Understanding The Function Of Your Restaurant’s Cash Flow Statement

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The Cash Flow Statement represents how the Balance Sheet and P&L work together to have an impact on your cash and operating accounts. It is designed to show you where your cash is coming from. Additionally, where your cash is going within a specific time period. Because restaurants don’t operate entirely on a cash basis, it’s often difficult to find your cash position from the Income and Expense Statement and the Balance Sheet alone. The RASI Education Team breaks down the function of the Cash Flow Statement and why it’s possibly the most important statement to review on a regular basis.

Uses of the Cash Flow Statement


  • You should view your Cash Flow Statement every period to review where your cash is going, and where it is coming from
    • Were there any large purchases or loans taken out on the business?
    • Was the operational cash provided enough to cover the large asset purchase or payment on the note?


  • Banks use the Cash Flow Statement to decide on the creditworthiness of the business
  • Does the Restaurant make enough cash through the operations to cover its current liabilities?
  • Where is the cash coming from?

The relationships between your Financial Statements

  • The Cash Flow Statement displays the cash activities from both the balance sheet and the Income & Expense Statement
  • Your Income & Expense Statement reports on the day-to-day operations of the business for a set time frame
  • The Balance Sheet displays the overall financial health of the business

Why can’t you rely on these statements alone? Why the need for a Cash Flow Statement?

  • Your Income and Expense Statement, or your Profit and Loss Statement, represents your Day-to-Day operations
    • This statement is the most commonly reviewed and most popular financial report
    • The P&L starts with all revenue from your sales within the restaurant. Not all sales provide cash to the bank the same day of the sale – for example, A/R and Third-Party Delivery Services
      • Next, it subtracts operational expenses – from labor, food purchases, and direct operating, administrative expenses, and occupancy costs
      • While expenses may be recorded in real-time as you pay your vendors, the vendor may not cash that check for several weeks so while the expense is accounted for, the money is still in the bank
      • What is left after the revenue and the expenses are recorded is your net profit and loss for the business within that time frame
  • The Balance Sheet represents the financial health of the business
    • It starts with your assets, or what you own. Items such as your house bank, cash operating accounts, and large asset purchases such as furniture, equipment, and leasehold improvements.
      • From there your Balance Sheet goes to liabilities, or what you owe. Items like your accounts payable, tax accounts, credit cards, and long-term debt
      • Lastly, the Balance Sheet will show any dividends, retained earnings, as well as your Net Income and Loss

While these two statements are critical to understanding your financial health, they in themselves do not show the true impacts of cash.


What is the Cash Flow Statement

  • The Cash Flow Statement represents a combination of activities resulting from the daily operations represented on the Income & Expense Statement as well as the overall activities and “health” of the business as represented on the Balance Sheet.
    • The Cash Flow Statement demonstrates the effect that cash inflows and cash outflows have on the cash position for the business. “Where did my money come from and where did it go?”

How can these activities affect your business?


Breakdown of the Cash Flow Statement

Cash Beginning Balance

  • The Cash Beginning Balance represents the total balance of all readily available cash accounts from the previous weeks’ balance sheet

Income & Expense Statement

  • Net Profit/Loss:  This number isn’t what is reflected in your bank account.
  • Expenses exceeded revenue for that period, however, YTD there is a profit


  • Increases to assets, decrease cash flow
  • Example: Inventory on the shelf is money that is not in the bank – An increase in the inventory asset is a decrease to the cash in the bank
  • These values come from the Balance Sheet


  • Increases to liabilities, increase cash flow
  • Example:  Gift Cards are an increase to cash when they are sold, but a decrease to cash when they are redeemed – this is important to consider when forecasting cash flow during slow months
  • These values come from the Balance Sheet

Investor Activity:

  • These values come from the Balance Sheet
  • Increases in investor activity, decreases to cash flow
    • Example: Leasehold improvements will decrease cash to pay for the improvements – Forecast preventative maintenance schedules and large expenses when forecasting out cash flow for these expenses.

Financing Activity:

  • These values come from the Balance Sheet
  • Increase in financing activity, increase to cash flow
    • Example: A loan brings money into the business, increasing cash and increasing liability – Consideration should be taken into the payment of the loan vs. available cash flow, especially if the loan has a variable payback schedule (mob loans & advances)

Ending Cash Balance – How Are These Numbers Generated?

  • Increase/Decrease in Cash
    • Represents the total increase in cash resulting from Operating, Investing, and Financing Activities
  • Ending Cash Balance
    • Represents the total readily available cash from the current Balance Sheet
  • Considerations:  Where is money coming from, and where is it going?  Is the total cash position improving?