Restaurant Finance: Advice for Avoiding Disasters

Industry experts suggest that the ferocity of the F&B landscape is due to a mix of circumstances, not excluding intense over-saturation of the market. Rapid expansion may cause a rush of adrenaline, but one must accept the consequence of this gamble— potentially growing too soon and reaching a point where supply defeats demand. In addition to rising food prices, labour shortages, and high turnover rates, to see how restaurants often struggle financially isn’t exactly rocket science.

Don't Grow Faster Than Your Cashflow

Photo by Austin Distel on Unsplash

Developing and expanding a new restaurant concept, or starting an existing one in a new location, is truly an exciting time. However, growth really should be approached with caution.

Setting up new outlets needs to happen in a structured manner so that every outlet is monitored and regulated. Controlling which suppliers can be ordered from, deciding who can make the orders (and what they order), reviewing all spending and tracking budgets closely— these are all areas of business which require immense attention to detail.

Once a new location is up and running, it is vital to properly analyze and understand customer demographics and purchase behaviour for the site. Commonly, the central kitchen or the head office is far too isolated from the daily issues at each specific area, especially when menus, information, and promotions are shared.

This can be a challenging task— especially when the central office needs to ensure control over portions, recipes, specs, and purchases of every outlet.

Having fully automated ordering to suppliers and invoice management that is linked to your live supplier pricing, such as offered by FoodRazor, is a great way to manage the task, and comes with the added benefit of providing complete transparency across the business.

Manage Supplier Payment

Make sure that you always negotiate with your suppliers to agree upon better payment terms for your business. Better payment terms can include having a longer duration to make money on the goods before having to pay for them. 15 or 30 days would be a good default reference to follow and duration to start with if you don’t have any previous data to forecast the health of your restaurant and when you are able to cover the costs of goods.

Have a Profit Account

Open a separate bank account just to put in your profit margins. Decide on the amount that you're gonna take as your profit margin every month (5-10%) and put that amount into the separate account. It’s old news that restaurants always tend to spend all the possible money they have since operational costs are extremely high in this industry. With the funds you’ve put aside in another account, you can use them to pay dividends and there won’t come a day where you completely run out of money. It’s a good way to ensure that you always have cash reserve.