Do you sometimes wonder why, after a great year of putting in the hard yards and making a solid profit, you still don’t have the cash in the bank to reflect your team’s hard work? That’s not a big surprise.

Hospitality industry

Many hospitality owners use tools such as balance sheets and profit and loss (P&L) statements to manage their business, but don’t get the vital information that only a business cash flow statement can provide. While the balance sheet and P&L statements are helpful, they won’t tell you where your cash has gone or where it’s forecast to go. You’ll need a cash flow forecast to do that for you – perhaps also accompanied by a savvy accountant (wink, wink).

Cash flow management

What does a cashflow forecaster do, you might ask? It takes an opening position and uses a budget to show you how money comes in and out of your business. Essentially, it works as a cash book that projects future income or expenses for a period (usually quarterly or yearly).

Often, cash flow forecasting is used when applying for a new business loan or when restructuring; however, it’s still a good idea as a ‘cash conscious’ business owner to map out the forecast regularly. This helps to identify which sales accounts are generating the most cash, which overheads are doing the most sucking, and whether your business has enough cash to cover future expenses.  

A good, comprehensive forecast includes a budget, a cash flow forecast and a forecast balance sheet. These statements can help you understand where your business is going and its financial status when it gets there.

Understand your cash flow forecast by knowing your business processes inside out, along with the behaviours and activities that aid or hinder the conversion of your profit into cash. “Cash is the lifeblood of a business” as the saying goes —but don’t forget that making a profit doesn’t guarantee your business has enough cash to survive or grow!

Margins and overheads

One cause of poor cash flow in the hospitality industry is high overheads combined with low pricing. If your business is regularly experiencing low gross profit margins, it might be time to revisit your pricing model and review your costs. With hospitality’s quick turnover rate, it’s not surprising that owners often experience high direct costs/overheads that see cash fly out the door.

It’s a good idea to do a monthly or quarterly review on expenses to identify accounts that may need to be cut or switched to cheaper options. Getting the team involved can help, as it’s likely they may have better ‘front of house’ insight into whether the costs are essential to get customers in the door and leaving happy.

Stock control

Another cause of poor cash flow in the hospitality industry is poor inventory management. It’s important as a business owner to understand how quickly your inventory turns over. Overstocking may mean you’re tying up cash in stock and diverting it from being used efficiently in other areas of the business.

While it’s important to have enough inventory on hand to cover unexpected rushes (like an influx of hungry tourists), there’s a fine line between just enough stock and too much. Regular reviews of your inventory management system can help point out where there may be flaws or when it might be time for a revamp of your systems. 

Debt management 

One of the most common causes of poor cash flow is inappropriate debt, which happens when debt and debt structure produce payments that are higher than the cash the business makes. This can sometimes be solved simply by consolidating debt or extending the principal payment period of the loan.

Remember to stay in your lane, though! You’re an expert in your industry—but if you need financial or business advisory, don’t hesitate to get in touch. If we can’t help you, we’ll connect you to someone who can! 

Cash flow management 

Make sure you’re keeping track of your provisional tax and GST payments as well, as they can have a huge impact on your cash flow. Maintain a good balance between flexible tax payment options and keeping cash in your business to ensure it’s being efficiently utilised.

Although we’ve touched the surface on a few things that should be considered when preparing and analysing your business cash flow, there’s plenty more useful information when you dive in the deep end!

Business accountants

Get in touch with the Outside team for support in pulling together a cash flow forecast. We’ve got the tools to help you track your business progress and measure goals and accountability!  

Your Outside team, Ruby and Rocket


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