We’ve heard it all before, cash is king. I was reading an article two days ago regarding the best ways to obtain small business financing. Same tired article. Same tired strategies. Borrow money from your relatives – Yeah, that always makes for a great holiday season. Borrow money from friends – Just make sure that they aren’t too good of friends. Mortgage your home, mortgage your significant others’ home, round up strangers. Basically, do everything you can to MINIMIZE YOUR RISK. Seriously? Where’s the ownership and accountability! Every time I read one of these articles I notice two things. First, the articles are rarely written by anyone who’s actually owned a business, let alone one as unique as a restaurant. Typically the authors specialize in minimizing their risk by placing others at risk. Their resumes are filled with massive success stories while the bulk of their failures are displayed in the legal documents found on Page 5 of a Google Search. Second, these strategies often target the activity of obtaining funding, bridge funding, or obtaining one-time sums of money. They fail to focus on the continuing management of the investment, the ability to pay back the investment, and, most important, how to replace the outside investment with your own investment.

Whether you’re new to the game or already operating and seeking more money, often a person is really only looking to create a glorified credit line. This tactic is short-sighted and more often than not it does not end well. The strategy exposes your business to greater risk as it opens you up to outside influences that affect your investors’ ability and desire to loan you money. It also exposes you to having to acknowledge your investors influence on your business, whether their input is solicited or not. We aren’t saying that borrowing money is bad or wrong. Let’s face the facts that this is how someone is provided the opportunity to achieve a dream. In some cases it’s also how a person obtains a Bachelor’s Degree from the school of hard knocks.

We are going to focus this article on the simple rules for effective restaurant cash management. First, we will review the simple rules on how to manage an investment of initial capital as well as working capital. Second, we are going to review the ongoing cash management strategies for building your own treasure chest.

“It is not in the stars to hold our destiny but in ourselves.” – William Shakespeare

I love this quote because destiny and business don’t go together without a plan. I’ve heard pitches for restaurant startups where destiny is weaved throughout the pitch as if it was as important as a FICO score is to car insurance. We typically rely on destiny in the absence of solid business facts. Having a solid business plan built on a foundation of facts is the only way to achieve your destiny. Don’t forget it.



Know the Impact. Whether you’re seeking an investment to start a new restaurant or working capital for an existing one, it is absolutely essential that you know the impact that the payment of that debt will have on the businesses cash position. Simply put, you need to see if you can put your money where your mouth is and pay back the investment.  Believe me, most folks are too wrapped up in getting the money that they never really work out how it’s going to be paid back; they try and collateralize the investment with faith, destiny and a good recipe. The best tool for recognizing the impact of an investment on the business is a break-even analysis. You’ll recall from our series on budgeting that a budget focuses on the operations’ comparison of current income and expenses against a target. A break-even enables you to invite expenses that affect your balance sheet to the party. Items such as: Debt servicing and capitalized expenses like buying equipment and leasehold improvements. These are items that aren’t reflected on the Income and Expense Statement. However, and here’s the punch line, they have a tremendous impact on the cash position of the business.



RULE 1. – Don’t be afraid of the dark

Don’t let a potential investment in your business be like being afraid of the dark. Get up, turn on the light and you’ll see that the shadows are nothing more than the creepy porcelain clown doll you got from your Aunt in North Jersey.   In other words, you’ll know quickly whether you need to run like the wind or relax. This is obviously a metaphor for sitting down and reviewing your investment needs. Consider how much money you need (backed by detailed facts, not faith) and what you’re willing to give up to get the money. Remember, math doesn’t lie. Work out the financial details regarding the payback of the investment. This includes the interest rate and term of the investment. Plug them into the RSI Break-Even Analysis tool.

RULE 2. – Don’t sell your soul

There’s a point where your “want” for getting the investment will rear its ugly head over the “ability” to pay it back. I have seen so many smart folks throw good plans into the wind for the sake of getting a deal done. They breathe false life into their faith and destiny that the concept will just work out for everyone. You can spot this type of deal making a mile away because at the end of the meeting someone almost always emphatically says, “We’re going to be rich!”   Deal chasing is a terrible plan for you and your investors. It places your investors (the folks who believed in you in the first place) in a position where they are second-guessing your intentions and ultimately their own decisions. This is followed up with them creating personal agendas designed by them and used for getting their money back. It’s always based on their terms, not yours.

Here are some ideas that if/when you hear them, or worse – suggest them, should cause you to stop, drop and roll away from the situation. They are on my list because they can make it impossible for you to manage your cash and ultimately have you running a soup kitchen.

Creating unrealistic trade programs for your investors

We see this all the time. A person receives a $40,000 investment. Part of the payback includes a trade account. Sound reasonable? It can be with very specific limits on alcohol and food; what we experience is that the operator is so grateful to have the investment that they provide a free for all on food and booze. Worse yet, they will throw in the “for up to a party of 6 clause” which loads the remaining chambers in the free for all pistol they are pointing at their Income Statement. Multiply this by adding a few investors with similar deals and they’ve just become a prepaid personal chef. It is impossible to manage cash flow when the payback is a limitless trade account. There’s no control on when investors can take advantage of the trade. If the restaurant sales are slow investors can chew up cash that is critical for the ongoing operation. My dad used to say it best regarding friends and investors. “Your real friends and investors always want the best for you. This includes paying full price. You’re paying them respect by paying them back.” Again, don’t forget it.

Overpromising the return on investment

In an effort to obtain an investment, the operator promises a wild return on said investment without acknowledging the impact that the promise will have on the business. This kills the ability to manage cash. We call this drowning in a teaspoon of water. It’s characterized by an operation that makes money operationally, and yet there’s no money to pay priority debt like taxes because the investors are being paid too much, too soon.

Marketing and deal of the day companies as well as hard money lenders are not investors

They are characterized by a high interest, short-term loans. Added to the insanity is the variable payback schedule. The payback schedule is usually the nail in the coffin. The payback schedule is tied to a guest metric or credit card deposits. This makes the payback on the loan almost impossible to manage.

Pro tip: Operators seeking a line of credit or short term financing use these companies because of the quick ability to obtain an investment. Remember, it’s quick for a reason.


A budget and break-even analysis are mandatory tools for effectively managing cash. No they aren’t out of the box. They are the franchise players and I wouldn’t be doing you any favors if I didn’t remind you constantly that they are as essential for the health of your business as exercise and eating properly is for your quality of life.

Days of the week: Here are some fun facts about the days of the week as it relates to cash flow.

  • Monday: Administrative day. It’s typically a slower day. Perform all of your interviews, new hire paperwork, operational and financial forecasting when you’re not impacting the guest experience. This will free you up to manage the business and verify your forecasting accuracy during the remainder of the week. Cash is pretty much neutral from the weekend except for any cash deposits that you’ve made from Saturday and Sunday
  • Tuesday: Heaviest Cash flow day of the week. The weekend credit card sales are typically deposited Tuesday mornings. Always good to have major expenses like payroll checks dated for Monday’s or Tuesday’s so you don’t have to worry about transferring money to cover the expense.
  • Wednesday: All weekly expenses from the prior week should have cleared the bank. This is a great day to perform a mini bank reconciliation and determine what cash remains. It’s also the best day to transfer extra cash into savings
  • Thursday: Forecasting review day: Thursday is the best day to review your accuracy from your Monday’s purchasing and labor forecasts and make adjustments based on the remainder of the weeks’ events.   Identify any areas of overspending.
  • Friday: The worst day for managing cash. It’s the lowest cash flow day of the week. All bills are paid, all orders are placed and paychecks are cashed. The only thing left for an operator to do is roll up the sleeves and make some loot for next week.
  • Saturday-Sunday: Use the time to make some money by focusing on operational costs. The weekend provides the greatest chance of increasing cash flow from the management of prime costs. (Food, Pour Cost and Labor).

The Extras: Here’s a short list of best practices that assist your ability to effectively manage cash; when done properly, you’ll be able to easily find ways to increase your treasure chest.

  • Vendor Terms: Urban legend states that vendor terms = greater cash flow. Nothing could be more false. Vendor terms are about as effective for managing cash as giving a college freshman a credit card. Pro Tip: Remember this phrase: Every Expense Paid Every Week. We see our best operators paying as many (if not all) of their expenses each week. It provides them with the truest sense of operating and enables them to really see their cash position every seven days.
  • Accruals and Prepaid expenses: Accruals and Prepaid’s are accounting terms for identifying expenses on your income statement each week even though they are paid monthly. Examples of these expenses are: Rent, Utilities, Rental Equipment, Credit Card fees and Insurance. Accruals are expenses that are paid at the end of the month, while Prepaid’s are expenses paid at the beginning of the month.   Using them makes you the last dinosaur at the Le Brea Tar Pit. They are functionally outdated and give someone a ton of non-revenue producing work to manage them. Pro Tip: Run your financial statements weekly detailing each paid expense. Use a budget for the management of large expenses its far more manageable and flexible.
  • Payroll: One of the largest expenses in the operation and folks still pay bi-weekly and semi-monthly. This makes no sense. There is no better way to manage cash flow than to pay your folks weekly. For years we have reviewed our clients’ successes when they switch to weekly payroll. Weekly payroll eliminates spending money that isn’t yours.
  • Credit Card Fees: Also one of the largest reoccurring expenses in your business is the fee that a credit card company charges. Did you know that many credit card companies allow you to have your fee taken out daily vs. one time a month? The process is called daily discounting. American Express does this as a standard practice. It is a very effective way for you to manage your cash flow.
  • Impound your own Taxes: One of the best ways to grow your business empire is to never get behind on your taxes. Since most taxes are due monthly or even quarterly the best way to not get behind is to transfer your tax money into a savings account each week until it is due. You are essentially impounding the money in your own account. This is another very effective way for you to manage your cash flow.