Restaurants: Billing & Accounts Receivable

Restaurants: Billing & Accounts Receivable

No matter how successful a restaurant may be, maintaining a steady cash flow almost always poses a challenge. Some of the problem rests with badly-timed billing systems, where the accounts receivable column is out of sync with accounts payable.

On the upside, analysts offer some solid solutions. A generous measure of sound cash-flow management, they maintain - along with the right invoicing and accounting software - can allow business owners to collect the money owed them in time to keep operations humming.

Cash Flow - Or Fizzle?

Economists define cash flow as the movement of money into and out of a business. This ongoing cycle can propel a restaurant from solvency to failure, or vice versa.

In fact, most analysts agree that a rudimentary misunderstanding of cash-flow principles ranks right along with inaccurate menu pricing, employee retention headaches and faulty accounting systems as a major issue. Restaurateurs, they say, are missing the boat. While billing practices may vary from restaurant to restaurant, basic cash-flow rules apply to every eatery in business today:

  • Assessment. Conducting a cash flow analysis – a thorough evaluation of an establishment's cash inflow and outflow - is the foundation for good management. The process includes a hard look at accounts receivable and accounts payable, among other financial components, to identify discrepancies and shortfalls. After an in-depth analysis, for example, an eatery owner may discover that December is his biggest revenue month, yet most of the bills come due in November.
  • Timing. By planning ahead, a restaurant owner can distribute incoming revenues so that money is there when it's time to pay the bills.

    An example: Three parties are on the December schedule of a mid-size restaurant/catering establishment, but a huge insurance payment is slated for November. By collecting deposits prior to the December events, the proprietor can shift the cash inflow to cover monies due.

    By the same token, asking for extra time on vendors' accounts payable likewise can allow strapped owners to rework their cash flow patterns. Most restaurant supply establishments are open to flexible financial arrangements - as long as they know they'll get their money.

  • Inventory. A number of experts suggest that too much income sits on shelves in the form of overstock, rather than going to cover the bills. According to one source, a standard full-service restaurant should keep only about seven days of inventory, a few less for fast food or quick-service operations.
  • Posting. Studies show that a fair number of restaurateurs post all or most of cash inflow incorrectly, thus giving them a skewed picture of what actually is clear profit. The most universal errors are the recording of all daily credit and cash receipts as income, no adjustments for discounts or free meals and accepting gift certificates as a credit rather than debit. Posting insurance down payments and installments in the month paid, rather than prepaying the account to spread monies more equitably over a 12-month period, likewise is a pitfall.

Software Means Dollars And 'Sense'

Although some industry experts recommend professional assistance in keeping the books balanced, software producers are churning out all manner of programs designed to help small- and independent-restaurant owners manage their own finances. A number of these handle particular task sets, such as inventory, scheduling or accounting. Others bundle financial components within fully-integrated systems that do everything but kiss the customer goodbye. The following products are a sampling of what's on the market.

  • Operations and management spreadsheets. Primarily available in an Excel format, these spreadsheets organize financial information on a daily, weekly or monthly basis; forecast trends; assist with budgeting and analysis; predict weekly cash-flows; track accounts payable and receivable; generate invoices and reports, and much more.
  • POS (point-of-sale) integrated systems. In addition to menu, scheduling and service-related capabilities, these applications typically unify customer ordering and payment with collection, tracking and reporting of financial data, applicable in single restaurants or across large chains. Many feature DSL/cable credit card processing, and single step payment or split check processing. Depending on the level of sophistication, software in this category can run upwards into the thousands of dollars.
  • Accounting packages. Available as individual programs or as "extras" in POS systems, functions typically include accounts receivable, purchase and sales tracking; invoicing; inventory control and food item costing. Prices vary widely, with some beginning under $120.
  • Online accounting services. If you would rather completely avoid chores involving advanced bookkeeping, consider using an online service. Solutions can include weekly financial reporting, invoicing, profit/loss statements, payroll and much more. Prices and reliability vary, so thoroughly research your options.

Finally, a word of caution: Whether planning to purchase a state-of-the-art system that controls every business function, or a single product to perform billing and accounts receivable chores, new software should be compatible with existing programs. As support goes, it's better to invest a few extra dollars to insure training and backup, as opposed to flying solo - especially when problems arise.