Keep a close tab on your finances

03 July 2009
Keep a close tab on your finances

Most businesses are beholden to a bank in some shape or form. Here, Sara Stewart, at accountancy firm Jeffreys Henry, explains the importance of getting the basics right

This year has seen tough times fall on most of the UK's hospitality industry and with reservations down, a decline in the spend per head and rising overheads each taking their toll on cash-flow, there has never been a more crucial time for owners to take a clever and more proactive approach to their finances.

Ask any hotelier or restaurateur throughout the country and almost all will say they are tied to a lender through either a loan or, in most cases, a rather large overdraft, which, when used properly can work as quite an effective "safety net" for businesses.

When it comes to their financial obligations, restaurant and hotel owners should keep a close daily eye on their records, and ensure they understand the comings and goings of their business as well as being ready to react quickly and efficiently when it comes to responding to their lender's demands.

Given the current market and an ever-increasing focus on exposure, banks are naturally feeling nervous. They're extremely reluctant to lend to any industry - not only restaurants and hotels - and will be scrutinising the risk of each and every loan they have out there.

Just this year, the industry has seen a number of its big guns call in administrators when their own lenders called in their loans. Antony Worrall Thompson was forced to bring in advisers back in February after his bank refused him an overdraft. And, in the same month, two of Jean-Christophe Novelli's pubs ceased trading, citing "financial difficulties", as did Tom Aikens. The message is: it can happen to anyone.

So how can business owners keep the banking wolf from their door?

Proactivity and transparency is key. Establishing a strict discipline of keeping accurate, up-to-date records that are ready for inspection in the tightest of time-frames is the biggest favour restaurateurs and hoteliers can do for themselves.

This shows lenders that keeping an eye on your finances and watching each penny coming in and going out is important to you and the running of your business.

Produce full management accounts on the same day of each month, say the 15th, and stick with it. This will allow owners to react to any adverse numbers as early as possible and give quick and easy comparisons to the previous month's income.

Aspects of the accounts that are important to look out for are liabilities such as PAYE and VAT, which will be of particular interest to HM Revenue and Customs (HMRC), and the length of time being taken to pay creditors.

It may seem obvious, but paying older debts before earlier ones, regardless of whether these are paid in part or in full, will all go towards showing the bank manager that clearing debt is a priority to management and the business. This process shows you are on top of your debt situation and will be appreciated by your bank manager. It's important to think about the amount of bad debts and your ability to pay back loans.

By producing monthly accounts for your banks, you'll find the pressure they apply to you will ease considerably over time.

Getting into the habit of producing and inspecting your management accounts presents the opportunity to question all monthly business overheads and outgoings, no matter how small, from seasonal food prices to laundry costs and even florists' bills.

In the current climate, be sure to shop around, because there is plenty of room for negotiation with suppliers and good deals to be brokered. Most suppliers would prefer to come to an agreed price for their services than miss out on the business. This also applies to renegotiating terms of credit, which will help ease your business' cash-flow.

Although HMRC and landlords may not be so accommodating, a raft of other suppliers could very well be open to discussing an extension on terms and an extra 30 days of credit with suppliers will guarantee the business is given a little additional breathing space.


Managing cash-flow is a constant challenge for any establishment - profitable or otherwise - and, in the current environment, it is more important than ever. Cash-flow can fluctuate dramatically from week to week, primarily because of the timing of large, regular payments.

Consider drawing up a simple worksheet that sets out estimated weekly cash flow, which will help owners to better understand when cash peaks and troughs are expected.

Such worksheets can be offered as evidence to a lender that a business is a good credit risk, that there is enough cash to hand and, in turn, assist greatly in the possibility of being granted an extension of borrowing facility.

The document should not be confused with the business' cash-flow statement, which shows how cash has moved in and out of a business in the past, whereas the worksheet document is a projection of what is anticipated.


Consider changing the frequency of regular payments. Salaries are usually the largest and most inflexible cost to a business, but by altering salary payment arrangements from weekly to monthly, businesses can reduce bank payment charges and payroll costs incurred through online transactions or cheques.

Those businesses that employ a payroll bureau will save time costs associated with preparing salaries on a weekly basis to a fortnightly or monthly rota.

Remember, it is the discipline that is displayed in the hard times that will benefit an establishment in the good times. By taking the time to produce accurate, regular records and management accounts and by following a few simple guidelines for easing cash-flow, restaurateurs and hoteliers can look forward to reaping the rewards of a good relationship with their lending institution.

Sara Stewartis a partner at Jeffreys Henry LLP, specialists in accountancy for the hospitality and restaurant sectors.
Tel: 020 7309 2222


â- Produce full management accounts on the same day of each month.

â- Pay older debts before earlier ones.

â- Get into the habit of producing and inspecting your management accounts.

â- Question all monthly business overheads and outgoings.

â- Negotiate prices and terms of payment with suppliers.

â- Draw up a simple worksheet that sets out estimated weekly cash-flow.

â- Change salary arrangements from weekly to monthly to reduce bank charges and payroll costs.

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