Cash is King: How to Manage Cash Flow as a Wholesale Coffee Roaster

July 3, 2023

While our industry may believe that coffee makes the world go round, the reality is, it’s cash.

As a wholesale coffee roaster, understanding the concept of cash flow is critical to your success. If you’re not careful, you won’t have enough cash available to cover expenses in an emergency or agree to an exciting new expansion opportunity. 

As you add more wholesale accounts to your roster, grow your product line, and expand beyond your roastery, you’ll need cash on hand to make your growth dreams a reality. 

So, how do you manage cash flow as a wholesale coffee roaster? We’ll show you. 

Cash Flow Management: What Is It?

The term cash flow refers to the movement of cash into and out of a business. 

You made a sale? That’s cash coming in.

Weekly payroll expenses? That’s cash going out.

Pretty simple concept right? Theoretically, yes, but a lack of cash flow management is what causes many coffee companies to fail.

A positive cash flow indicates that you have more money coming in than going out. Conversely, negative cash flow means that your business is spending more money than you are receiving from sales, investments, and other financing. 

Cash flow statements demonstrate a company’s strength and ability to:

  • Cover all operational and financing expenses
  • Pay off outstanding debts
  • Provide a steady workplace for employees
  • Demonstrate long-term, sustainable growth

Aside from the ability to cover expenses as they arise, why do coffee roasters need to be concerned with cash flow management? Because it’s essential for future growth.

Having a solid understanding of your company’s cash flow activities positions you to:

  • Forecast future expenses such as green coffee inventory contracts, new employee hires, and equipment purchases
  • Make realistic cash projections for strategic investments and/or growth decisions
  • Brainstorm and execute new product ideas based on growth and available cash

The key to cash flow management is regular “audits” of your inflows and outflows. This doesn’t need to be a complex process. Set aside some time each month (or so) when you can review your expenses and income appropriately. 

A commonly used formula to calculate cash flow is known as Free Cash Flow. This formula indicates how much cash is available for your business to use at a given time, or the cash left over after paying operating expenses and any capital expenditures.

Free cash flow = Net income – (Operating Expenses & Taxes) – Capital Expended

What Does Cash Flow Management Look Like at a Coffee Roastery?

From contracting 50 bags of a natural processed coffee from Brazil to receiving the payment for a large wholesale order, cash constantly flows in and out of a wholesale coffee roasting business. Let’s take a look at some examples of cash flows a coffee roastery might experience:

Cash Inflows:

  • Revenue from wholesale, ecommerce, and in-store sales
  • Revenue from equipment sales, merchandise, events, and other channels 
  • Equipment lease payments
  • Financing from loans and/or relevant grants

Cash Outflows:

  • Operational expenses (labor, utilities, supplies)
  • Coffee expenses (green coffee inventory, storage fees, product packaging, retail orders, roasting supplies)
  • Equipment purchases
  • Credit card payments
  • Financing expenses

Once you know where your money is coming from and going, it’s time to properly manage it!

Managing Cash Flow: 6 Tips You Can Implement at Your Roastery

When it comes to obtaining a positive cash flow, your first thought is to increase sales wherever possible. And while this is an important part of running a business, it doesn’t address what’s often the root issue of cash flow problems at a roastery: expenses.

Prior to launching RoasterTools, we ran a successful roastery in Wisconsin. Along the way, we learned some hard lessons about managing cash flow and we want to save you the headache! 

Our tips aren’t new or innovative business strategies. They’re the result of true experiences we had while scaling up our roastery (and wish we knew earlier in our business journey.)

Our tips won’t immediately remedy your cash flow problems either. Instead, it’s up to you to put in the work and make impactful changes at your roastery to promote a steady, positive cash flow. 

1) You Need to Make and Spend Cash to Grow 

We have a love/hate relationship with business phrases like “Cash is king” and “you have to spend money to make money.” Not only are these phrases rooted in truth, they’re a painful reminder that having cash on hand is a vital part of business growth and survival—something that, at times, can be difficult to achieve. 

Between investing in marketing, purchasing new equipment, and hiring employees, you’ll need to spend money to hit your growth goals and drive new cash inflows. 

⭐️Pro Tip: Yes, you need to spend money to make money. But don’t go overboard! All too often, roasters find themselves in a challenging situation after spending too much on equipment, real estate, and other growth opportunities. 

2) Make It Easy to Order and Pay

Don’t make your customers jump through hoops to place an order and pay! The goal is to have a steady stream of cash inflow between online orders, wholesale payments, and in-store purchases. 

If customers have to write out a physical check for every order, this might lead to a few late payments along the way—ultimately affecting the amount of available cash your roastery has to work with. 

⭐️Pro Tip: Give your customers the option to place their wholesale orders online. This speeds up the process of ordering, production, and payments!

3) You Are Not A Bank

We get it. When you want to land a new wholesale client, it’s tempting to offer favorable terms like Net-30 or Net-60.

But if you’ve never worked with these customers, are you confident that they’ll have the cash to satisfy those terms? If you’re not completely sure, you may find yourself floating several months of wholesale orders. Can your roastery sustain that gap in revenue while the expenses pile up?

Instead, ask new customers to commit to a few months of credit card payments first. This approach provides two benefits:

  • Ensures that the payments are in your account right away
  • Proves that your client can reliably pay their bills

After the first few months of developing a relationship with your client, you’ll have a better understanding of their ability to pay and business trajectory. At this point you can begin to discuss different payment terms and options, if they ask for them. 

⭐️ Pro Tip: Send order invoices right away. The longer you wait to send an invoice, the longer you’ll wait to be paid! Don’t let your accounts receivables get away from you, too. Keep on top accounts that owe money. Remember, the squeaky wheel gets the grease.

4) Optimize Expenses

Discounts are everywhere, but only if you know where to look and who to ask. All of these little discounts can add up to big savings (and cash in your pocket) if you’re mindful.

Look for discounts such as:

  • Early pay options — Some suppliers may offer discounts for clients that pay earlier than the typical terms. Even paying credit card expenses early and in full can avoid costly interest charges. 
  • Bulk discounts — The more you buy, the less the per unit price is. However, keep in mind that this means you’ll need to spend a good chunk of change upfront to reach the discounted price. If you want to take advantage of these discounts, be sure to plan ahead and have enough cash on hand. This approach can also be a good use of a line of credit!
  • Operating discounts — From internet providers to coffee packaging supplies, keep an eye out for promotions. Better yet, call and ask for a discount or reduced rate. You’ll be surprised how often you can get something in your favor. Reducing the total operating costs of your roastery can make a major impact on your cash flow.
  • Get creative — Take a moment to review your current expenses. Where are you overspending? Can you switch a monthly subscription to an annual one for a discount? Are you paying for services or supplies that you no longer need? Get creative and find ways to reduce your overall expenditures. 

⭐️Pro Tip: Set aside time every quarter or so to review your operating expenses. Where can you cut back? What can you optimize? Look at everything from equipment purchases to green coffee expenses and find ways to reduce how much cash is leaving your business.

5) Have a Bill Pay Strategy

While auto-pay is a wonderful feature for busy roasters, it can also drain a checking account in the blink of an eye! If you pay all your bills at the same time, you’ll rapidly lose a lump sum of cash that your roastery may need to operate for the remainder of the month. 

Instead, pay your bills strategically throughout the month. This approach keeps a reasonable balance of cash in your account at all times, while still satisfying any outstanding debts or expenses. 

⭐️Pro Tip: Ask your suppliers if they will offer better payment terms. You may be able to negotiate Net-30 or Net-60 terms after being a long standing customer.

6) Inventory Management and Cash Flow Go Hand-in-Hand

Raise your hand if you’ve accidentally bought more green coffee inventory than needed? (Can you see us raising our hands too?) Sure that rare varietal from Colombia is great to have on your coffee lineup, but is the cost per pound worth not being able to pay your bills that month?

While it’s advantageous to always have the necessary roasting supplies on hand, overstocking on green coffee, packaging, and more can lead to serious cash shortages for a coffee business. Use software to properly track green coffee inventory and other supply levels so you don’t accidentally overstock… or worse, understock!

⭐️Pro Tip: If you overstock, don’t fret. It’s time to get creative. How can you move that extra coffee or use up those supplies without spending more? You’ll find some ideas in our eBook!

Don’t Forget About Financing

If you still need cash after all is said and done, a line of credit from your bank can come in handy. But use it wisely. These loans are a short term financing solution and should be used in certain situations such as scaling up growth or to sustain a seasonal business. Since our town operated on a seasonal tourism economy, we would use a line of credit to build up our inventory for the upcoming busy season and pay it off a few months later.     

⭐️Pro Tip: Look to see what local, regional, and industry grants your business may qualify for. Rather than dealing with the terms of a line of credit, you can add more cash to your business through grant programs. No need to finance that new weigh-and-fill machine when you qualify for a grant! Also consider searching local NGOs that offer low interest loans that provide financing with terms that work in your favor. 

Bonus Tip: Read “Profit First”

Profit First,” a book written by author Mike Michalowicz, had a big impact on us. We highly recommend reading it if you’re looking to get a handle on your roastery’s cash flow and finances overall (And for all the founders reading this - it includes a plan to pay yourself!)

Your Roastery’s Growth Relies on Proper Cash Flow Management

We’re not going to sugar coat it. Your business needs cash not only to grow, but to thrive.

Although our tips will help you get a handle on your business’ cash flow, it ultimately comes down to the systems you have in place at your roastery. 

Are you managing inventory levels and therefore, costs, appropriately?

Is your roastery operating efficiently and with the right sales prices… or are you spending time and precious dollars on ineffective and wasteful processes?

Are you pursuing the right sales channels for an abundance of cash inflows, or are you focused on growing an underperforming revenue stream?

In our recent eBook, How to Make More Money From Your Roastery: 6 Strategies for Growth and Profitability, you’ll discover how to transform your roastery into an operational efficiency powerhouse—while increasing cash inflows and optimizing expenses along the way. 

Download now to unlock the six strategies!

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Jon French of Black Oak Coffee Roasters ❤️RoasterTools
"The wholesale portal is great. It works really well and it's super simple."️
Using RoasterTools, Jon French estimates saving $1,000 per month at Black Oak Coffee Roasters while supercharging his team for growth☕️+ 💻= 🚀
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Jon French of Black Oak Coffee Roasters ❤️RoasterTools
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