Cash flow for small food businesses: a practical guide

Cash flow is the money that actually comes into and goes out of your business, and the date it happens. Profit tells you whether your products make money; cash flow tells you whether you can pay the wholesaler on Friday. Small food businesses rarely run out of cash because they sell too little. They run out because they pay for ingredients today and get paid in two weeks. Managing it means knowing three things every week: how much comes in, how much goes out, and when.

In this guide

• How to make a simple cash flow forecast, week by week.
• Working capital: how much money you need to operate.
• How to separate business and personal money.
• Selling on credit to shops and cafés without running dry.
• How much it costs to start a small food business.
• Building a cash buffer.
• Bookkeeping basics for food entrepreneurs.
• Loans and financing: what to ask.
• How inventory ties up cash.

Cash flow is not profit

Profit is worked out from what you sold in the month and what it cost to make. Cash flow is worked out from what you collected and what you paid, on the day it happened. The two numbers almost never match.

Three things pull them apart:

• Sales you collect later. You drop off brownies at a café on Monday and they pay you in 14 days. The sale exists; the money does not, yet.
• Purchases made in advance. You buy a month of jars and labels at once because the per-unit price is better. The cost belongs to four weeks, but the money leaves on day one.
• Your own draw. What you take home comes out of the same pot that pays for flour and butter.

That is how a business can be profitable and broke at the same time. We go through it in detail in why you can be profitable and still have no money. The short version: profit is a photo of the month, and cash is a film of every day. You can have a good photo and a film with a scene where the balance hits zero.

The three questions: how much in, how much out, when

Where money comes from

In a small food business, money arrives through several routes, each on its own schedule:

• Cash and instant bank transfers: the same day. The fastest money you get.
• Card payments: depends on your payment provider. Check your agreement for how often they pay out and what fee they keep.
• Delivery apps: they pay out every so many days, with their commission already taken off. Record the payout date, not the order date.
• Shops and cafés on credit: when the agreed terms are up, if they pay on time.
• Large orders and catering: a deposit when the order is confirmed and the balance on delivery or later.

For cash flow, every sale comes in on the day you can spend that money.

Where it goes

Money going out has its own rhythm too:

• Ingredients: almost always paid up front, before you sell anything. A wholesaler rarely gives a new customer credit.
• Packaging and labels: in larger orders, every few weeks.
• Fixed bills: kitchen rent, utilities, insurance, the market stall fee. They have due dates and they do not wait.
• Your draw: what you pay yourself to live. Give it an amount and a date, as covered in how to pay yourself from a food business.
• Equipment and repairs: rarely, but all at once. A fridge that dies does not give notice.

When

This is the question that matters most. A month can end with more money than it started with and still have a week in the red in the middle. The only way to see that coming is to lay out money in and money out week by week.

The cash cycle: from purchase to payment

Every dollar you put into the business goes round a loop: you buy ingredients, make the product, store it, sell it and collect the money. While it is going round, that dollar is not available. The longer the loop, the more money you need sitting in the business to keep running.

That money is called working capital. It depends on three stretches of time:

1. How many days ingredients and finished product sit in your kitchen before they sell. Buy more than you use and cash sits on your shelves; see how inventory ties up cash.
2. How many days it takes to get paid after you sell. Cash sales are zero days; a café on 30-day terms is 30.
3. How many days your suppliers give you to pay. At the start, almost always zero.

Selling at a farmers market for cash has a short cycle. Selling to three cafés on 30-day terms has a long one, even with the same product at the same price. Before you agree to terms, read selling on credit to shops.

Worked example: a month of sourdough and granola

You sell sourdough and granola at a Saturday farmers market and to two cafés. You start the month with $500 in the business account.

• Market: $1,100 a week, cash and card, in your account the same week.
• Cafés: $700 a week in deliveries. They pay 14 days later: week 1 is paid in week 3, week 2 in week 4.
• Ingredients: $620 a week.
• Stall fee: $60 a week.
• Your draw: $350 a week.
• Jars and labels for the month: $420, in week 1.
• Kitchen rent and utilities: $480, in week 2.

Now look at the whole month. You sold $7,200 ($1,800 a week for four weeks). Your costs were $3,620: $2,480 of ingredients, $240 of stall fees, $420 of jars and labels, and $480 of rent and utilities. Before your draw, the month made $3,580. It is a profitable month.

But in week 2 the account is at −$260. In real life that means you cannot buy week 3's ingredients, or you put them on your personal card, or you take nothing home that week.

Where is the gap between $3,580 of profit and what you see in the bank? You drew $1,400, the balance rose by $780 (from $500 to $1,280), and the cafés still owe you $1,400 for weeks 3 and 4, which you will collect next month. $1,400 + $780 + $1,400 = $3,580. The profit is real; part of it is sitting in other people's tills.

Fixing it without selling one more loaf

Keep every number the same and change two dates:

• Buy the jars in two halves: $210 in week 1 and $210 in week 3.
• Draw $175 in weeks 1 and 2, and take the missing $350 in week 3, when the café money arrives.

Redo the table and week 1 closes at $535, week 2 at $300, week 3 at $510 and week 4 at $1,280. You end the month with the same money and never drop below $300. The business did not change; the calendar did. If splitting the jar order raises the price per jar, weigh that extra cost against the risk of hitting zero.

How to check your cash every week

You do not need accounting software for this. You need a table like the one above covering the next six to eight weeks, and 15 minutes on the same day each week.

1. Write down today's real balance in the business account. The one in your banking app, not the one you think is there.
2. Write what you expect to collect each week, on the date you will actually receive it.
3. Write what you have to pay each week: purchases based on what you plan to make, fixed bills and your draw.
4. Work out the closing balance for each week and look for the first one that drops below your minimum.

The step-by-step method is in how to make a simple cash flow forecast. For step 1 to work, business money has to be kept apart from yours; if everything is in one account today, start with separating business and personal money. And for steps 2 and 3 to come from records rather than memory, keep receipts and log every payment, as set out in bookkeeping basics for food entrepreneurs.

Rules that keep cash from running out

Set a minimum and stick to it. Pick a balance you will not go below, for example what you spend in a heavy week. If the forecast says you will dip under it, act before it happens. Building a cash buffer shows how to size it and fill it.

Collect fast, pay on time. Take deposits on large orders and catering. With shops, start with short terms and a credit limit. Paying your suppliers on time gives you something to negotiate with later.

Buy for what you will make. A bulk discount only helps if it does not leave you short of cash or holding stock that spoils. A sack of oats at a good price is still money you cannot spend this week.

Pay yourself a fixed amount. If you take money whenever there is some, the balance jumps around for no visible reason and you never learn whether the business can afford your wage.

Plan big purchases. A new oven, a chest freezer or a run of printed packaging gets bought in the week the forecast allows it, not the week money happened to come in.

Know what it takes to start. If you are starting out or opening a new channel, add the cash needed to run the first few weeks to your startup costs, not just the equipment.

Borrow knowing what for. A loan can cover a cash gap of a few weeks, but it does not fix a product with no margin. Before you sign, read what to ask about loans and financing and compare the repayment with what the business generates each month.

Cash and margin go together

Fixing the calendar saves you from a bad month. But if each product makes very little, no set of dates will be enough. Before you wrestle with cash, make sure your prices cover the loaded cost and leave a contribution. A tidy cash plan on thin margins just shows you more clearly that money is short.

The reverse happens too: healthy margins with slow-paying customers and big purchases still take you to zero. That is why you watch both. Profit per product tells you what to sell. Cash tells you when you can buy, when you can pay yourself and how much credit you can give.

Do it with the calculator

Put each product into the food cost calculator to see what it costs and what it leaves you per unit. With that unit cost you know how much you will spend on ingredients and packaging for what you plan to make, which is the biggest outgoing line in your cash forecast.