Maintaining a healthy cash flow is crucial for the success of any hospitality enterprise. Whether you own a pub, hotel or restaurant, you must ensure that there is enough money coming in to cover expenses, pay employees and reinvest in your business. Unfortunately, many hospitality businesses struggle with cash flow issues. This can lead to financial strain and even the risk of closure.
In this article, we will discuss why cash flow is essential for the survival of your hospitality business and the effective strategies you can utilise to improve it.
Payroll management
Accurate time and attendance tracking is essential for effective payroll management. By implementing robust time tracking systems, you can ensure you are paying employees for the actual hours worked, reducing the risk of over-payments. This data can also inform staffing decisions and assist you with planning labour costs.
Hospitality businesses often experience fluctuations in revenue based on seasons, events or peak periods. By aligning pay periods with these revenue cycles, you can improve your business’ cash flow. For example, you run a live music event in your pub on the last Saturday of each month. You could consider ending the pay period on the Friday and leave a one-week gap between the pay period and pay date. This will ensure you have sufficient funds to cover the staff cost.
Employment law advice should be sought before making any adjustments to your employment contracts.
Optimise stock control
Effective stock control is a key factor in improving cash flow for hospitality businesses. Overstocking can tie up significant amounts of capital, while under-stocking can lead to missed sales opportunities and dissatisfied customers. By implementing a well-designed stock management system, hospitality businesses can strike the right balance between having enough stock to meet demand while minimising excess stock.
Firstly, consider implementing a just-in-time (JIT) inventory system, where supplies are ordered and received as needed, rather than stockpiling large quantities. This approach reduces the amount of cash tied up in inventory and mitigates the risk of spoilage or obsolescence.
Additionally, hospitality businesses can use inventory management software that tracks sales patterns, monitors stock levels and generates reorder alerts. This data-driven approach can help you make informed decisions about purchasing and stocking, reducing the risk of overstocking or running out of popular items.
Xero has a built-in stock management system, allowing you to track stock levels and raise purchase orders with your suppliers when needed. By using Xero, you can consolidate your inventory, accounting and payroll system in one platform. At Taxsure, we include Xero as part of our package for hospitality businesses for free!
Diversify revenue streams
Relying solely on food and drink sales can make your hospitality business’ cash flow vulnerable to fluctuations in customer traffic and spending patterns. To reduce this risk, you can explore diversifying revenue streams by offering additional services or products. Some options to consider include:
- Hosting private events or parties. Renting out space for weddings, corporate functions or other gatherings can provide a steady stream of revenue, especially during slower periods.
- Selling merchandise. Branded merchandise, such as t-shirts, hats or glassware, can generate additional revenue while also promoting your business.
- Offering delivery or takeout services. Providing the option for customers to order food and drinks for delivery or takeout can tap into a new customer base and generate incremental sales.
- Partner with local businesses. Seek out partnerships with local businesses and community groups to create mutually beneficial revenue opportunities. For example, you could offer exclusive discounts or packages for employees of nearby companies, or host fundraising events for local charities or clubs.
- Offer membership programs. Explore offering subscription or membership programs that provide customers with exclusive benefits. This can include discounts, priority reservations or access to members-only events or offerings. These programs can generate recurring revenue and foster customer loyalty.
By diversifying your revenue streams, you can reduce your reliance on a sole source of income and create multiple avenues for generating cash flow. This not only improves financial stability but also provides opportunities for growth and expansion.
Implement cost-cutting measures
While increasing revenue is important, managing expenses is equally crucial for improving cash flow. As a hospitality business owner, you should regularly review your operating costs and identify areas where savings can be achieved without compromising the customer experience. Some potential cost-cutting measures include:
- Renegotiate utility contracts. Utilities like electricity, gas and water can be significant expenses for hospitality businesses. Regularly reviewing utility contracts and shopping around for better rates or bundled services can lead to significant cost savings over time.
- Implement portion control measures. In the food and beverage industry, controlling portion sizes can have a significant impact on reducing waste and managing costs. You can consider implementing portion control protocols, such as using calibrated utensils or pre-portioned ingredients, to ensure consistent serving sizes and reduce over-pouring and over-plating.
- Reducing waste and spoilage. In addition to portion control, you should have robust systems in place to minimise product wastage and spoilage due to improper storage or handling. This may involve implementing inventory management software, optimising ordering practices and training staff on proper food handling techniques.
- Evaluate marketing strategies. While marketing and advertising are essential for attracting customers, you should regularly evaluate the effectiveness of your ad campaigns and strategies. Shifting focus to more cost-effective channels, such as social media or email marketing, can help reduce marketing expenses without compromising reach.
- Cross-train your staff. By cross-training staff to perform multiple roles, you can improve scheduling flexibility and reduce the need for excess labour during slower periods.
- Staff rotas. Additionally, completing staff rotas in line with customer traffic patterns can help reduce over-staffing and control labour costs.
By implementing a comprehensive approach to cost management, hospitality businesses can free up cash flow for reinvestment and other strategic initiatives, improving their financial health and long-term sustainability.
Negotiate better terms with suppliers
Building strong relationships with suppliers can provide leverage for negotiating more favourable payment terms. By discussing cash flow challenges openly with suppliers, you may be able to extend payment windows or arrange for more flexible payment options. Here are some tips for negotiating better terms with suppliers:
- Negotiate longer payment windows. One of the most effective ways to improve cash flow is to negotiate longer payment windows with suppliers. Instead of having to pay invoices immediately or within a short period of time, you can request extended payment terms, such as 45 or 60 days. This provides you with more time before having to pay suppliers, easing cash flow constraints.
- Request flexible payment plans. In addition to longer payment windows, you can also explore flexible payment plans with suppliers. For example, some suppliers may be willing to accept partial payments or instalment plans, rather than requiring the full amount upfront.
- Benefit from economies of scale. For hospitality businesses which purchase large quantities of stock and supplies, negotiating volume discounts can be a valuable strategy. By committing to larger orders or longer-term contracts, you may be able to secure lower per-unit prices from suppliers, which can translate into significant cost savings and improved cash flow over time.
- Research alternative suppliers. If existing suppliers are unwilling to negotiate better terms, you should explore alternative suppliers that may offer more favourable conditions. However, it’s important to carefully evaluate factors such as quality, reliability and value when considering new suppliers.
By taking a proactive approach to negotiating with suppliers, you can potentially significantly improve your cash flow. Moreover, this will allow you to better manage expenses, reinvest in your business and maintain a solid financial footing.
Optimise pricing strategies
The hospitality industry is a heavily saturated sector. From large chains to family run businesses, each hospitality enterprise needs a pricing strategy which is competitive, profitable and beneficial for cash flow.
Here are some tips for hospitality business owners who want to improve their cash flow by optimising their pricing strategy:
- Implement dynamic pricing. Dynamic pricing involves adjusting prices in real-time based on factors such as demand, seasonality or special events. By implementing dynamic pricing, you can maximise revenue during peak periods or high-demand times while offering discounts or promotions during slower periods to drive traffic.
- Offer combo deals. Bundling menu items or creating combo deals can not only provide value to customers but also increase the average check size and overall revenue. You can strategically bundle popular items or pair complementary products. For example, an appetiser and beer combo to encourage larger purchases.
- Frequently review competitor pricing. Regularly monitoring and analysing competitor pricing can help you ensure that your offerings are competitively priced while still maintaining healthy margins. This analysis can inform strategic pricing decisions, such as introducing premium offerings for higher-end customers or offering value-focused options to attract budget-conscious patrons.
- Utilise loyalty programs. Loyalty programs can be an effective way to encourage repeat business and justify premium pricing for loyal customers. By offering exclusive discounts, rewards or perks to members, you can foster a sense of exclusivity and value, allowing for potential price increases without deterring their most valuable customers.
- Regularly review and adjust prices. Pricing strategies should be reviewed frequently and adjusted based on factors such as changes in supply costs, market conditions or customer feedback.
By implementing these pricing strategies and continuously monitoring and adjusting your approach, you can maximise revenue potential, improve cash flow and maintain a competitive edge in the market.
Explore financing and leasing options
In some cases, hospitality businesses may need to consider external financing options to bridge temporary cash flow gaps or fund growth initiatives. Here are some financing options you could explore to improve cash flow:
- Explore crowdfunding options. Crowdfunding platforms like Kickstarter can be viable options if you are seeking to raise funds from a large pool of individuals and supporters. These platforms allow businesses to pitch their projects or ideas and offer incentives or rewards in exchange for contributions.
- Look for an investor. For hospitality businesses with significant growth potential or innovative concepts, pitching to angel investors could be a way to secure substantial funding. However, these investors typically expect a stake in the business or a share of future profits in exchange for their investment.
- Consider leasing equipment. Rather than purchasing equipment, you can explore leasing or financing options for essential equipment like kitchen appliances, bar equipment or EPOS systems. This can help preserve cash flow while still accessing the necessary tools and technology.
When pursuing additional funding, it’s important to carefully evaluate the terms, conditions and potential long-term implications of each option. Seeking professional advice can help ensure that any funding decisions align with your short-and-long-term goals.
Utilise technology to improve efficiency
Embracing technology can streamline operations and improve cash flow management. Here are some ways in which hospitality businesses can leverage technology to enhance efficiency:
- Optimise mobile technology. Mobile technology can enhance efficiency in several areas of hospitality operations. For example, mobile check-in/check-out solutions can expedite the guest experience and reduce wait times. Additionally, mobile devices can be used by staff for tasks such as clocking in/out of their shift, recording lunch breaks, completing food and drink orders for table service as well as housekeeping assignments.
- Implement electronic point-of-sale systems. Efficient electronic point-of-sale (EPOS) systems can streamline operations in restaurants, pubs, and other food and beverage outlets within hospitality establishments. Modern EPOS systems can integrate with inventory management, customer relationship management (CRM) and accounting software, reducing manual data entry and improving overall operational efficiency.
- Introduce stock management systems. As mentioned earlier, stock management systems can help hospitality businesses track and manage inventory levels more efficiently. These systems can provide real-time data on stock levels, automate reordering processes and minimise waste and overstocking, leading to cost savings and improved operational efficiency.
- Utilise guest experience management tools. Guest experience management tools, such as feedback platforms, chatbots and virtual concierge services, can enhance the overall guest experience while improving operational efficiency. These tools can automate routine tasks, provide a personalised service and gather valuable feedback, allowing staff to focus on more complex guest needs.
By embracing these technological solutions, hospitality businesses can streamline operations, reduce manual processes and improve overall efficiency. Subsequently, this will lead to cost savings, enhanced guest experiences and improved cash flow over time. Utilising technology will also give you a competitive edge in the hospitality industry.
Finding the right accountant for your hospitality business
With Taxsure’s expertise in the hospitality sector, you will have everything you need to make better financial decisions, improve your cash flow, be more tax efficient and enhance your operations. Our specialist accountants will be by your side every step of the way.
In order to take your business to its next level of success and beyond, contact our team of hospitality accountants today.
In conclusion
Improving cash flow management is essential for your business’ success, and by implementing these strategies and seeking the assistance of specialist hospitality accountants, you can ensure that with improved cash flow, your business not only survives but thrives in the competitive world of hospitality.