Cash Flow Management for Small Hospitality Businesses
Survive seasonal dips and manage money flow like a pro
Cash flow kills more hospitality businesses than lack of customers. You can be profitable on paper but run out of cash to pay suppliers or wages. 82% of UK restaurant failures cite cash flow problems as a contributing factor (UK Hospitality 2024).
The Fatal Mistake:
"We did £8,000 this week—we can afford a new freezer!" Wrong. That £8,000 must pay last week's suppliers (£3,200), this week's wages (£2,400), next week's stock (£2,800), rent (£800), utilities (£400), and card fees (£160). You actually have £240 available, not £8,000.
Cash Flow vs Profit: Understanding the Difference
💰 Profit (on paper)
Revenue minus all costs = profit
Example: £300k revenue - £270k costs = £30k profit (10%). Good on paper.
💵 Cash Flow (in bank)
Money in minus money out = available cash
Reality: Suppliers want paying today. Revenue arrives over weeks. You can be profitable but cash-poor.
13-Week Cash Flow Forecast
Every hospitality business needs a rolling 13-week forecast. Here is how:
Weekly Forecast Template:
Money IN:
- Card settlements (£X from 3 days ago)
- Cash banked
- Function deposits
Money OUT:
- Staff wages (weekly or monthly)
- Supplier invoices due
- Rent/mortgage
- Utilities
- Card processing fees
- Loan/lease payments
Net Position:
Opening balance + Money IN - Money OUT = Closing balance
Managing Seasonal Cash Crunches
January-February are brutal for hospitality. Revenue drops 20-40% but fixed costs remain:
Build cash reserves in peak months
Save 10-15% of summer profits. Target 2-3 months operating costs in reserve.
Negotiate extended payment terms
Ask suppliers for 45-60 day terms in winter vs 30 days in summer. Most will accommodate long-term customers.
Use next-day settlement
Cash in bank 24 hours after sale vs 3-5 days helps January cash flow significantly.
Reduce stock levels in quiet periods
Order more frequently, smaller quantities. Frees up cash, reduces waste.
Invoice corporate functions promptly
Send invoices same day. Follow up after 7 days. Cannot afford 60-day waits in winter.
Emergency Cash Options
If you face a short-term cash shortage, options ranked by speed and cost:
| Option | Speed | Cost |
|---|---|---|
| Merchant Cash Advance | 24-48 hours | 1.2-1.4x factor |
| Business overdraft | Same day | 18-25% APR |
| Business credit card | Instant | 0% (if intro) else 20-30% |
| Director loan | Same day | 0% (pay back when able) |
Conclusion
Cash flow management is not glamorous but it keeps you trading. Forecast 13 weeks ahead, build reserves in good months, negotiate supplier terms, and accelerate cash collection. The difference between thriving and surviving often comes down to having £5,000 available when you need it most.
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