For bars and restaurants to survive they need to focus on cashflow. Here are 10 important recommendations and non-intuitive tips to survive and then thrive.
As the founder of Backbar, and before that the founder of Uncorkd, I have spent the last 10 years of my life working with hundreds of hospitality companies. Sometimes they come to us when they are doing exceptionally well and sometimes when they aren't; I have seen a lot (but not anything like this current crisis with COVID-19). Below are my recommendations for bars and restaurants to recover financially after these difficult times.
Cash flow is king
The main reason companies go out of business is because they run out of cash. They can be generating large revenues, they can even be profitable, but they can still run out of cash and go under. The most fatal mistake restaurants and bars make in times like these is equating margins and profits to cash flow. You need to focus on profitability in the long run, but cash flow immediately. So here are my actionable steps to increase cash flow after this crisis.
10 Recommendations to Recover Financially
1. Do not take advantage of deals offered by wholesalers
Only order what you expect to need for the week. Your goal is not to get the best price, it is to spend the least amount necessary. If you typically go through 2 cases of Tito's a week, do not buy 5 cases because your vendor is throwing in the 6th for free. Stop caring about getting a free case, you are spending hundreds more than you need to right now.
2. Reduce product selections
If you run out of a product, don't automatically re-order it. You can probably get by with 3 IPA's instead of 4. You probably don't need 20 different flavors of vodka. As products get low or run out, strongly consider if you really need them. Chances are, you can get by with less selections until your finances are more stable.
3. Substitute products, even if it increases pour costs
This is perhaps the most non-intuitive recommendation on the list. Once again, your goal is to preserve and increase cash, which confusingly doesn't always mean maximizing profits. Sometimes it is better to substitute a more expensive product if it helps you get rid of excess inventory and generate cash flow. Using existing inventory doesn't require any cash whereas buying (even the cheapest) products do. So if you run out of well vodka that costs you $7/bottle, don't instantly order more. If you have 10 bottles of Smirnoff sitting in storage that originally cost you $12/bottle, it may be a wise decision to temporarily substitute some or most of those bottles for your well vodka.
4. Evaluate and offer the right specials to generate cash flow
If you offer happy hour or other specials that encourage increased consumption on low cost products, consider discounting and changing your specials to instead focus on getting rid of more expensive excess inventory. This will largely depend on the type of your establishment, but ditch the $2 off draft beer specials and instead try 50% off martinis or specialty drinks. Use in combination with tip #3 and where necessary substitute in like products for your higher end cocktails.
5. Get creative frequently changing cocktails
Even if you typically only change your specialty cocktails a few times a year, now is the time to get creative to trim that excess inventory and swap them more frequently (even weekly). Have a lot of tequila on hand? Add a new margarita to your cocktail list. Extra few bottles of amaretto? Add an amaretto sour. By highlighting specific drinks and cocktails you will increase sales of those items and generate cash from bottles that otherwise might be sitting on shelves for a long time.
6. Track and analyze inventory
Almost every single restaurant I've worked with over the years has had a problem with too much alcohol inventory. You can't improve what you don't measure. If you don't regularly count and analyze all your inventory, do it immediately, while business is slower. You don't need an expensive solution. Heck, Backbar is a completely free bar inventory app that also calculates pour costs, cost of goods, usage and more. There's no excuse not to regularly count inventory and know your liquor costs.
7. Know your product usage
Almost every recommendation I've listed above relies at least in part on understanding your usage. Know how much you typically use of your products in a week. I talk to far too many owners and managers regularly who are singularly focused on overall or category-level cost of goods, but yet don't have data on their average weekly or monthly usage of their products. That's what causes inventory to build up and cash to slowly burn. In a time like this, that slow cash burn quickly becomes a grease fire that's going to put your whole business up in flames.
8. Cut or save on services and technologies you don't need
There's no better time to take stock of all the expenses you have and cut anything that isn't critical to your operation or customer experience. Often times, we don't realized how bloated we've become until faced with a crisis, so the sooner the better. See if you can put services on a temporary hold. See if your vendors will extend payment terms. Some companies may be willing to reduce or eliminate fees now in order to keep you as a long-term customer, rather than see you cancel.
9. Treat your employees with respect and help where you can
We are all in this together. Everyone is going to struggle through this and the ones impacted the most are the faces that are often underappreciated, overworked and underpaid. It is not only a good showing of humanity and respect, but good business sense to do everything you can to help those people now who always help you on a daily basis. Nothing is more important than your reputation and people remember how they were treated when times were difficult. Doing what you can now to help employees will pay dividends for your business down the road by making it easier to attract and retain talented employees, drive more business through word of mouth and create a culture of trust and respect that customers and employees alike will value.
10. If you make it through this difficult time your business will be stronger
Less of a recommendation and more of an important fact to remember as you are dealing with recovering financially with your restaurant or bar. If you survive, you are more likely to thrive in the long run. Your business will be in better order, you'll have better control of costs, better processes in place and more cash for the next rainy day. The light at the end of the tunnel is that there may be less competition. There may be higher profit margins. You will have a stronger operation.