Cash flow is critical when it comes to supporting any business, and running a hospitality business is no different. These great tips were created with publicans and landlords in mind, but they’re good advice for any business wanting to improve its cash flow.
Make a financial forecast, complete with profit & loss / cash flow, and balance sheet, which includes preopening expenses and your opening cash requirements.
Make a habit of reviewing cash in hand by studying the balance sheets you have set up. Just because there’s profit, doesn’t mean cash flow is healthy. We would strongly recommend a cloud accounting system such as the elegant Xero - this makes reviewing your accounts simple and intuitive.
Create credit accounts for suppliers for at least a month, and make sure this is included in cash flow projections. – Don’t offer credit to any customer or business unless formal contracts have been signed.
As a guideline, stock-holding should be around 10 days for wet products, and 8 days for dry. Additional stock should be limited as it’s basically money waiting to go out of date.
Open a separate savings account for tax bills, and put your PAYE, VAT, company tax etc. into it. That makes sure you will always have the money to pay the bill. Due to the Making Tax Digital scheme, within a few years, businesses will have to submit their tax information 5 times each year, so again, it’s also a good idea to utilise cloud accounting such as Xero to simplify this process. For more information on the forthcoming changes, click here.
Business finance doesn’t have to come through a bank, There are short-term cash injections available through various routes whereby the initial funding is paid back over 6 months or so according to the daily turnover. You may also want to consider asset finance lease products.
Article written with reference to ‘Go with the Flow’ article in The Morning Advertiser, July 2017.
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