Profit and cash are not the same thing. Your income statement can show a good month while your bank account is heading for a week where payroll, rent and the sales tax payment all land together, right as the slow season starts. Businesses don't usually get into trouble because they had a bad year. They get into trouble because they had a bad week they didn't see coming.
A cash flow forecast is how you see it coming. It isn't a budget and it isn't accounting. It's a simple plan of when money actually moves.
Why a full year, by the week
Most small businesses, and almost every restaurant, have a busy season and a slow one. A forecast that only looks a quarter ahead can miss the slow months entirely. Looking a full year ahead shows whether the cash you build when it's busy carries you through when it's not.
Weekly matters too. A monthly view can show a healthy month that still has one bad week in the middle, the week the rent, the loan and the sales tax are all due. Weekly shows you that week.
What goes in it
The layout is the same every week:
- Opening cash. For week 1, the total in all your business bank accounts today. After that, the previous week's closing cash.
- Cash in. Money that actually lands in the bank that week: sales, delivery app payouts, the sales tax customers pay you, and any loan money or cash you put in yourself.
- Cash out. Money that actually leaves: food and supplies, payroll, card fees, rent, utilities and insurance, loan payments, your own pay, sales tax and estimated taxes.
- Closing cash. Opening cash, plus cash in, minus cash out.
How to set it up
You don't need to type 52 weeks of numbers. Most of a forecast comes from a few facts about your business.
Sales. Start with a typical week. Then note your busiest and slowest months and how far they swing. Your sales report by month from last year shows the pattern.
Costs that move with sales. Food and drink cost and labor rise and fall with how busy you are, so set them as a share of sales. For a restaurant, these two together are prime cost, the number owners watch most.
Bills on their dates. Rent on the 1st, utilities and insurance mid-month, the loan on its due date, and your own pay. Put each on the day it's actually paid, not spread evenly, because the bunching is what creates a tight week.
The lumpy ones. Quarterly estimated taxes, a yearly insurance premium, a license renewal or new equipment can each turn a fine month into a tight week. Add them on their dates.
Timing is the whole game
A few things make a restaurant's cash look different from its profit:
- Sales tax isn't your money. You collect it every day and pay it to the state once a month. Until then it sits in your account and makes the balance look bigger than it is.
- Delivery apps pay later and keep a cut. The cash from app orders arrives after the food goes out, minus the app's commission.
- Payroll is paid for work already done. Labor from a busy stretch is paid in the next payroll, often just as things slow down.
- Loan payments are cash, not cost. The principal part of a loan payment doesn't show up as an expense on your profit and loss, but it leaves your bank account all the same.
How to read it
Find the lowest closing cash of the year. That's your low point, and it's the most useful number in the forecast.
Then compare it with your cushion, the minimum you want in the bank at all times. There's no universal right number. A practical way to set one is to cover the bills you couldn't miss if sales dropped for a few weeks, such as one payroll plus rent.
- Lowest week stays above your cushion. You're in good shape. Now test it: what if sales were 10% lower, or food costs rose 2 points?
- Lowest week dips below your cushion. You won't run out, but you'll be tighter than you want. Look at what lands that week and see what can move.
- Lowest week goes below zero. That's a real shortfall. The good news is that you know now, instead of the morning payroll is due.
What to do about a low week
You have more options the earlier you see the problem:
- Build cash in the busy season. Set aside part of the extra from your best months in a separate account, so the slow months don't drain your operating cash.
- Pay later, with permission. Ask a supplier for a few extra weeks before the bill is due, not after.
- Move what you can. Shift a repair, a purchase or an owner draw to a stronger week.
- Line up credit before you need it. A line of credit is easier to arrange while your numbers still look healthy than in the middle of a shortfall.
Keep it current
A forecast you build once and never touch goes stale. Once a month, update it with your real bank balance and anything that changed, such as a new menu price, a new hire or a rent increase, and look again at the low point.