Common Mistakes to Avoid in Restaurant Cash Flow Forecasting

Cash flow forecasting software has made it much easier for restaurants to project cash flow. But even with modern technology, there are plenty of mistakes restaurants must avoid for accurate cash flow forecasting.

This article will take you through the most common mistakes in cash flow forecasting and some cash forecasting techniques you can use to avoid them.

Underestimating Expenses

Most business owners try to be optimistic in their cash flow forecasting, which can lead them to underestimate expenses. For accurate forecasting, consider all expenses, including permits and maintenance costs, and forecast for worst-case scenarios too.

Inaccurate Data

Poor input data can create misleading restaurant cash flow projections, resulting in inaccurate budgets and poorly guided business decisions.

Establish clear data collection guidelines within your organization to be sure all cash flows are properly recorded. Review data to ensure it's relevant and up to date, and check for missing or duplicate entries. Use cash management platforms that directly import data from your accounting software.

Poor Sales Projections

Sales revenue is the biggest cash inflow for a restaurant, and accurate sales projections are crucial to cash forecasting. Overestimating sales projections may result in overspending and underestimating sales might limit spending.

To create accurate sales projections, use cash flow software that uses historical sales data and allows you to forecast for external factors, like seasonal trends.

Lack of Regular Monitoring

Cash forecasting techniques are only predictions, which means you need to continuously monitor your forecasts to identify any forecasting errors. Software like Cash Flow Frog allows you to compare your cash flow forecast with your actual cash flow.

Ignoring Inventory Management

Ordering too much inventory ties up cash that could be spent elsewhere. Underestimating inventory puts you at risk of running out of food and can result in overspending in other areas. Inventory management software can make it easier to keep track of inventory and mitigate these risks.

Overlooking Cash Reserves

Overlooking cash reserves in cash flow forecasting may result in a more conservative approach than necessary. For example, your forecast may suggest you need a tight budget, but if you have lots of cash reserves, you may be able to spend more.

Expensive Borrowing

Failing to include the high interest rates in cash flow forecasting can lead to an overly optimistic picture of the restaurant's financial position, resulting in overspending.

Lack of Communication

Employees should inform owners of any issues with inventory, expenses or sales so owners can consider these issues during cash flow forecasts. Restaurants should also establish clear guidelines on counting cash and recording expenses so that all financial information is included in cash flow forecasts.

Mismanagement of Accounts Receivable and Payable

Unpaid accounts receivable and payable can tie up cash. If these accounts aren’t accounted for in cash flow forecasts, owners can get an inaccurate picture of their cash flow.

To properly manage accounts receivable and payable, restaurants must prioritize collecting and paying debts. Cash Flow Frog can provide insights into which customers pay on time and which routinely pay late.

In conclusion

Using accurate financial data is the most crucial aspect of creating effective cash flow forecasts. When performing cash flow forecasts, restaurants can use cash management platforms to monitor their forecasts and compare planned versus actual cash flow.

Proper inventory management and clear communication between employees are also necessary for accurate forecasting. Finally, restaurant owners must not overlook loan interest expenses and cash reserves. They should also reconcile accounts payable and receivable as soon as possible.