You look at your accounts and see a profit.
Sales are strong.
Customers are coming through the door.
You have worked hard all month.
But when you look at the bank account, there’s barely enough money to pay the next round of bills.
So you start asking:
“Where has all the money gone?”
This is one of the most frustrating situations a business owner can experience.
And it can happen even when the business is genuinely profitable.
The reason is simple:
Profit and cash are not the same thing.
Your profit tells you whether the business is generating more revenue than its expenses over a period of time.
Your cash flow tells you whether you actually have enough money available to pay your bills when they are due.
A profitable business can still run into serious cash-flow problems.
Profit Isn’t the Money in Your Bank Account
Imagine your restaurant makes:
$100,000 in sales
and has:
$85,000 in expenses.
On paper, that looks like:
$15,000 profit.
But that doesn’t necessarily mean there is $15,000 sitting in the bank.
The business might have:
- Purchased equipment
- Paid a deposit
- Bought additional stock
- Repaid a loan
- Paid tax
- Paid suppliers earlier than expected
- Had money tied up elsewhere
The profit figure and the bank balance are measuring different things.
Hospitality Businesses Have Constant Cash Movement
Hospitality can be particularly demanding from a cash-flow perspective.
Money is constantly moving.
You are:
Buying stock
Paying staff
Paying suppliers
Paying rent
Paying utilities
Processing customer transactions
Paying taxes
Paying loan repayments
Buying equipment
Maintaining the venue
There can be a lot of money moving in and out of the business every week.
That makes cash-flow management important.
Your Sales Don’t All Become Available Cash Immediately
A customer might spend $100 at your cafe.
But the full $100 isn’t necessarily available in your bank account immediately.
Depending on how the customer pays, you may have:
- Card processing fees
- Payment settlement delays
- Delivery platform fees
- Refunds
- Other transaction costs
The timing matters.
Cash flow is about when money arrives and when money leaves.
Supplier Terms Can Make a Huge Difference
Imagine you purchase $10,000 of stock this week.
But your supplier gives you 14 or 30 days to pay.
You might sell some of that stock before the invoice is due.
That’s very different from paying the entire $10,000 immediately.
Supplier terms can therefore have a significant impact on cash flow.
This doesn’t mean you should push every supplier for the longest possible payment terms.
It means you should understand the relationship between:
When you buy
When you pay
When you sell
When you collect the money
Stock Can Tie Up Your Cash
Inventory sitting in your storeroom is money you’ve already spent.
It isn’t necessarily bad.
You need stock to operate.
But excessive stock can tie up a surprising amount of cash.
Imagine your business has:
$20,000 of food and beverage inventory
sitting on site.
That is $20,000 that isn’t currently available to pay a supplier, wage bill or other expense.
This is why buying more stock isn’t automatically a good thing just because you received a better unit price.
Cheap Stock Can Be Expensive
Suppose your supplier offers:
10% off if you buy twice as much.
That sounds attractive.
But if you don’t need the additional stock and some of it expires, the discount wasn’t necessarily a saving.
You have converted cash into excess inventory.
And potentially into waste.
The cheapest price isn’t always the cheapest option for your business.
Equipment Purchases Can Drain Cash
This is another common problem.
The business has a good month.
The owner decides:
“Let’s upgrade the coffee machine.”
Or:
“Let’s replace the fridges.”
Or:
“Let’s renovate the dining room.”
The purchase might be a sensible investment.
But a large cash purchase can still create a short-term cash-flow problem.
Before spending the money, understand:
What will this cost?
When does the money leave the business?
What benefit will it create?
How long before that benefit appears?
A profitable business can still get into trouble by making large investments at the wrong time.
Loan Repayments Are Different From Profit
If you have business finance, the repayment affects your cash.
But the accounting treatment of the repayment isn’t necessarily the same as the cash movement.
This is another reason why looking only at your profit-and-loss statement isn’t enough.
You need to understand what is actually happening to the money in the bank.
Tax Can Create a Cash-Flow Shock
Tax is one of the biggest things business owners need to plan for.
You can have a profitable business and spend the available cash thinking:
“We’ve had a great month.”
Then the tax bill arrives.
The money still needs to be paid.
The solution isn’t complicated:
Plan for tax before the bill arrives.
Work with your accountant or financial adviser to understand your obligations and when payments are due.
Then make sure the cash is available.
GST Isn’t Your Money
For businesses registered for GST, money collected from customers can include GST that ultimately needs to be accounted for.
It’s easy to look at the bank balance and think:
“We’ve got $50,000 sitting there.”
But not all of that money necessarily belongs to the business.
Some may already be committed to:
- GST
- Tax
- Wages
- Superannuation
- Suppliers
- Rent
- Other upcoming obligations
Your bank balance isn’t the same thing as your available profit.
Know Your Upcoming Bills
One of the easiest ways to improve cash flow is to know what’s coming.
Create a simple forward-looking list.
For example:
Monday: $4,500 wages
Tuesday: $3,000 supplier payment
Wednesday: $1,800 rent
Friday: $2,500 supplier payment
Next week: $5,000 tax payment
Now you can see the pressure coming before it hits.
Without that visibility, you may be reacting to problems after the money has already left.
Build a Cash-Flow Forecast
You don’t need an expensive system to start.
A simple spreadsheet can work.
Create columns for each week.
Then list:
Opening cash
Expected sales
Expected other income
Wages
Suppliers
Rent
Utilities
Loan repayments
Tax
Other expenses
Closing cash
This gives you a forward view.
The purpose isn’t to predict the future perfectly.
It’s to identify potential problems early.
Don’t Just Look at Last Month
Your accounting software tells you what happened.
Your cash-flow forecast helps you think about what’s going to happen.
Both are important.
A profit-and-loss statement might tell you:
“We made $12,000 profit last month.”
Your cash-flow forecast might tell you:
“We’re going to be $8,000 short in three weeks.”
That second piece of information could be far more important to the immediate survival of the business.
Watch Your Payment Timing
Cash flow can be affected by the timing of payments.
If you receive money today but don’t have to pay the supplier for 30 days, your cash position is stronger than if you have to pay the supplier immediately.
Look at your payment cycles.
Ask:
When does cash come in?
When does cash go out?
Where are the gaps?
This is particularly important when sales fluctuate throughout the year.
Seasonal Businesses Need Extra Planning
Hospitality businesses can experience major seasonal changes.
A venue might have:
Very strong December sales
but:
Very weak January sales.
If you spend heavily during the strong period without planning for the quieter period, the cash can disappear quickly.
The business needs enough cash reserves to handle predictable fluctuations.
Don’t Mistake a Busy Week for a Strong Business
A big week can make the bank balance look fantastic.
But ask what caused it.
Maybe you had:
- A major event
- A public holiday
- Christmas trade
- A large catering order
- A temporary promotion
Don’t immediately assume the higher sales level will continue.
Cash-flow planning should be based on realistic expectations.
Your Owner Drawings Affect Cash
Business owners need to get paid.
That’s completely reasonable.
But the business still needs enough cash to operate.
If you regularly take money out whenever the bank account looks healthy, you can create a problem later.
Create a clear process for owner payments.
Know what the business can afford.
And separate:
“The business made money”
from:
“The business can afford to distribute this money right now.”
Keep a Cash Buffer
Hospitality businesses have unexpected expenses.
Equipment breaks.
Fridges fail.
Coffee machines need repairs.
Vehicles need maintenance.
Suppliers change prices.
Staffing requirements change.
Unexpected bills happen.
A cash buffer gives the business room to deal with these situations without immediately reaching for expensive finance.
The appropriate buffer will depend on your business and circumstances.
The important thing is to deliberately build one rather than hoping you won’t need it.
Don’t Use Debt to Hide a Cash-Flow Problem
Finance can be useful.
But borrowing money to cover a recurring cash-flow problem doesn’t fix the underlying issue.
If every month you’re short of cash because your pricing is too low, your labour costs are too high or your business is carrying too much stock, another loan doesn’t solve the problem.
It simply moves the problem forward.
Before borrowing more money, understand why the cash is disappearing.
Look at Your Debtors
If your business does catering, functions or corporate work, you may have customers who don’t pay immediately.
For example:
You deliver $5,000 of catering.
You invoice the customer.
They pay 30 days later.
The sale may be recorded as revenue before the cash arrives.
That creates a gap.
The more money you have sitting in unpaid invoices, the more cash is tied up outside the business.
Invoice Quickly
If you’re providing catering, functions or other invoiced services, don’t leave invoices sitting on your desk for weeks.
The sooner you invoice, the sooner the payment process can begin.
Make your payment terms clear.
Track outstanding invoices.
Follow up overdue accounts.
Cash flow is much easier when money actually arrives when you expect it to.
Don’t Ignore Small Recurring Expenses
Cash can disappear through dozens of small payments.
Look at:
- Software
- Subscriptions
- Phone plans
- Delivery fees
- Merchant fees
- Cleaning services
- Maintenance contracts
- Advertising
- Unused memberships
- Unused software
One $50 expense isn’t going to change your business.
Twenty unnecessary $50 expenses might.
Review recurring expenses regularly.
Understand Your Break-Even Point
One of the most useful numbers in your business is your break-even point.
This tells you roughly how much sales or gross profit you need to generate to cover your operating costs.
Once you understand it, you can ask better questions.
For example:
How much do we need to sell each week?
How much do we need to sell each day?
What happens if sales fall by 10%?
What happens during our quiet season?
This turns financial management into something you can actually use to make decisions.
Know Your Daily Sales Target
If your business needs to generate $50,000 of sales per month, break it down.
You might need approximately:
$11,500 per week
or:
$1,900 per trading day
depending on your trading pattern.
The exact calculation will depend on your business.
But having a target makes the numbers much easier to understand.
Your manager can see whether you’re ahead or behind.
Your team can understand the importance of sales.
And you can spot problems sooner.
Watch Your Cash Position Every Week
Don’t wait until the end of the month.
Set aside time every week to review:
Current bank balance
Expected income
Upcoming payments
Tax obligations
Payroll
Supplier bills
Loan payments
Expected cash position
A 20-minute review can prevent a major financial surprise.
Ask “Where Is the Cash Going?”
If your business is profitable but your bank account isn’t growing, investigate.
Possible reasons include:
- Excess stock
- Equipment purchases
- Loan repayments
- Tax payments
- Owner drawings
- Supplier payment timing
- Outstanding invoices
- Increasing expenses
- Falling margins
- Waste
- Poor pricing
There isn’t one universal answer.
You need to follow the money.
Profitability Still Matters
Cash flow management doesn’t replace profitability.
You eventually need a business model that generates a healthy return.
If you’re consistently losing money, better cash-flow management can only delay the problem.
You need to address:
Pricing
Food costs
Labour
Waste
Overheads
Sales
Margins
Cash flow and profitability need to work together.
The Hospitality Takeaway
A healthy bank balance today doesn’t necessarily mean your business is financially healthy.
And a low bank balance doesn’t necessarily mean your business isn’t profitable.
You need to understand both.
Know what you’re earning.
Know what you’re spending.
Know when money comes in.
Know when it goes out.
Know what you’ve committed to.
And know what bills are coming.
Most importantly, stop managing your business based on the amount currently showing in your bank account.
Cash flow needs to be managed before you run out of cash, not after.
A profitable hospitality business should generate profit.
A well-managed hospitality business should also have enough cash available to keep operating, pay its obligations and take advantage of opportunities.
Profit tells you whether the business model works.
Cash flow tells you whether the business can survive long enough to benefit from it.
