Restaurant Startup & Growth: Maximize Operating Cash Flow

Excerpts from How to Maximize Operating Cash Flow in the Independent Restaurant | By Lindsey Danis

“The industry used to be a nickel and dime business, but right now it’s pennies,” says Mark Moeller, who owns The Recipe of Success, a restaurant consulting business. Add rising labor costs as many operators are increasing wages to complete for staff in a tight labor market.

Moeller stresses the importance of arming yourself with information, so you can make stronger decisions. “Lose your ego, ask questions and don’t be afraid to do so. This is a pennies business and if you’re not focused on the details, you stand a chance of not surviving,” he says.

Build Smart Systems

Coming out of a shortage, it’s all the more important to take a systemic approach that builds a buffer against future problems. Moeller observes that “a lot of independent operators don’t spend enough time doing inventories [or] analyzing reports for the POS” and recommends formalizing systems for better protection against cash flow problems.

And on the subject of purchasing, one might ask “what about buying in bulk?”…Moeller cautions against buying in bulk if you don’t have the margin to meet other expenses. He remembers one of the first clients he began working with, who purchased a palette of olive oil at a 30 percent discount. That operator bragged about only paying $5,000 for the lot, but when Moeller asked how he was going to make payroll, he said “I have no idea.” While you might get a better price by buying in bulk, Moeller thinks operators need to understand that “when you buy smaller quantities it absolutely will increase your cash flow.”

Make Labor and Scheduling Efficient

Moeller thinks that operators tend to get comfortable having a lot of labor on hand, though this may be a luxury some do not have given industry-wide shortages at present. Given the significant expense payroll represents for the average operator, it makes sense to fine-tune labor and scheduling for efficiency when conserving cash flow is top of mind. Moeller recommends checking the hours, employee scheduling and employee training for operational efficiency.

Hourly revenue reports provide insight into current versus optimal staffing levels. Adjusting staffing, including staggering shifts, “will start to save some pennies because the focus is now on running a business efficiently,” Moeller advises.

Looking at revenue reports can also help you determine if your hours need to shift. If the restaurant is open until 11 p.m. but deserted by 10 p.m. staying open for another hour does not make financial sense. Changing your hours protects your cash flow while reducing labor and overhead, including energy costs and food costs. As Moeller says, “turning your lights on a half hour later is small, but it adds up.” If you end up eliminating a service, like lunch, you might be able to remove some menu items that are only served at that meal for additional savings, Moeller explains.

The final aspect of efficient labor is training. “The better trained somebody is, the better they’re able to serve the guest in an expedited manner,” says Moeller. Over time, this leads to lower labor costs and higher revenue.

Forecasting for Future Success

Just as savvy operators use a good month to save for a rainy day, smart operators keep an eye on the future and make business decisions accordingly – or “pivot” in pandemic-speak. Moeller and Sofranko see good news and bad news on the horizon. By understanding how future trends impact operations, you won’t be caught off guard when these trends play out in your market.

The ingredient shortages and supply chain disruptions the restaurant industry experienced last year will recur, Moeller believes. “On the food and paper side, everything is in short supply,” he says. There are other shortages that operators might not realize could affect them until they try to order new equipment and can’t get what they need.

The supply chain disruption could increase the cost of fixed assets, as well. Moeller mentions the semiconductor chip shortage as one example. While the auto industry is hard-hit by this shortage, POS systems also rely on semi-conductor chips. If you need to buy more POS systems, you might find yourself waiting in a long line. As Moeller says, “there are companies that will only guarantee you getting two, and that’s it because they don’t have the availability to forecast out.”

To keep up to date on potential shortages that could affect your concept, Moeller recommends checking in with distributors more frequently, because “they are all tied into the market reports [so] they can best educate you on what the pricing and shortfalls are going to be.”

Using proven strategies to protect and increase cash flow while staying sensitive to the present moment can help your concept stay strong in the face of challenges, like one of Moeller’s clients who made it through 2020 by implementing several of the strategies mentioned here.

Like many other independent concepts, one particular upscale tavern hadn’t done takeout and delivery previously, but had to figure it out fast if they wanted to stay in business. The restaurant cut lunch service and slashed their menu to minimize the product they needed to buy, but “instead of keeping a set menu, [the chef] started to change it on a daily basis,” Moeller explains. This satisfied creativity while allowing the concept to stay nimble in the face of supply chain shortages.

Volatility and Shortages Aren’t Going Away Soon

The Center for Disease Control and Prevention’s recent recommendation that vaccinated people don’t need to wear masks indoors makes it seem as if the pandemic is now in the rearview mirror.

“Just because we’re coming out of the pandemic, this is probably going to impact us on the supply chain for another year in a lot of ways,” Moeller warns operators.

Pricing volatility and unexpected shortages aren’t going away anytime soon. Implementing the strategies above could give you the necessary cash flow to weather them and “pivot” accordingly.