It’s important to be prepared during both the good and the bad times of doing business. Silver Chef’s national franchise manager, Andy Reeves, shares his top tips to stay afloat during the changing tides of cash flow fluctuation.
Prepare a sales forecast
According to Silver Chef’s latest HISI report, 27 percent of restaurants and 20 percent of cafes could be selling themselves short by not updating their prices reflective of growing business costs including stock, wages and rent.
While no one can tell you what the future holds, preparing a sales forecast at least once a week, will give you a rough idea to work around market climates, seasonal trends, or fluctuations in the industry to adjust your pricing accordingly.
Create a cash flow projection using factors like:
- Sales forecasts
- Customer payment histories
- Upcoming expenditure
Estimate cash inflows
This is always the fun bit: what are your cash inflows for the period in question? Your list should include money from customers, interest earnings, loans received, or other sources of income.
Back to reality
It’s of equal importance to estimate your cash outflows and expenses, to build a true reflection of your cash affairs. Outgoing expenses will be different for every business but could include supplier payments, salaries, loan repayments, taxes, or debts, as well as less frequent costs like insurance, rates, and registrations. It’s often these less frequent costs which get overlooked.
Net cash position
This formula is simple: Cash on hand + estimated cash inflows – estimated cash outflows = net cash balance.
This number will give you a good picture of where you stand in terms of spendable income and outgoing costs.
Surviving shortfalls
This is the moment any business dreads, being unable to pay the bills. By regularly calculating your net cash balance, you should be able to spot the problem early, and in doing so, be in contact with your bank for assistance. Always ask your suppliers for longer payment periods, and most of all: be transparent. Hiding the problem or lying to those owed, will only create more of a problem.
The lesson here is to prepare for the black swan – that is, rare events with great impact – have you got your game plan ready for sudden loss of staff, equipment, expense increases, or product failure?