Introduction to Cash Flow for Pubs (page 3)

Using a cash flow forecast to avoid “over-trading”

Having an accurate cash flow forecast will help ensure that you can achieve steady growth without “over-trading”. You will know when you have sufficient assets to take on additional business, and just as importantly, when you need to consolidate. This will enable you to keep staff, customers and suppliers/HMRC happy.

Fore-warned is fore-armed

It is important you incorporate warning signals into your cash flow forecast. For example, if predicted cash levels come close to your overdraft limits, this should sound an alarm and trigger action to bring cash back to an acceptable level.

Ideally, you should always have a contingency plan, such as retaining a minimum amount of cash in the business, perhaps in an interest-bearing account, this “rainy day” money can be used to meet short-term cash shortages.

One way to ensure you don’t fall foul of HMRC and their late payment penalties etc is to bank estimated VAT due, PAYE due, Machine Game Duty and even Income/Corporation Tax in a separate interest-bearing account. Remember these monies are not yours, you are merely an unpaid tax collector and you should resist using these funds to plug the gaps in a poor cash flow.

But What About Me?

Last, but by no means last, is you. None of us goes into business for our health, we all expect to make a decent living out of our entrepreneurial skills and hard work, in short, make a return on our investment. So the last line in a cash flow is the provision of a sum of money the business owner(s) require.

Part of your business planning entails an accurate accounting of what the business owner(s) need to live on an ongoing basis, So you will need to prepare what some would call your “personal survival budget”. This is a detailed breakdown and quantification of what money you and (if you are supporting one) your family need to live on. I am sure you are already used to working within your personal budget and provision for servicing your personal outgoings must also be taken into consideration.

If your business is to be set up as on a sole trader or partnership basis then you will need to account not only for the cash you take out of the business (drawings) but also any benefits in kind you derive from running your pub, including but not limited to such things as:

  • self-supply – the food and drink you personally consume from pub stocks
  • if you live on the premises a proportion of costs attributed to the private quarters
  • use of the company car for your private use


If your business is set up as a limited company there will be different provisions for paying directors salaries and shareholder dividends, and for payment to the business for self-supply etc. Your accountant will advise you accordingly.

Irrespective of how your pub business is established be it limited company, sole trader or partnership you will need to make provision for payment of any taxes due on the profit your pub makes. Your accountant will advise you on the most tax-effective method for your business and for this reason such sums are not included in the cash flow. Nor is depreciation of the business’ assets, such as the fixtures and fittings and the cost of their replacement at the end of their useful life. Whilst not included, you need to have a clear idea of how much this is likely to cost in any one year and ensure there is sufficient enough cash within the business to meet these costs.

Top Tips

Don’t sit on your money, bank cash and cheques, and reconcile your merchant account for credit/debit cards daily (bank holidays permitting)

Shop around, there’s always a better deal that will reduce your costs

If you are registered for VAT, it makes sense to buy major items at the end rather than the start of a VAT period. This can often improve your cash flow, because you can set the VAT on the purchase off against the VAT you charge on sales and  may help plug a temporary cash flow gap.

If sales are flat or falling, revisit your marketing plan, see if there’s an opportunity to create an ‘event’ to bring in more business or get rid of “dead stock”.

Make it easy for your customers to do business with you, where possible, accept orders over the telephone, email or internet, but make sure menus and order forms are clear and easy to use.

KPIs (Key Performance Indicators) these are the basic numbers to tell you whether your business is on track, these can include your wet and dry gross profit, the percentage of sales taken up by wages, stock take reports, an unexpected water bill indicating a leak… all these can alert you to an upcoming cash flow problem and give you time to react to and manage the problem.

Supplier management, errors do happen so make sure you check supplier invoices to ensure correct pricing and application of any discounts due on your purchases.

Talk to your accountant and stock-taker, they may have suggestions you or I have not thought of, and a fresh pair of eyes is always useful if you get to the point where you ‘can’t see the wood for the trees’.

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