Despite being one of the most important aspects of running a restaurant, budgeting is sometimes ignored. Sure, creating a yearly budget can be a little stressful, but it can also relieve a lot of stress. Using the three A’s of restaurant budgeting, you can come up with an effective budget that works for your business.
Assessment of Restaurant Budgeting
The first of three A’s of restaurant budgeting is assessment. During assessment, you will take a look at those things that directly and indirectly affect your restaurant’s current and future viability. Factors over the coming year that you should take into consideration include:
- Sales generators
- The Economy
- Events That Might Drive or Diminish Sales
- Zoning Laws
- Profit and Loss
- Check Totals Average
- Guest Counts
- Employee Scheduling
Sizing up your restaurant’s competitors is pretty simple. Identify what businesses are competing with yours and then do a little research. How do your prices look by comparison? Are your portion sizes on par or better than your competition? Are they marketing aggressively? Do you need to do more marketing? What do customers like about these restaurants? Answering these questions will help you figure out how to get a competitive edge.
What local establishments are sales generators for your business? Local schools, businesses, industrial parks and apartment buildings are examples of places where there are a lot of people. This will help you identify where your sales are coming from and where strategic marketing can take place.
The local economy can make or break a business. That is why it is so important to know its state before you budget for the year. There is no sense in planning a big renovation or wide-scale marketing campaign if the local economy is in a downslide. You will want to budget in a way that takes the economy into account and keeps your restaurant in business. You will want to determine if your suppliers and utility companies are stable and will be consistently charging similar rates. Identify any increasing costs and determine how they will affect your budget.
Your profit and loss statements are going to give you the best idea of how your business is doing financially. Try to collect three or more from the year before. When determining projections for the next year, you will want to know how much sales have increased or decreased and how much costs have increased or decreased in percentages, dollar amounts or both.
You can average the monthly wages paid to get an idea of what you will be paying employees in the coming year. You will have to factor in raises and projected scheduling changes to get a realistic idea of what your employee budget should look like. Similarly, you should keep track of guest counts and check sizes all the time. This will let you spot any trends that could affect your budget, such as decrease in check size and guest count.
Action of Restaurant Budgeting
Now it is time to take everything you learned during your assessment and put it into action. The data you collected will allow you to come up with projected sales for every day of the year. For example, multiply the projected guest counts for Mondays by how many Mondays there will be in a given month. Do this for every day of the week and every month of the year. Total these projections to get your year’s projected sales.
Of course, how much you make is not the entire picture. You have to determine how much you will spend. If your assessment determined that food costs will remain relatively the same, you can use your data from the previous year to give you an idea of what the coming year will look like. However, you have to remember to account for rising prices and increased portion sizes, if applicable. You will determine payroll similarly, remembering to take into account changes in scheduling and employee raises.
Next, you will take a look at your rent, taxes, insurance and utilities. This is pretty straightforward. Using last year’s numbers and determining if there will be an increase in any of these costs will give you a solid estimate of what to expect in the coming year.
Finally, you can decide how much you want to incorporate in your restaurant budgeting for things like promotional events, music, entertainment, advertising, renovations and the like. You can determine this figure by using last year’s data and factoring any changes you deem necessary for the coming year, whether that is stricter budgeting or broader advertising.
All of this information will help you figure out profit before deprecation, which means simply subtracting deprecation from your profit total. That will give you the numbers you need to determine your income tax liability. Put all of your numbers into a budget worksheet and see how it matches up with your expectations for the year. This is where you can see any discrepancies and decide if you need to make changes in your controllable expenses.
Accountability of Restaurant Budgeting
Lastly, you are going to have to hold yourself accountable to your restaurant budgeting plan. Every month, compare your budget with the actual profits and costs. Come up with differences in dollar amounts and percentages. If the discrepancies are small, that is to be expected in the restaurant business. However, you will want to investigate bigger discrepancies and determine where the problem lies. For example, if appetizer sales are decreasing, you can run a special or a server incentive program. Your budget will guide you throughout the year.
How Ice & Refrigeration Systems Can Help With Your Restaurant Budgeting Plan
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Call us today for a free evaluation at 817-888-3057 or send us an email.