Cash flow is serious business – it can make or break a hospitality business and there are ways you can improve and manage it. In a nutshell, managing cash flow is ensuring you have more cash in your business bank account than you need to cover your outgoings, pretty much all of the time. Positive cash flow ensures you have money to pay your suppliers, pay your staff, and have a bit of a buffer in case of any surprises. Cash flow is also important for growing your business; usually, cash is necessary to buy new equipment or establish new venues.
So to help you along the way, here are three ways you could improve your cash flow:
1. Set monthly financial targets so you know where you are headed
It’s important to set achievable targets that are practical and reachable. Setting a target allows you to work towards something. Your targets could be:
- Breaking even in the first year – having enough money coming in to pay for all of your costs without going into the red.
- Generating $Xk worth of revenue in year 2 – this will allow you to focus on increasing the money sitting in your account. Finding ways to reduce your expenses and building a menu or offering that can make you profitable, for example, your own twist on items that are trending or in high demand and charging a little extra – something which your competitors aren’t doing.
- Decreasing unnecessary expenses – taking stock, looking at your inventory, and ensuring you are only purchasing what you need when you need it is a foundation of taking steps to greater revenue. Buy only what you need to meet your current demand.
Targets like this give you something to work towards and a financial measure of whether you are delivering what you have set out to achieve or not, and will help you along your way to healthy cash flow.
2. Negotiate better supplier terms
Look at your suppliers and see if you can negotiate better payment terms. At the moment you may be paying upfront or in cash on receipt. Can you move to pay by invoice? Can you increase the payment term of your invoices from 30 days to 60 days? The longer your payment terms, the better your cash flow is likely to be.
It doesn’t hurt to ask – suppliers value your business, particularly if you are a frequent and reliable customer. Establishing good rapport and developing a great business relationship can help you gain more favourable terms.
3. If you currently pay your staff on a weekly basis, move to a fortnightly or monthly model
Many hospitality businesses pay their staff weekly due to rostering and how casual staff might be employed by a business. Moving staff payroll to a fortnightly structure (or monthly, if you can) allows for the accumulation of cash in the account, and allows you to juggle paying suppliers and paying staff more efficiently.
Ten X can help you find ways to improve your cash flow and keep on top of your payments to suppliers and manage payroll. We operate digitally, meaning you only have to upload your invoices and we take care of the rest, without you having to worry. This gives you the time and space back to work towards your financial targets and aspirations. We’re perfectly positioned to provide you with the best advice when it comes to managing your business and keeping your cash flow in tip-top shape.
Learn more about how we can help.