Cash Flow Budget for Restaurants in COVID

Going forward, as states and cities open up with varying restrictions, it’s very important for a restaurant owner to have a 12-week cash flow budget. Unlike an annual budget where you are looking to create a plan to be profitable, your 12-week budget is all about survival.

To create your 12-week cash flow budget, here’s the process:

• Look at a typical month. What are your sales? How are those sales broken up by sales categories? What are your current salaries and wages, including taxes, benefits and insurance? What are your operating expenses and what week are you scheduled to pay those bills?
• Using that information, create a 12-week cash flow template. Remember this has nothing to do with profits.
• Edit your numbers based on your new reality. For example, if sales are down 50 percent, reduce your sales forecast in your budget by 50 percent. If you are only selling food now, food is now 100 percent of sales. Is your food cost too high? Do you need to create a new menu to lower it? Look at salaries. Are you now working on the line? Are your managers doing line employee jobs and need to be moved from salary to hourly workers, including possibly reducing their pay? Add in your beginning reconciled bank balance and you’re on your way to creating different scenarios to help you make the best decision for your restaurant.
• Now look at where your cash deficits are. Look at what bills you can cut. Look at what bills you can defer. At the end of the 12-week period, look at your projected cash balance and new accounts payable. Now you have the numbers to help you decide what’s best for you and your restaurant until this pandemic blows over.

There are other factors to consider when making your decision. Do you believe for the first time in our lives that the federal government is going to provide the hospitality industry a bail out? It changes every day, but so far, it seems only the largest companies are getting a bailout.

What can you defer?

• Is the state offering sales tax deferments without penalty?
• In talking with your CPA, is the federal government going to waive penalties if you are slow to pay employment taxes?
• If you’re not already behind on your rent, based on your lease agreement and consulting with your attorney, can you contact your landlord and let them know you won’t be paying the next one, two or three months of rent? Or ask them if they will add it to end of your lease.
• What about your broadline distributors? Don’t bury your head in the sand and just not pay them. They are getting crushed with thousands of restaurants that owe them money and who are not paying their bills. Can you call them and ask if you pay for half of each delivery for the next four weeks, would they keep delivering your food? Remember this is a deferment, not forgiveness of debt.
• Every other expense is on the table. Look at every bill and service you pay. Do you need it? If not, drop it.

What about those lifelines? If you take money through the Paycheck Protection Program or the Economic Injury Disaster Loan, can you afford to pay loans back if they’re not forgiven?

When you look at your 12-week cash flow projections, you will quickly see which decisions make the most sense for your restaurant business. Last but not least, every week, you’re going to look at what sales you actually brought in and what bills you paid and re-evaluate your plan. This is not a one-and-done decision.

I cover Restaurant 101, putting systems in place and more in my book. Order your copy of  Restaurant Prosperity Formula: What Successful Restaurateurs Do here. 

You can also complete a free restaurant evaluation. It's a great way to identify immediate opportunities where you can make things better in your restaurant. 

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