Cash management, liquidity, and longevity of family-owned restaurants

The majority of family-owned restaurants go out of business within the first 4 years of operations. This is financially disruptive to families and communities. The purpose of this explanatory study was to examine the effect of cash management on the liquidity and longevity of family-owned restaurants. This quantitative research study was based on literature from entrepreneurship, the family firm, cash management, and financial reporting. A self-administered questionnaire was used to collect data on cash management practices and financial performances from 102 family-owned restaurants in a Midwestern U.S. suburb. Based on the principles of cash management practices among publicly traded companies which include monitoring the cash cycle of a business, preparing a cash budget with the basic financial statements, and applying standard debt management and longevity tools, data were gathered to determine if these principles applied to family-owned non-franchised restaurants. The data were analyzed with the use of the t-test to determine if there is a relationship between cash management and liquidity and cash management and longevity of business operations. The results of this study support the hypotheses that a relationship exists between the independent variable, cash management, operationalized as good cash management/poor cash management, and each of the dependent variables, liquidity and longevity (p<.001). This study contributes to positive social change by showing that restauranteurs who incorporate proper cash management practices can significantly improve the liquidity and longevity of their businesses; thereby bringing greater economic stability to families in the communities in which they are located.