A study by Perry Group International revealed that most restaurants go out of business during their first year of operation, and 70 percent of those that make it past the first year close down in the next 3 to 5 years. Experiencing a cash crunch is one of the main reasons why restaurants struggle to stay afloat. Running a restaurant is not all about preparing food that taste great, there are a lot of expenses that need to be covered for the business to stay afloat. If your restaurant is experiencing a cash crunch, it’s crucial to take steps that will increase cash flow and make the business profitable.
Decrease Restaurant Overhead
If you find that your restaurant is not making enough money to cover expenses, it’s a good time to eliminate waste of resources in payroll, inventory, utilities and other areas. Revise your menu and remove or reduce slower moving dishes and low margin items. Decreasing your menu will allow you to limit the amount of inventory that you need to order. You can also cross utilize menu items in order to use ingredients in more than one dish and therefore reduce wastage. For example, if your menu includes a burger (ingredients which include lettuce, tomato, onion, bacon) it should also include items that require the same ingredients. When it comes to payroll, if you experience a small number of customers in certain seasons or certain days of the week, like Monday evenings or Wednesday mornings, reduce the number of staff working during those times in order to save money on wages.
Photo: Chef Adrian Cruz putting final touches on his creation!
If you run out of cash to run your restaurant, an outright sale or closure isn’t always necessary. Before you think of closing down and declaring bankruptcy, you need to look for other ways of injecting cash into the business, and if that isn’t an option, consult a bankruptcy lawyer in order to analyze your options and know if you qualify. Seeking financial help in the form of a short-term business loan can help keep your restaurant afloat until you become profitable. Your bank is a good place to start. Most bankers want to see your business do well and make profit. So talk to your banker to find out if there are any short term solutions to your cash crunch problem. Also, if you know you’re going to have a hard time making mortgage or loan payments, talk to your bank and ask for an extension or the restructuring of your payment plan. If bank financing isn’t an option, you can turn to online lending companies that provide entrepreneurs with small business loans, often in the form of cash advances. However, you might sink your restaurant deeper into debt if you take out loans with high interest rates, so exercise caution when applying for any loan.
Managing a restaurant into profit may require a lot of hard work and may take time, and so if you experience cash flow problems, don’t panic. Get a full picture of your current situation and formulate a plan, and you will get your business back on track in no time.