Restaurants Gain An Appetite For Cash Flow Tech

The restaurant industry is, in many ways, stuck in its own habits. Convincing a restaurant owner to implement technology to automate expense management, bill pay and invoices after years of manual accounting can be a tall order.

But this is an industry also challenged by razor-thin margins, explained Hemant Challapally, vice president of strategy and business development at Compeat. The company provides automated accounting solutions geared towards restaurant owners and hospitality firms, businesses that come with their own set of unique challenges in B2B payments.

Spend management, Challapally said, is a “huge problem” for the restaurant industry.

Sure, business owners across verticals struggle with manual accounting and data entry, making sure suppliers are paid on-time and cash flow is managed to turn a profit. But the restaurant environment can make for some particularly difficult points of friction.

For one, Challapally said, restaurant owners work with a dizzying number of vendors.

“You’ve got some big food provider getting you vegetables and meats, then you’re ordering drinks from a different provider and local produce, and what ends up happening is you have a bunch of paper invoices,” he said, estimating that, for some restaurant owners operating at multiple locations, invoice volume can reach up into the thousands every month. That, Challapally estimated, means at least a few hours every week these entrepreneurs spend managing and reconciling bill payments.

There’s also the fact that the supplies being delivered by vendors are often subject to price fluctuations — not to mention, freshness and expiration put a limited lifespan on the products restaurants procure. Challapally said the inability to manage the trove of invoices could lead to a backup in the supply chain.

“You might not have time to process all the paper invoices,” he noted, “and you’ll get backed up on your payments. [Vendors] might say, ‘I’m not delivering for you until you pay the invoices.'”

The vendors, he added, are operating on the same razor-thin margins restaurant owners are, making invoice and accounts payable management even more crucial.

Plate Cost

Those razor-thin margins restaurant owners are working with might hit the high single digits, the executive added, for a successful location. So, despite an avalanche of paper invoices, cash management is key.

“You need to have tight control of costs,” he said. “If you’re not using the right technology, you might not understand why you’re paying more for onions this week than you were last week.”

The right technology can help calculate “plate cost,” which Challapally explained is the cost incurred by a restaurant to make its meals and which can be tricky to nail down considering price fluctuations of ingredients, how much of one ingredient is left over and other factors. Calculating an accurate plate cost enables restaurant owners to more quickly make changes to their spend to ensure the widest margins possible, the executive said.

Behavior Change

Technology like that offered by Compeat and its newest partner, xtraCHEF, can help a restaurant owner calculate that plate cost and gain a tighter view of expenses by automating invoice management and accounting. And while this type of technology is now a commodity for any business today, Challapally said an additional struggle for the restaurant sector is to actually get on board with a new way of doing business.

“Folks that own restaurants aren’t people that left school in the last 10 years; they’re grandmothers or parents, folks that are really new to technology,” he said. Challapally added that Compeat often hits a wall when trying to convince these professionals to overhaul their cash management strategies with automated tools, instead of staying hours after closing to settle the books.

But there is one way the restaurant sector supports this type of change, the executive said: “Restaurant owners are very communal. If they’re buying something, they’ll call the restaurant down the street and ask, ‘What do you guys use?'” he explained.

So, while restaurant owners may be resistant to technology, Challapally said there has been a recent windfall in adoption rates because restaurant owners talk to each other about the best tools to use.

“The easiest way to convince someone is to tell them a bunch of other people are doing it,” Challapallay said, “and restaurant owners are finding that out for themselves.”