The formula
Net cash flow per month = Cash in – Cash out
Closing balance = Opening balance + (Net cash flow x Months)
Cash in is sales as they settle plus any other regular income. Cash out is everything that leaves the account that month: supplier payments, payroll as it is actually paid, rent, operating costs and loan payments. The balance then carries forward month by month, which is the whole point: a single good month tells you little, but the carried balance tells you exactly which future month breaks, while there is still time to change it.
One more ratio is worth watching:
Cash flow margin = Net cash flow / Cash in x 100, the share of each incoming dollar that stays in the business.
How to use it, with an example
- Start with the real bank balance today, not the balance after the weekend you are hoping for.
- Use a normal month for sales and costs: not your best December and not your worst February. Seasonality gets its own run later.
- Enter costs as they are paid, not as they are incurred. A supplier invoice on 30-day terms is next month’s cash problem, not this month’s.
- Read the month-by-month direction, then find your thinnest point: the lowest balance is where payroll, rent and a tax bill can collide.
- Rerun it with sales 15% lower. If the account survives that version, the plan is sturdier than it looks.
Worked example: A restaurant starts with $15,000 in the bank. A normal month brings in $85,000 of sales plus $1,000 of other income, and sends out $25,500 in supplier payments, $25,500 in labor, $6,000 rent, $8,500 of other operating costs and a $1,800 loan payment. Cash in is $86,000, cash out is $67,300, so net cash flow is +$18,700 a month, a 21.7% cash flow margin. The balance reaches $33,700 after month 1 and $71,100 after month 3, covering about 1.1 months of costs. The calculator above is prefilled with these same numbers.
The discipline gets much easier when the inflows and outflows are already categorised in one ledger instead of being rebuilt from bank statements. On Odoo for Restaurants, POS sales land in the same accounts as supplier bills and payroll, and the Odoo Accounting and Finance module shows payables by due date, which is exactly the timing view a cash projection needs.
Common mistakes
- Confusing profit with cash. Depreciation never leaves your account and a loan principal payment is not a profit-and-loss cost, but only one of those two facts shows up in your P&L. Cash flow counts both correctly: money in, money out.
- Using invoice dates instead of payment dates. Food bought this month on net-30 terms is next month’s outflow. Projections built on invoice dates warn you a month early about the wrong month, as any honest restaurant POS versus restaurant management system comparison will show when it talks about payables.
- Forgetting the irregular bills. Quarterly taxes, annual insurance, license renewals and equipment repairs are real outflows that hide between normal months. Spread them into the months they are actually paid.
- Projecting the best month twelve times. Sales seasonality in restaurants is real: patios, holidays and local events move monthly sales by 20% or more. Project a normal month, then a slow one.
- Ignoring card settlement timing. Weekend card sales may settle after rent day. At monthly level this averages out, but if your balance is thin, run a weekly version before you trust the monthly one.
- Treating gift card sales as free money. A gift card sold in December is cash in, and a meal you owe in January. It helps cash flow and hurts later margins.
FAQs
What is the difference between cash flow and profit in a restaurant?
Profit matches income and costs to the period they belong to; cash flow tracks when money actually moves. A profitable month can still overdraw the account if a tax bill, a loan payment and a big supplier run land before the card settlements do.
How much cash reserve should a restaurant keep?
Common guidance is one to three months of operating costs, with more for seasonal concepts. The right number covers your slowest stretch without borrowing: run this projection on your worst quarter and see how deep the trough goes.
How often should I update a cash flow projection?
Monthly at minimum, weekly if the balance is thin. A projection is a rolling tool: each month, replace the oldest forecast month with the actual result and add a new month at the end, so you always see a full quarter ahead.
What is a good cash flow margin for a restaurant?
There is no official benchmark, but a healthy month should leave a positive cash margin after loan payments. One negative month is a warning; three in a row is a trend that needs a decision.
Should loan payments and equipment purchases be included?
Yes. Cash flow does not care whether a payment is a P&L cost. Loan principal, equipment bought outright and owner draws all leave the account, so all of them belong in the outflows when they are paid.
My projection goes negative in month two. What do I fix first?
Timing before cuts: negotiate supplier terms, move a payment date, or bring a catering deposit forward. If timing does not close the gap, the gap is structural, and the levers are sales, labor scheduling and purchasing.
