Cash is King

There’s a saying; turnover is vanity, profit is sanity, but cash is king. Roughly translated this means cashflow can kill you. Cash flow isn’t always an issue for food and hospitality businesses. Unless you do a large amount of wholesale or business to business catering you probably get most of your sales into your bank account more or less immediately. If you’re not waiting to be paid, cashflow shouldn’t be an issue.

Here comes the inevitable ‘but’. Cashflow might be a problem for you if you have borrowed money either to invest in the business or just to make ends meet.

The trouble with borrowing money? You have to pay it back. I know, bummer. You open your amazing new business, it costs more than you expected because it always does. You take out a loan or shove it on a credit card. It’s fine though, soon you’ll be bringing in enough to pay that back. Except sales are lower than you hoped, and costs are higher and there is a little bit of profit but not enough to pay yourself and pay your suppliers and make the repayments on the credit card or loan. You budget extra hard at home but then the rent comes due and your really have to pay that, so you do but then there isn’t enough left to pay your dairy supplier and on, and on, and on.

Cashflow is related to profit in the sense that if there fundamentally isn’t enough money to go around you will find yourself constantly short somewhere. Cashflow can carry on being a problem even once your business starts to see healthier profits. On paper things are starting to look better, the number at the bottom of you profit and loss is getting bigger. But that doesn’t take into account any repayments you need to make; it might be enough to live on but not enough to live on and make your repayments.

What to do if you find yourself in this boat? First off, knowledge is power. Build yourself a cashflow forecast. If you use a bookkeeping program, you might be able to use that, if not you can make your own pretty easily on Excel or Numbers. A cash flow forecast will help you to see where the holes are and how big they are. Once you know where you stand, you can make a plan. If the cash hole isn’t too massive it might be you can just ride it out. If there are supplier bills you won’t be able to pay on time but you’re confident, based on your forecast, it’s a temporary situation, email them. Explain that cash is very tight and suggest a payment plan. You are far more likely to get people to accept late payment if they can see regular money coming in from you (this also applies to HMRC bills). If the forecast shows that the cash hole is too deep or too prolonged, then you need to generate more money (or reduce your expenses). Play around with the figures, how much more needs to come in, or how much less needs to go out, per month to ease things? What could you do to get to those numbers?

Cashflow forecasting is your slightly dull but very helpful friend. We would all love it if burying your head in the sand was a workable business strategy, but it isn’t. Seeing what you’re dealing with in black and white and then making a plan might feel unpleasant at first, but I promise you it will do wonders for your stress levels if you’re freaking out about unpaid bills, and it will help you dig yourself out of that cashflow hole.

Profit Bootcamp is my program designed to help food business owners with all things money. Because it’s bespoke to you and your business, we will address cashflow if it’s a problem for you, and we won’t if it isn’t. I also offer payment plans to help you manage the cost. Drop me a line if you’re interested.