In running a restaurant, there are many challenges that a manager will face. One important challenge is managing cash flow so goods, employees and overhead are paid. Timely payments are important for the overall health of any business. “Cash flow management allows a company to estimate the amount of cash that it will have on hand at any one time, project trends in cash inflow and cash outflow, and evaluate whether a shortfall or surplus in cash” (Cash Flow Management, 2016) is possible.
The low average profit margin of a restaurant, which is under 10%, does not leave a lot of wiggle room for a manager to cover expenses without good cash flow management. Without managing cash, a restaurant could result with disgruntled employees whose payroll …show more content…
A typical cash flow statement is divided into three parts: cash from operations (from daily business activities like collecting payments from customers or making payments to suppliers and employees); cash from investment activities (the purchase or sale of assets); and cash from financing activities (the issuing of stock or borrowing of funds). The final total shows the net increase or decrease in cash for the period. (Luehlfing & Hillstrom, 2016)
The profit and loss statement is useful in showing the profit of a company but all the profit is not necessarily cash. The cash flow statement makes allowances for items not reflective on profit and loss statement but items that are included on the company’s balance sheet. Such items include adding back the depreciation and amortization as this is not actually cash spent but it is an expenditure on the profit and loss statement. If we added to our inventory balance, cash was spent. Yet this is not reflected on the profit & loss statement. Bills are put on the books as a payable, they reflect on the profit & loss statement as an expense but no cash outflow until they are paid. And so on. Thus, completing a cash flow statement is a definite need to accurately depict cash on hand at a particular …show more content…
In an article for Chron.com, Jackie Lohrey explains it as:
Although profit may be the ultimate goal, it can’t become a small-business owner’s sole focus, because without a successful cash management plan, profit can be meaningless. Cash budgeting, cash flow forecasting and cash account analysis are crucial for preventing a situation in which a small-business owner reports a profit on paper but at the same time is facing bankruptcy. (Lohrey, 2016)
There are many new business owners that assume the bottom line of their profit and loss statement means they have cash in the bank. Unfortunately, not always the case. That is why it is an important aspect to all business, that someone has the understanding and shares the knowledge of cash flow management. Utilizing the company’s historical data, keeping abreast of the economy and its influence on different business segments, and preparing a company’s cash flow statement at least quarterly to manage operations more effectively and
The low average profit margin of a restaurant, which is under 10%, does not leave a lot of wiggle room for a manager to cover expenses without good cash flow management. Without managing cash, a restaurant could result with disgruntled employees whose payroll …show more content…
A typical cash flow statement is divided into three parts: cash from operations (from daily business activities like collecting payments from customers or making payments to suppliers and employees); cash from investment activities (the purchase or sale of assets); and cash from financing activities (the issuing of stock or borrowing of funds). The final total shows the net increase or decrease in cash for the period. (Luehlfing & Hillstrom, 2016)
The profit and loss statement is useful in showing the profit of a company but all the profit is not necessarily cash. The cash flow statement makes allowances for items not reflective on profit and loss statement but items that are included on the company’s balance sheet. Such items include adding back the depreciation and amortization as this is not actually cash spent but it is an expenditure on the profit and loss statement. If we added to our inventory balance, cash was spent. Yet this is not reflected on the profit & loss statement. Bills are put on the books as a payable, they reflect on the profit & loss statement as an expense but no cash outflow until they are paid. And so on. Thus, completing a cash flow statement is a definite need to accurately depict cash on hand at a particular …show more content…
In an article for Chron.com, Jackie Lohrey explains it as:
Although profit may be the ultimate goal, it can’t become a small-business owner’s sole focus, because without a successful cash management plan, profit can be meaningless. Cash budgeting, cash flow forecasting and cash account analysis are crucial for preventing a situation in which a small-business owner reports a profit on paper but at the same time is facing bankruptcy. (Lohrey, 2016)
There are many new business owners that assume the bottom line of their profit and loss statement means they have cash in the bank. Unfortunately, not always the case. That is why it is an important aspect to all business, that someone has the understanding and shares the knowledge of cash flow management. Utilizing the company’s historical data, keeping abreast of the economy and its influence on different business segments, and preparing a company’s cash flow statement at least quarterly to manage operations more effectively and