24 Feb Why do some restaurants close after a few months of trading?
Many restaurants close after a few months because they run out of cash. Why do some restaurants close after a few months of trading?
Cash is king. Forecasting cash flow is very important, because if we run out of cash we will become insolvent, and will have to close the restaurant.
In this industry we get the money first from our customers, and unlike other industries we don’t have to chase our clients for payments: awesome!
However, it is so easy to lose control. We get a lot of money, our bank account is glowing , and so are we, then we pay suppliers, staff, rent, rates, consumables, repairs, and the big hit, VAT, and suddenly we realise that our bank account is shaking!
That is why when you open a restaurant you need to have some cash to start running the business, as it is unlikely that you will break even from the day you open.
6 tips to help you with cash flow:
1) PLANNING IS KEY. Track your cash flow, and forecast what you’ll receive and what you will need to pay in advance.
2) Reduce stock. What is in your stock is not in your pocket.
3) Negotiate good prices and terms with suppliers.
4) Try to “live with what you have”. Some restaurants get used to using lines of credit or short term loans that end up being very expensive and put you in a worse situation in the long term. My advice is to use these only if you must.
5) Decrease overhead expenses. Your cost of goods and staff costs are very hard to lower sometimes. However, we can’t forget that marketing, consumables, repairs, utilities and others represent in some cases 20% of our costs. We need to pay attention to them to make not only our cash flow healthier, but also our bottom line.
6) Have some reserves on the side that you can use in case of emergency, because let’s face it, some shit will happen, but we need to be ready for it 🙂 .