • spread out your insurance payments (check whether there’s a premium for doing this)
  • pay monthly subscriptions for some of the services you use.

Yes, the restaurant and café industries can be tough. But with a good cash flow budget and a bit of discipline, we’re sure you can make it.

And if there’s any way we can help you on your journey to success, don’t hesitate to get in touch with us.