In few other industries does business ebb and flow as dramatically as with a restaurant, but that doesn’t mean you have to put your plans on hold during the slow season.
Below, we offer four tips for managing your restaurant’s cash flow year-round to help you make the most of every dollar earned — and every dollar spent.
1. Decrease your operational expenses
Although limiting your expenses may seem like an impossible task, there may be costs hidden in the most unlikely of places — especially your menu.
Once you’ve hit on a strong mix of dishes, it can be easy to continue serving that same menu indefinitely. However, there are always underperforming items that can be revamped or removed.
Try collecting data on your sales for the past several months — or, if you want to be especially thorough, over the past year — and compare the sales for each dish. Chances are, you’ll find at least one underperforming option that can be cut entirely.
Because it is underselling, your customers probably won’t even notice the dish has been removed. Doing so will free up some cash by removing excess product/inventory — and maybe a slot on your menu that could be filled with something new that you want to test with your customers.
While evaluating your menu, also take a few minutes to carefully review the ingredients in each dish. Are there any that are used only once or twice? If so, consider whether those could be replaced with more frequently used ingredients — or if the underused ingredients could replace more expensive ones you’re using in other dishes. This will not only will cut costs, but also make ordering inventory simpler and potentially reduce your waste.
Just be careful when looking for areas to cut back. Your customers likely won’t mind if you remove an underperforming dish, but they’ll definitely notice a change in your food if you choose to reduce costs by purchasing lower-quality ingredients.
2. Re-evaluate your menu prices
Just like the dishes you’re serving, it can be easy to let your prices go unchanged over time. As food prices fluctuate your profit margins could narrow, potentially in amounts so small you may not even notice. The result over time could be significantly lower profits — and a much larger gap between the original price and a more appropriate one.
Make a point of evaluating your menu regularly to identify items that are increasing your profits, those that are not significantly contributing, and those that are underselling. Use the Boston Consulting Group (BCG) Growth-Share Matrix to determine what items should increase in price, which to promote more, and those that should be deleted off the menu all together.
Using the BCG Growth-Share Matrix, arrange each of your menu items into one of four categories:
- Stars are menu items that generate strong sales, but they are also costly. These items sell quickly, but include expensive ingredients and may require a lot of prep time or labor to produce.
- Question marks are those items that are increasing in popularity, but are among the costliest to produce. These items may work well as a limited time offer, but not necessarily as a permanent menu item.
- Cash cows have high profit margins. These products are easy to make and cost very little. They also are popular with your customers and should be menu staples.
- Dogs are menu items that do not sell well but also don’t cost much to create. These items often go unnoticed as potential cash wasters because they do not have a high cost associated with them, but they still could be hurting your bottom line and should be removed from your menu.
As with anything, however, the trick to evaluating and adjusting your menu is moderation. Too drastic of a change could be off-putting to your customers, causing them to lose trust in your business or seek cheaper options. Likewise, unless it’s a small increase to everything, changing too many items at one time can be upsetting to your customers as well.
Instead, choose one or two items to change every quarter, as needed, to bring them back to market value. Because customers are already accustomed to seeing seasonal changes in menus, the small adjustment will be less jarring — and, if accompanied by a slight change to the dish, may go unnoticed altogether.
To get the most bang for your effort upfront, try adjusting the prices for your most popular items first. Because these dishes are so frequently ordered, the profits from each small change you make will be more substantial and will add up more quickly.
3. Plan ahead
If there were ever an industry where the ability to think on your feet is an absolute necessity, the restaurant business is it. But just because your days consist of putting out fires — sometimes both literal and figurative — doesn’t mean you can’t plan ahead for some contingencies.
Evaluate your needs over the span of the next year. Do you need a new grill? Are your dining room chairs looking a little worse for the wear? Write down the improvements or changes you hope to get done, ranking them from most important to least, as well as the cost for each.
Then, evaluate your average sales season to season to identify the ideal times to pay for and begin projects, with the goal of limiting the impact on your sales. Plan to make large-scale changes before your busiest months, for example, to ensure you get the greatest possible return on your investment for each piece of new equipment or your latest expansion — and don’t interrupt your busiest season.
By mapping out your large expenditures, you can keep that end goal in mind when considering other purchases, managing your budget, and making pricing decisions. You’ll also have the opportunity to gauge your progress toward that purchase throughout the year. This way, you’ll be able to make adjustments to your cash flow as needed throughout the year, helping ensure you won’t be caught off guard and without the necessary funds when it comes time to make that investment.
Regardless of what purchases you’ll be making and when, however, be sure to always keep a cushion of money at the ready in case of emergencies. After all, in this business, you never know what fires you’ll have to put out next!
4. Pursue alternative cash options
Sometimes, to achieve the change or improvement you’re looking for — or to relieve financial pressure after a large purchase — an infusion of cash is necessary. In this instance, many business owners turn to a traditional loan, unaware that there are other options in the market.
Instead, you may want to consider a merchant cash advance, like those offered through Rewards Network’s financial services programs. Instead of the long payment period and incurred interest typically associated with a loan, with the Merchant Cash Advance programs, Rewards Network provides the cash you need by purchasing your business’s future credit card receivables — meaning you pay only when your business generates credit card sales.
Want to learn more about how our Merchant Cash Advance programs can help your business?”
