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Managing Your Café’s Cash Flow

Managing Your Café’s Cash Flow

Here’s how it works:

If the dream of owning your own café has become a stressful nightmare when it comes to paying the bills, here are some savvy tips for managing your cash flow.

Effective cash flow management is critical to any café’s survival and growth. Understanding your café’s underlying cash flows will help you to identify potential tweaks to your management practices that will improve your cash flow and profitability.

Did you know? You can run a cafe that is returning good profits in your figures and still go broke? How you ask? That doesn’t make sense you say? But, it is truly possible and cash flow kills more business than lack of profits.

It may not be your idea of excitement, but cash flow demands your attention!

Sometimes the difference between running a successful business and a struggling one can be something as simple as how you manage your cash flow.

The Difference Between Success and Failure

Two cafés may both provide great customer service and offer a wonderful menu. Both may provide a unique experience and an engaging vibe that keeps customers coming back for more.

Yet, given the same opportunities, one café inevitably struggles, while the other thrives.

There is a time-honoured saying in business, “Cash is King.” Your café’s success may just depend upon your ability to effectively manage your cash.

Most cafés operate in much the same way. Customers come through the door in peaks and troughs.

Your café can be absolutely heaving for 20 minutes, then the tide ebbs and you find yourself whiling away the afternoon shift with just a handful of customers.

Capitalising on the cash generated during those busy times is critical, but where do you start?

A café’s ability to reliably spin-off positive cash flows from its routine business operations is one of the key factors owners, suppliers, and potential investors look for. Cafe businesses are generally very cash-positive models but this can lay a massive trap for unwitting owners who don’t have a good grasp of the importance of watching cash flow. The cash you have in your till is not necessarily yours, so make sure you use it (or, more specifically, don’t use it) wisely.

An example of a cash flow management disaster

Sandra is running a cafe in a busy strip and she feels she is doing very well.

She believes she is running a tight ship with good staff and bringing in a healthy revenue every day. Her weekly takings average $13-14k operating for 7 days. She pays her staff with cash and after 3 months of trading most of her suppliers give her a 30 day credit account. She feels she is getting ahead fast. Her bank balance is rising, her staff are paid and she starts to reward herself with some extra takings.

60 days later she has all of her creditors’ invoices due and she has to use $5k of her personal credit card to pay them all. She argues that she will quickly pay that back as her takings are always $13-14k per week.

She then has rent due and the accountant sends through her quarterly BAS statement which she had not factored in at all. All of a sudden she is sinking and sinking fast. She has not factored all of her upcoming expenses while she felt she was doing so well. To add to her worries she unexpectedly has a display fridge breakdown and has to pay the mechanic $1350 up front to allow her to continue operating. Suddenly her outgoings have bunched up, and the revenue no longer covers it, which starts a spiral of debt repayments, further compounding her inability to save up for future outgoings.

With some simple planning and forecasting she could have foreseen some of these expenses and not got into a position where she is compromised.

Tip from successful cafes: Understand that your cafe needs to be busy all day. If you have no income but staff there they are eating a big hole in your profits for every minute they stand there. Be creative and ensure you have ways to keep clients rotating through your cafe for as many hours as possible. Be prepared to be flexible in your hours to maximise the windows of opportunity that are available to you in your area.

What is Cash Flow in a Café?

Cash flow is typically defined as the net change in your café’s cash position (Cash in the bank) from one accounting period to the next. If you generate more cash than you consume, you have a positive cash flow.

Successful businesses watch this monthly at an absolute, and if you are a new business you may want to watch it weekly until you have a handle on it.

If you have greater cash outflows than inflow, you have a negative cash flow. Thus, your cash flow is a key indicator of a café’s financial health.

Definitions of Key Terminology in a Cash Flow Statement

Before you can pull apart all of the different pots of incomings and outgoings, you’ll need to wrap your head around what many of the terms mean. If there are still gaps in your knowledge, visit a website such as http://www.businessdictionary.com/ – just keep in mind that some of the terms might be Americanised.


An amount due from a customer, employee, supplier (as a rebate or refund), or any other party. Receivables are classified as accounts receivable, notes receivable, etc., and represent an asset of the firm. Very simply this when cash enters your bank, not when you make out an invoice if you are providing credit.


Money owed to creditors, lenders, employees, or government (taxes), presented as a liability in the balance sheet of a firm. If due within 12 months, payables are shown as a short-term liability; if not, as a long-term liability.


The value of materials and goods held by your café.

Understanding Your Café’s Cash Flow Statement

Operating cash flows illuminate a café’s true profitability. It’s one of the purest measures of cash sources and the use of cash within a business and is the launching pad for a range of complementary financial statements and reports.

Operating cash flow is a fundamental part of your cash flow statement. Your cash flow statement illustrates the fluctuations in cash compared to less volatile equivalents such as shareholders’ equity and the balance sheet.

Your cash flow statement details both where cash is being generated and where it is being consumed in the café over a set period.

By taking the net income figure from the café’s income statement and adjusting it to display variations in the café’s working capital (defined as payables, receivables and inventories as reflected on the balance sheet), the café’s operating cash flow line item illustrates the sources of cash spun off during the reporting period.

Cash Flow Sources

A café’s sources and uses of cash are typically split into categories covering operations, investments and financing activities.

  1. Operations: Reflects a café’s operational cash inflows and outflows, the net effect of these defines a firm’s operating cash flow position
  2. Investments: Shows changes in the café’s cash position from the divestment or acquisition of property, plant and equipment or other typically longer-term investments
  3. Finance: Captures changes in cash levels from interest payments and dividend distributions to owners or shareholders.

Operating Activities

A café’s operating activities comprise its routine core commercial activities within the business that generates cash inflows and outflows. These operating activities typically include:

  1. Sale of beverages and food recorded during an accounting period
  2. Supplier payments covering goods and services consumed during the production of beverages and food recorded during an accounting period
  3. Employee payments or other expenses incurred during an accounting period.

Unforeseen costs of running a cafe

This is not an exhaustive list as each situation is different, but here are some of the costs that several of our cafes have been surprised by in their first three years of operation:

  • Personal Tax
  • PAYG Tax
  • GST payments (BAS)
  • Supplier invoices
  • Breakdowns and repairs
  • Building maintenance
  • Breakage replacement (crockery etc.)
  • Recruitment costs

Operating Cash Flows

Your operating cash flow is a very useful tool for assessing the health of your café. Operating Cash Flow assists a café’s owner to understand the café’s fundamentals.

For many café owners, their OCF position is considered to be the cash component of net income, as it purges the café’s income statement of non-cash related items and non-cash-based expenditure such as amortization and depreciation and changes to the café’s current assets and liabilities position.

Operating cash flow is a more accurate indicator of a café’s underlying profitability than other measures of net income, as it is less open to massaging to window dress profitability.

12 Tips for Managing Your Café’s Cash Flow

1. Managing Expenses

This may sound like Management 101 but think for a moment. What could you be doing differently when it comes to managing your café’s expenses?

Have you looked at your menu in detail? Are there simple changes to your menu you could make to produce a significant impact on your cash flow? Don’t be afraid to delete items from the menu.

Research indicates customers can sometimes feel overwhelmed by too many conflicting menu choices. The more choice there is the fewer decisions customers make.

Similarly, swapping one item out of the menu and replacing it with another item could eliminate an expensive ingredient that isn’t used in other menu items.

If you are you preparing your café’s menus based on seasonally available ingredients, this can also help with keeping expenses down by not using expensive out-of-season or imported produce.

Another savvy strategy is to establish solid relationships with your vendors. Long-term relationships can help when it comes to negotiating prices or reviewing payment terms, as well as ensuring you will get great service from them.

2. Accurate Accounting Software

Paying your bills as and when they fall due can make a significant difference to the terms you will get from your vendors.

Good accounting software makes tracking your creditors simpler and easier, while also helping you to smoothly predict your future cash flow.

One of the issues that many café owners find difficult is not the question of whether there is going to be enough cash in their bank account tonight or tomorrow, but whether there will be enough in a few weeks’ time when all the café’s bills “suddenly” fall due.

Accurate accounting software can transform the way you plan your cash requirements for the next month, the next quarter and into the future.

3. Squirrel Away Safety Net

Customers like the weather can be fickle and unpredictable. Occasionally, for no apparent reason, your café has a quiet week. Equally unpredictably, you may enjoy bumper takings the following week.

One of the things with the potential to make a major difference both to your cash flow as well as your stress levels is having a handy cash reserve tucked up your sleeve for an unexpected slow month.

While many café owners are tempted to dip into an overdraft facility, ultimately this ends up costing you in exorbitant bank fees and interest, further draining your cash flow.

While these expenses are tax deductible they can also constitute a very real drain on your limited cash that could be better employed elsewhere.

4. Never Run Out of Cash

Running out of cash is the very definition of business failure. Successful café owners put in place a combination of systems and processes to ensure a cash crisis doesn’t happen to them.

5. Cash is King

It’s important to recognise that the basics of cash flow are what keeps your café alive and breathing. As the café owner you need to devote the same attention to managing your cash flow as you do to the quality of your coffee and your menu.

Cash flow can be a very unforgiving beast if you don’t monitor it constantly. Remember, the reason cash continues to be king is because no cash inevitably equals no business!

6. Know Your Cash Balance Right Now

Do you know what your cash balance is right now? It’s critical to the future of your café that you know exactly what your cash balance is every day.

Even the most experienced café operator will fail if they are making business decisions based on inaccurate or incomplete cash balances and cash flow projections.

This is fundamental Cash Flow 101. That’s one of the reasons why business failures are not confined to first-time café owners or people new to the industry.

7. Do Today’s Work Today

The key to maintaining an accurate cash balance in your accounting system is to ensure you do today’s work today.

Putting off updating your cash flow statement can be very alluring.

However, when you succumb to temptation, you won’t have the very numbers you need, when you absolutely must have them.

8. Do the Work or Get Qualified Help

There is a simple rule of thumb to follow to ensure you have an accurate cash balance reflected in your books.

Either you need to do the work to maintain your books yourself or you outsource your accounting needs to an accounting professional.

Either way, having an up to date cash flow statement is a great way to ensure you avoid unpleasant surprises.

9. Don’t Attempt to Manage from Your Bank Balance

Your bank balance and your cash balance are two different forms of cash. Rarely are the two windows into your business ever the same. Don’t make the elementary mistake of confusing them.

A bank balance does nothing to help you understand your future cash flow needs or the timing of supplier payments. You reconcile a bank balance. It’s not a management tool.

10. Know Your Quarterly and Six-Monthly Cash Balances

Where do you anticipate your cash balance will be next quarter, or six months from now? This one question will transform the way you manage your business and will help you pass your real-life Cash Flow 101 exam.

Question is, do want to manage your café or do you want your café to be managing you?

11. Cash Flow Problems Don’t Just Pop Up by Chance

Over 60% of new small businesses fail within the first three years in Australia. It is always amazing the number of café and similar small businesses that fail because the owner failed to anticipate a looming cash flow problem in time to do correct it.

The key to cash flow success is to always be able to answer one simple question, “What do I expect my cash balance to look like six months from now?

12. Take Care of Customers

When you conquer your cash flow worries, you are free to focus on doing what you do best, providing delicious beverages and an attractive menu, while taking care of your café’s clients.

Wave ‘Goodbye’ to wasted time worrying about what’s happening with your cash flow. Instead, say ‘Hello’ to tapping into your inspiration and talents each day to successfully grow your café’s footprint and generating more income each year.

That is a recipe for success and wealth creation in anyone’s language!

Final Observation

Cash flow projections are the key to making wise and profitable business decisions. They give you the answer to what is going on in your café’s daily business while preparing you to meet next quarter’s cash commitments and giving you a perspective on your café six months out from now. It’s impossible to run your café properly without solid cash flow forecasts, and cash flow continues to be one of the most insightful measures of a café’s financial viability and underlying profitability as well as its long-term outlook.


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