For any business to survive and prosper, you need to be able to balance the books and that is why creating and working to a budget for your restaurant is so important.
Here are some tips and pointers on how to successfully prepare and execute a budget for your eatery, including how to set your business on the right path to profitability, a sensible warning to heed on profitability, plus a strategy for making affordable changes when required.
A familiar route
When you first open your restaurant you will have high hopes and aspirations for creating a thriving enterprise that has regular customers filling up your reservation system, and that can often be the case in the early days.
You have to bear in mind that more than half of all restaurants tend to find themselves in a perilous financial position and facing closure within a three year period, which is why you have to have a plan that keeps control of your spending and plots a more profitable path.
The reality for many restaurateurs is that when they fail to design and implement an effective budgeting strategy they are leaving themselves exposed to financial problems and unprepared for the challenges involved in putting your business on the map.
A proven P&L formula
If you want to avoid that scenario happening to your restaurant business it would be a good idea to recognize the specific profit and loss budget format that applies to your type of business.
The accepted standard when it comes to creating a budget is that the total cost of your sales should not exceed a ceiling of 65% of total sales. If you can work your overheads and expenditure to a number that is no more than that percentage and aim for 60% or lower you will be giving yourself a great opportunity to achieve a healthy net income and turn a profit.
Strong sales figures in the early days can sometimes patch overspending issues with your budget and it is only when you have a few quiet weeks or months that you can see that your expenses are too high.
Even when the restaurant is fully booked and sales are brisk, keep a close eye on your totals costs and check regularly if they are running below that magic figure of 65%, as this should mean you are making a profit.
Budget for upgrades
No business can afford to stand still for too long and your restaurant will need a change of decor and a makeover every now and again to keep things fresh and inviting for your customers.
Whether you need to invest in some commercial table bases or pay for a new decorating scheme in the restaurant, if you can build a figure into your budget each week that sets aside an amount to pay for these upgrades, you won’t be making a large hole in your current cash flow when the time comes to make the changes.
The overriding message is that you always need to know what your break-even figure for your restaurant is and use your budget to work out how to stay within that figure by making adjustments where necessary.
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