It’s no secret that food is hot right now.
Over the past decade, there has been an explosion of food in the media, restaurants are opening at a dizzying pace, and more people than ever are paying attention to their food, learning to cook, and generally taking the industry seriously.
Most of this is good stuff for those of us in the industry.
But, as with everything else in life, there’s a dark side.
As food and beverage companies grow more and more prominent, there comes more and more pressure to distribute some of the perceived resources accumulated by the company.
This comes in the form of sales calls to upgrade to newer equipment and/or software, philanthropic organizations looking for in-kind donations, employees asking for raises, and a virtual cornucopia of other ways and means of distributing your resources.
But, before we get started, I want to make one things really clear. In no way am I indicating disapproval of any of these things.
In fact, during my time running food and beverage businesses, we often engaged in the same and more ways of using the resources provided by our business to improve our facilities, take care of our employees, and to interact with the community.
The purpose of this blog post is to remind you of one simple truth taught to me years ago that has served me countless times since.
The first and most important kind of sustainability is the financial sustainability of the business.
Another way of thinking of this is, if there’s no business, there’s no investment from the business.
This may seem like a simple concept on the surface, but the reality is that the opportunities for and demands on resources are endless and often complicated.
How about a short-term, high-interest loan to pay for that new equipment?
What about that fantastic cook that’s leaving if he or she doesn’t get a raise?
Wouldn’t a shiny, new espresso machine help draw people into your store?
When faced with these situations, many of them will play to your emotional self while still others will create a sense of urgency or dread.
Our advice to you is to insist on taking a step back, take a day to sleep on it, and ask yourself…
- Can we afford this?
- How will this help our business?
- Can we survive without this?
The Truth About Food and Beverage Spending
Food and Beverage establishments are funny entities for a lot of reasons, but one of the most pertinent to this topic is cash flow.
Most F&B establishments rely on quick turnover and high average ticket prices. The result is a large daily, even hourly, cash flow in and out of bank accounts.
Now, in most cases, high cash flow is considered a good thing, but when it comes to making business finance decisions, it can be a hindrance.
Many F&B business owners simply don’t have or keep detailed revenue statistics about their own establishments that would help them make informed decisions based on accurate information.
In fact, many of the owners and mangers I’ve spoken with don’t know what’s in their bank account that day.
And yet, the show must go on. Sales must be made and, more importantly, cash must be spent.
It’s a precarious situation, to be sure.
However, just a few simple steps can alleviate the uncertainty surrounding cash flow and help you to make better, more informed decisions.
First, get a POS system that allows you to set up your sales system with as much detail as possible. Be sure that the back office tools are robust and offer you as many options as possible to drill down into numbers for analysis.
Second, build your budget and set your benchmarks. Know what you can afford to spend on labor, COGS, overhead, etc.. and stick to it. Determining these benchmarks early in the process of starting a restaurant is crucial for success.
Third, set up your spreadsheets to track daily, weekly, monthly, and yearly cash flow. This is a lot and can end up being a pretty complicated spreadsheet. However, taking the time or investing the money to set this up properly will pay dividends in the future. Use these spreadsheets every single day. Commit to updating these spreadsheets as frequently as makes sense for your business.
Fourth, spend _last week’s_ money, not this week’s. The idea here is that you budget based on money that is at least one week old. Build your labor needs, your COGS budget, and any other known expenditures based on the numbers from the week before and your spending will always be in check and you’ll always be able to make judgment calls on unexpected expenses with ease.
Fifth, budget for all of the irregular expenses you can. Take the time to know ahead of time what and when you’re going to spend resources. Try to plan equipment upgrades, marketing expenses, and other irregular expenses ahead of time and gradually put money away to cover those expenses in a separate account.
Bringing it Home
The truth is, cash flow for Food and Beverage businesses is erratic on the best of days.
However, a few simple, common sense practices can make a huge difference in the amount of control you exercise over your day to day finances.
Our goal for each of our clients isn’t just that they are successful, but that they understand why they are successful and are able to bring those lessons to bear for the businesses they own and operate.
If you could use some help getting a handle on your business finances, we offer coaching at an affordable hourly rate that is guaranteed to help you take control of your business and be able to make smart, informed decisions about how to use your resources.
Give us a shout by clicking the link below. Consultations are always free and we never use hard-sell tactics with our potential clients.
Thanks for reading!