What are the Cash Flow Operating Activities in a Restaurant?

Last Updated on May 21, 2023 by Lauren Beck

As an industry insider will tell you, understanding and effectively managing cash flow is vital for the financial health and success of any business, including a restaurant

Often, restaurants maintain a manageable turnover for years without addressing financial management issues. However, this isn’t the ideal way to operate, and it’s certainly not doing you any favors. It’s always best to be as aware as possible of what factors are influencing your cash flow to keep your business healthy. 

Keep reading as we unpack eight key cash flow operating activities commonly encountered in restaurants and their significance in maintaining a healthy financial position.

What Is Cash Flow?

But first, let’s answer this important question.

Cash flow refers to the movement of money in and out of a company over a specific period. In the context of a restaurant, it involves tracking and analyzing the cash inflows and outflows related to daily operating activities. 

By comprehending the specific cash flow operating activities in your restaurant, you and your management team can make informed financial decisions and plan for long-term sustainability. 

Eight Key Cash Flow Operating Activities 

1. Sales Revenue 

The primary cash flow operating activity in a restaurant is the inflow of cash from the sales of food, beverages, and other services. Tracking and analyzing sales revenue is crucial for assessing the financial performance of your restaurant.

While this may seem like an obvious suggestion, it’s surprising how few establishments track their revenue accurately. When it comes to the shifting costs of food, being accurate with your pricing over different seasons and through times of economic downturn and high inflation is crucial to understanding how efficiently your business is running. 

By tracking these figures, you’ll know when to update your menu and your prices and by what exact percentage per item, rather than per plate or glass. 

2. Purchases of Inventory

Restaurants incur costs by purchasing ingredients, supplies, and beverages. These purchases represent cash outflows and need to be carefully managed to maintain optimal inventory levels and minimize waste.

Waste is a major issue in most restaurants. This isn’t simply guests not finishing their food, it’s about how different foods expire at different times. 

To achieve minimal waste, you have to compare your rate of sales of each item and set up a timeous delivery system so you can keep your fresh food incoming as you run low on stock. Having a retail portion of your store to make a small profit on unused products is also a great solution to the waste issue. 

3. Salaries and Wages

Paying your staff is a significant cash outflow. This includes salaries, wages, and any related expenses, such as payroll taxes and benefits. Effective staff scheduling and labor cost management are essential to control this cash flow activity.

By tracking your operating costs, you can see when the season is slowing down and adjust staff accordingly. Having an automated scheduling system can also help with shifting, as it can be a point of conflict in the restaurant industry. 

4. Rent and Utilities

Rent or lease payments for your restaurant space, as well as utility expenses such as electricity, water, and gas, represent recurring cash outflows. Monitoring and budgeting for these expenses are crucial for maintaining profitability.

Paying attention to what appliances stay on and for how long is a great way to cut down on excess gas, water, and electricity usage. If you’re running a different daytime and nighttime menu, having a period in which certain areas can be shut down is crucial to an efficient use of power. 

5. Marketing and Advertising

Promoting your restaurant through marketing and advertising campaigns incurs cash outflows. This includes expenses for online advertisements, print media, social media promotions, and other marketing initiatives aimed at attracting and retaining customers.

If you’re struggling to keep up with marketing on your own, a junior manager with social media skills can be a huge help in keeping your online presence consistent and appealing. 

6. Repairs and Maintenance

restaurant kitchen burners

Restaurants require regular repairs and maintenance to ensure the smooth functioning of equipment, fixtures, and the overall premises. Budgeting for these expenses is vital to address unexpected repairs and avoid cash flow disruptions.

When scheduling a repair, be sure to do so during non-peak hours or while the restaurant is closed. Repairs can be noisy and disrupt the space for both your employees and guests. 

7. Insurance Premiums

Restaurants typically carry insurance coverage for liability, property, workers’ compensation, and other risks. Paying insurance premiums is an essential cash flow operating activity to protect your restaurant’s assets and manage potential liabilities.

Finding the right insurer is a good step in minimizing these costs. Speak to other local restaurants to find out what has worked for them in the past and what issues they’ve come up against. 

8. Miscellaneous Operating Expenses

Various other operating expenses, such as licenses and permits, professional fees, cleaning services, and office supplies, all contribute to the cash flow activity. Tracking these expenses helps you to maintain accurate financial records and budget effectively.

How to Learn More About Cash Flow in Your Restaurant

To become better educated in understanding cash flow in the restaurant industry, there are several avenues you can explore. 

Firstly, consider taking courses or workshops on financial management specifically tailored for the restaurant business. Additionally, reading industry-specific books, articles, and case studies can deepen your understanding of cash flow dynamics in the restaurant sector. These resources can provide valuable insights into cash flow analysis, how to calculate profit margin, budgeting, and forecasting. 

Take the time to seek guidance from those who’ve been in the industry for a long time. A lot of the knowledge entrepreneurs obtain from working in the food industry isn’t something that can be taught in a single masterclass or easily absorbed via literature. Long-standing restaurant owners can be precious with their insights, but if you have a working relationship with someone more experienced than you, passing on this knowledge can be valuable for both parties. 

Lastly, ensure that this information is shared with the entirety of the restaurant staff. Understanding how the business operates fosters an environment of transparency and openness that can benefit the work environment. So much of the restaurant experience is dependent on the general vibe of the space. 

An increased cash flow and content, well-informed staff will create a space in which customers can comfortably enjoy their meals. 

Lauren Beck
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