Managing working capital is vital for UAE restaurant business

For everyone in the sector, big or small, managing working capital effectively can make a huge difference, both to fund growth opportunities and to stabilise a business struggling to survive, writes Anurag Bajpai.

From pop-up restaurants to luxury and Michelin-starred fine dining, new places to eat out are being launched every week. The landscape of the food and beverage industry in the UAE is being transformed as eating out becomes less about a more formal dining occasion and more about just grabbing a bite and catching up with friends and family.

The challenge is for food and beverage businesses to continuously innovate while bearing in mind customer convenience and price. And they need to do it in a way that is both cost-effective and viable for the long term.

As opportunities for business in the food and beverage sector increase, it is imperative for businesses to keep on top of their working capital, especially given the backdrop of a wider fin­ancial slowdown. Managing working capital effectively can make a huge difference, both to fund growth opportunities and to stabilise a business. Here are four key points that we believe food outlets should keep in mind to manage their working capital:

Liquidity visibility: A simple thing to keep in mind while making investment decisions is keeping track of both how much cash they currently have and how much scope there is for manoeuvre. Forecasting cash needs on a weekly rather than monthly basis helps to give greater visibility and prepares for any surprises in the short term. Managing liquidity is largely a matter of internal focus and prioritisation and needs no new systems. It is simply a matter of increasing accountability through the business to produce timely and useful information.

Inventory control: Stock is vital to food and beverage outlets and it needs to be managed in a way that reduces wastage, while at the same time ensuring that enough inventory is available at all times to meet customer demand. While these levels will naturally vary from business to business, it is essential for them to make informed decisions.

Balanced scorecard approach to suppliers: Price is generally the main focus in dealing with suppliers. And yet there are so many other factors at play: quality requirements, payment terms, promotion agreements, etc. A "balanced scorecard" approach will help food outlets more, taking account of the whole deal and assessing what a supplier really costs them.

Supplier visibility: Relationships with suppliers can only be properly managed if busi­nesses have a clear visibility of their terms of business. Holding all contract details – price, terms, promotions and terms and conditions – in a central database is an easy way to increase this visibility.

In simple terms, businesses in the food and beverage sector need to be in control of their working capital.

Anurag Bajpai is a partner at KPMG UAE