Your restaurant is busy right now. Is your cash ready for the slow season?

Overview

• Why strong summer sales can still leave a restaurant short on cash later
• Which expenses continue even when sales drop
• How to estimate the cash your restaurant will need during the slow months
• What to watch now while sales are still strong

Why does cash get tight after a busy season?

I've seen this happen with restaurants that have a very good summer and then struggle a few months later.

The money came in. Sales looked great. But the cash didn't stay around for long.

There are plenty of reasons for that. Payroll runs every week. Food and beverage invoices keep coming in. Rent is due. Equipment breaks. Taxes come due. Owners take money out. And when business is good, it's easy to finally spend money on the things that have been sitting on the list for months.

None of those expenses are automatically a problem. The problem is spending the busy-season cash without accounting for the months when revenue will be lower.

If your restaurant normally sees sales fall by 40% or 50% during the winter, you need to know what will happen to the cash when that drop comes.

Some of it belongs to the next few months of rent, payroll, debt payments, insurance, and other bills that will still be there when sales slow down.

Why August is the time to start planning

If your restaurant is still busy in August, you're in a much better position to prepare for a slow season than you will be once sales have already dropped.

Start by looking at what happened last year.

When did sales start falling? How low did they go? How many months did the slowdown last? What did you still have to pay during that time?

For one restaurant, the slow season might start in October and run through February. Another restaurant might only have a two-month dip. The answer depends on the business.

That's why I wouldn't pick an arbitrary reserve amount and call it done. Your own sales history gives you a much better starting point.

August also gives you time to make adjustments. If you're spending too much or haven't built enough cash yet, you still have stronger sales coming in.

Which restaurant expenses keep coming when sales slow down?

When sales fall, some expenses come down with them. Others don't.

That difference matters when you're figuring out how much cash you'll need.

A restaurant doing $150,000 in sales doesn't need the same purchasing level when sales fall to $80,000. Food purchases and hourly labor should move with the business.

Rent, loan payments, insurance, software, and other fixed expenses don't give you that same flexibility.

Those are the expenses you need to keep in mind when you're deciding how much cash to carry into the slow months.

How much cash should you keep for the slow season?

I wouldn't start with a rule that says every restaurant needs three months of expenses sitting in the bank.

Look at your own history instead.

1. Pull your monthly sales from the last 12–24 months.
2. Identify the months when sales normally fall.
3. Estimate what this year's slow months are likely to look like.
4. List the expenses that will continue even with lower sales.
5. Reduce the expenses that can realistically be reduced.
6. Estimate how much cash you'll need to cover the gap each month.
7. Compare that amount with what you've already set aside.

For example, let's say your restaurant expects a $12,000 cash shortfall in November, $15,000 in December, $18,000 in January, and $10,000 in February.

That's a $55,000 gap to plan for.

That's a much more useful number than simply saying, "We need three months of expenses."

And don't assume the number stays the same forever. Rent increases, new equipment loans, changes in management payroll, or a longer slow season can all change how much cash you need.

Which numbers should you watch while sales are strong?

Don't let a big sales month tell you the whole story.

During the busy season, keep an eye on:

• Sales: Are you ahead of last year, or is the increase smaller than expected?
• Labor: Are payroll costs staying under control as sales increase?
• Food and beverage cost: Are higher sales actually leaving you with more money after product costs?
• Operating cash: How much cash is left after the regular bills are paid?
• Reserve: Are you actually setting money aside for the slower months?

A restaurant can have its best sales month of the year and still end up short on cash if payroll, food costs, owner draws, debt payments, or other spending rise at the same time.

That's why sales alone aren't enough to tell you whether the busy season is putting your restaurant in a better position.

What should you do before sales start falling?

If your restaurant is busy right now, use that period to get ahead of what's coming.

1. Pull your monthly sales from the last two years.
2. Mark when your sales usually start to drop.
3. Look at how long the slowdown lasted.
4. List the expenses you'll still have during those months.
5. Estimate the cash you'll need to cover the difference.
6. Compare that with what's currently sitting in the business.
7. Decide what needs to stay in the business while sales are strong.

If you realize you're going to be short, August is a much better time to find out than January.

You still have customers coming through the door. You still have stronger deposits coming in. You have more room to adjust staffing, purchasing, operating hours, upcoming expenses, or other spending before the slowdown arrives.

Once sales have already fallen, your options get smaller.

FAQ: seasonal restaurant cash flow

Why does my restaurant feel cash-poor after a busy season?

The cash that came in during the busy months was used to cover expenses, owner draws, debt payments, purchases, repairs, or other business needs. When sales fall, those expenses don't all disappear. If you didn't keep enough cash in the business, the difference shows up quickly.

Should I wait until the end of summer to prepare for the slow season?

No. If you're still in the stronger sales months, you have more room to prepare. You can see what's coming, set money aside, and make changes before the restaurant starts feeling the slowdown.

Is three months of expenses enough for a seasonal restaurant?

There's no single number that works for every restaurant. A restaurant with a two-month slowdown has different needs from one that loses sales for five months. Look at your own sales history and the expenses that continue during the slower period.

What if I don't know which expenses are fixed?

Start with your monthly P&L and look at which expenses change with sales and which ones continue regardless of revenue. If your books don't give you a clear picture, that's worth fixing before you make decisions based on the numbers.

Keep the slow season in mind while business is strong

A busy summer is a good thing. You want strong sales. You want the restaurant full.

Just don't assume that every dollar sitting in the bank is available to spend.

Look at when your sales normally slow down. Figure out which bills will still be there. Pay attention to how much cash you're actually keeping as the busy months move along.

If you know a slower season is coming, the best time to prepare for it is while the restaurant is still busy.

If you're dealing with cash flow concerns, messy books, or you're simply not sure what's going on financially in the restaurant, that's something we can talk about.

When you book a call with The Food Bookkeeper, we'll talk about what's happening in your restaurant, the problems you're dealing with, and where our bookkeeping and financial services can help.

Note: This article provides general information for seasonal restaurant businesses. Your cash needs will depend on your sales history, expenses, lease, staffing, debt payments, and other circumstances. Talk with your bookkeeper or accountant about your specific situation before making financial decisions.