Seven tips for better cash flow management

The hospitality sector is facing its toughest challenge to date. The majority of businesses have been forced to close over the last few months and nearly all have struggled with reduced revenues.

As hospitality businesses prepare to reopen, having a clear view of cash flow is crucial to making informed decisions and helping to plan for recovery.

Here are seven tips to help restaurants effectively manage their cash flow in these challenging times. 

1. Create a cash flow forecast​
A cash flow forecast helps to predict how your business is going to perform for a selected period of time. With so many questions on the future of the hospitality industry and how it will operate, it might be best to forecast up until the end of 2020 or even beyond.

Revenue is the first factor to consider. For a lot of restaurants and hotels, the reality is that you’re taking in less sales than you would under normal circumstances. If you have been able to pivot and offer online services, make realistic revenue projections based on customer buying habits in the last few weeks and try to build a forecast for how this will change as you start to reopen. Then it’s important to consider how much of this will actually go into your coffers. 

Next to consider is expenses. Go through a typical month or year in your business and list out all of the predicted expenses that are going to come out of the bank account. Also, ask yourself some questions which you may find hard to answer, like: if my sales dip by X amount, can I still pay my staff? 

2. Use cash flow apps to support​
There are lots of great apps out there which can help you pull together vital cash flow insights - many of them sit in our 800+ strong community of app partners. For example, Float - a tool which gives businesses a real-time view of cash flow - will give you an accurate picture of your past, current, and future cash flow so you can plan for the what-ifs.

UK app Chaser automates invoice chasing and streamlines the credit control process, to help businesses get paid on time - which is more important than ever right now. You can find out about more cash flow apps which might be helpful here. ​​​

3. Review and renew​
Government advice is evolving which means that you will need to consistently review your cash flow forecast in light of the latest news and how your business is operating. 

For example, if Corvid-19 has affected how a supplier will get stock to you, this will need to be reflected in your cash flow forecast and profit and loss reports. To ensure that these steps become part of your routine, set aside a few hours every week in your diary to complete the updates.

4. Support from banks and the Government​

To keep businesses tracking positive when it comes to cash flow, the government and banks have offered their support. It is still possible to apply for the Coronavirus Business Interruption Loan Scheme, the Coronavirus Future Fund and for the Coronavirus Bounce Back Loan Scheme.

Take your time to research each option to decide what is best for your business. For example, Bounce Back Loans aim to address the need for smaller loans with a quicker process to unlock funding, for those that need money immediately. In addition, UK banks including Royal Bank of Scotland, Lloyds and TSB are all offering repayment holidays on loans and mortgages. 

5. Putting loans to good use​
It's tempting to use funds to fight the most immediate fires, but it’s important to take a step back and think about the longer term health and viability of your business too. 

For instance, you could use capital to help you pivot to meet new customer demands, such as by incorporating e-commerce into your offering. You could also revamp your business model, to suit the new normal we are transitioning to, perhaps with a stronger focus on deliveries. 

6. Late payments​
Research recently found that the leisure and hospitality sector in the UK has 55% of its invoices over ten days overdue. Ten days is a long time to wait for payment. Open up honest discussions with suppliers and those who owe you payment on when they might realistically be able to pay you and add this data to your cash flow forecasts. That way your forecasts will be as accurate as possible, even with all of the uncertainty.

7. Seek advice​
If you are feeling overwhelmed, unsure about a decision or confused by what the government is offering, you should seek advice. This might be an accountant or someone you usually turn to when seeking business advice. Xero’s Behind Small Business page​​​ also contains a range of practical tools and education resources to support small businesses.