Crafting a robust budget is vital for both new and established businesses. This article provides a deep dive into key budgeting areas, offering practical advice supported by examples and best practices.
The article will function as a restaurant budget template. We’ve organized it so that you can skip to the parts that interest you the most. Whether you’re just beginning to build your restaurant business or are simply looking to re-evaluate your budget, you’re in the right place.
Why You Need a Restaurant Budget
A restaurant budget gives you a ground to stand on. By tracking key expenses, you can make informed decisions, balance financial commitments, and steer your businesses forward.
In other words, without one, you’re just going to be stuck in a flux, wondering where is all of your money going.
- Financial oversight: A clear view of income, expenses, and profitability, allowing for better financial decision-making.
- Cost management: Helps track and control operating costs, including food, utilities, and rent, to maintain profitability.
- Labor cost control: Helps manage one of the most significant expenses by optimizing staffing levels and wages.
- Cash flow management: Ensures sufficient cash flow to cover day-to-day operations and prevent financial shortfalls.
- Profit maximization: Aids in identifying areas for cost savings and revenue enhancement to maximize profits.
- Risk mitigation: Prepares the business for unforeseen expenses and economic fluctuations, reducing financial risk.
- Goal setting and growth: Sets financial goals and tracks progress, facilitating strategic planning for growth and development.
Restaurant Budget Breakdown: The Key Factors in Building Your Restaurant’s Budget
There are few fixed costs in the restaurant industry. Utilities, labor, food costs, and marketing costs will largely depend on the restaurant’s financial health, as well as revenue projections, profit margins, sales forecasting, and other factors.
Depending on your restaurant expenses, net income, and how much profit you make, you’re going to have to review your budgeting processes time and again to keep it up to date.
Let’s break down the key parts of a restaurant budget.
1. Revenue Projections as the Base of Proper Restaurant Budgeting
Revenue projections are essential for the proper allocation of funds. These projections are based on detailed market research for new ventures or historical sales data for established budget restaurants. They are adjusted for expected trends, customer preferences, and seasonal changes.
- Gather all financial data: The more data you have, the better. This will help you base projections on past sales data, adjusting for any known business changes. Use a dedicated food ordering system integrated with a POS system and keep everything in one place.
- Assess market and location: Analyze local market trends and the restaurant’s location to estimate potential customer base and projected sales.
- Consider seasonality: Factor in seasonal variations in customer traffic and menu offerings that can affect revenue.
- Be conservative: It’s safer to underestimate rather than overestimate potential revenue, especially for new restaurants.
- Regularly review and adjust: Monitor actual revenues against projections and adjust your budget accordingly.
2. Restaurant Business Profit Margins
Profit margins in a restaurant are critical in influencing overall costs. A higher profit margin means the restaurant efficiently manages its costs relative to its revenue.
Higher profit margins allow you more freedom for reinvestment, growth, and cushioning against unexpected expenses. Conversely, low profit margins indicate that costs are a large portion of revenue. In that case, you might want to revise your budget.
- Understand your costs: Accurately calculate your total costs, including food, labor, rent, utilities, and marketing.
- Food cost percentage: Keep track of food cost percentage. Reduce waste and negotiate better prices with suppliers.
- Labor efficiency: Optimize staff scheduling to align with customer traffic. Cross-train employees to handle multiple roles during less busy times.
- Menu pricing: Regularly review and adjust menu pricing based on cost fluctuations and market demand.
- Portion control: Implement portion control to ensure consistent food costs and quality.
- Reduce waste: Monitor inventory closely to minimize spoilage and waste. Implement a first in, first out (FIFO) system.
- Energy efficiency: Invest in energy-efficient appliances and practices to reduce utility costs.
- Effective restaurant marketing: Review or draw up your restaurant marketing plan.
- Regular financial review: Conduct monthly financial reviews to identify areas for cost reduction and revenue improvement.
Think of your restaurant budgeting process as a constant task that needs to be tended to regularly. Your restaurant business is a living organism.
As more business comes your way, more financial decisions you’ll have to make. Set aside a restaurant marketing budget, dive deeper into food costs, and keep a proactive approach.
3. Restaurant Industry and Food Costs
Food costs in a restaurant are usually calculated as a percentage of the restaurant’s total sales revenue, typically assessed monthly or quarterly.
This allows for more responsive management of these costs in relation to fluctuating sales and varying ingredient prices. The general guideline for restaurants is to aim for food costs to be about 28-35% of their total sales during these shorter periods, ensuring a balance between quality and profitability.
Key points to keep in mind:
- Aim for food costs to be 28-35% of total sales to balance quality and profitability.
- Regularly review supplier prices to find the best deals and manage costs.
- Adjust menu prices based on the cost of ingredients and desired profit margins.
- Monitor sales data to understand which dishes are profitable and which are not.
- Regularly analyze food cost percentages and adjust operations as needed.
- Cost of Ingredients (Food Cost): $5.
- Desired Food Cost Percentage: 25% of the selling price.
- Selling Price Calculation: The selling price should be set so that $5 is 25% of it.
To maintain a food cost percentage of 25%, the dish should be priced at $20. This pricing strategy ensures that the food costs are adequately covered while contributing to the restaurant’s profitability.
4. Contingency Fund – a Must for All Restaurant Owners
A contingency fund is vital to manage unexpected expenses and ensure continuity. It provides financial security for unforeseen costs, such as emergency equipment repair, which can be significant in the restaurant industry.
- Set aside 5-10%: Allocate 5-10% of your total budget to the Contingency Fund to cover unforeseen expenses.
- Review regularly: Review the fund size in relation to your operating budget and adjust as necessary.
- Keep it accessible: Ensure the fund is readily accessible for emergencies but not so accessible that it’s used for non-essential expenses.
- Replenish promptly: After any withdrawal, replenish the contingency fund to maintain the set level of financial security.
- Separate account: Keep the Contingency Fund in a separate bank account to avoid co-mingling with daily operational funds.
- Adjust for scale: Increase the Contingency Fund proportionally as your restaurant grows and the scale of potential emergencies increases
A successful restaurant often relies on this fund to quickly address issues, especially with critical restaurant equipment, without impacting its service or financial stability. This fund acts as a buffer, helping restaurants spend on urgent needs without jeopardizing their day-to-day operations.
5. Get Ahead With Restaurant Marketing and Advertising
Marketing and advertising costs can vary widely and often include expenses for online advertising, print ads, promotional events, and social media campaigns.
Setting aside a marketing budget that aligns with your restaurant marketing plan is a good way to boost your business.
The amount of money you allocate to marketing costs is a personal matter that you best settle by preparing a complete restaurant marketing budget.
- Restaurant marketing software: This helps manage online presence, customer relationships, and targeted campaigns. Investing in good software can increase efficiency and attract more customers.
- Marketing expenses: These expenses include costs for advertising materials, online ads, event sponsorships, and promotional activities. Keep them aligned with your overall budget to avoid overspending.
- Return on Investment (ROI): This is key. Measure how much revenue your marketing efforts generate compared to what you spend. High ROI means your marketing is effective. Track this to understand which strategies work best for your restaurant.
- Budgeted Costs: Always have budgeted costs for marketing. This means setting aside a specific amount for marketing activities. It helps in planning and ensures you don’t overspend. Regularly review and adjust these costs based on what brings the best return.
To gauge the effectiveness of these efforts, restaurants typically track sales following marketing initiatives to see how they influence customer turnout and revenue using restaurant marketing software. By analyzing this data, they can adjust their strategies to optimize future sales, making marketing and advertising a dynamic and vital component of their monthly costs.
6. Don’t Let Rent and Utilities Bother You
Typically, rent should not exceed 5-10% of your monthly revenue. The exact percentage of these semi-variable costs can vary based on location and restaurant size.
Meanwhile, gas, electricity, and water utilities can take up around 3-5% of your revenue. Consider energy-efficient appliances, LED lighting, and water-saving devices to save on utilities. Regular maintenance of equipment also helps in reducing energy consumption.
- Rent affordability: Rent should ideally be 5-10% of your monthly revenue. Carefully consider the location to balance cost and potential customer foot traffic.
- Energy efficiency: Invest in energy-efficient appliances and LED lighting to reduce utility bills.
- Regular maintenance: Regularly maintain equipment to limit energy consumption and expenses.
- Negotiate terms: Negotiate terms with your landlord or utility providers for better rates or discounts.
- Monitor usage: Regularly review your utility usage to identify areas where you can cut costs.
If you’re short on funds, you might want to consider a restaurant loan. If it’s the price of renting a physical location that is your biggest conundrum, why not start with a ghost kitchen?
7. Invest in a Solid Restaurant Ordering System
A food ordering system is a key element for streamlining operations, enhancing customer experience, and boosting sales. Investing in a good ordering system is vital, but it must align with overall restaurant costs.
- Mobile app: A user-friendly mobile app enhances customer experience and facilitates easy ordering.
- Restaurant website integration: The system should integrate seamlessly with your restaurant’s website, providing a smooth ordering process for customers.
- QR code menu: This allows customers to easily access the menu and place orders directly from their smartphones.
- Reservation system: A built-in reservation system helps in managing table bookings efficiently.
- Marketing system: An integrated marketing system helps in customer retention and acquisition. It should allow for targeted promotions, loyalty programs, and customer feedback collection.
- POS integration: Seamless integration with your existing Point of Sale (POS) system ensures that online orders are efficiently processed alongside in-house orders.
8. Perform a Regular Labor Costs Review
Labor costs in a restaurant should ideally range between 25-35% of total revenue. To minimize these costs, optimize staff scheduling to match customer traffic, invest in training to increase employee efficiency, and consider using technology to automate simple tasks like tableside ordering.
- Optimize scheduling: Align staff schedules with customer traffic patterns to avoid overstaffing during slow periods and understaffing during peak times.
- Monitor labor ratios: Regularly review the ratio of labor costs to revenue, aiming to keep it within the 25-35% range.
- Use labor management software: Implement software to streamline scheduling and track labor costs effectively.
- Employee retention: Focus on retaining staff to reduce turnover costs, like hiring and training new employees.
- Automate where possible: Incorporate technology to automate tasks and reduce the reliance on manual labor. Consider using dedicated restaurant marketing software, restaurant analytics, or a restaurant online reservation system.
9. Optimize the Costs of Your Operating Supplies
Operating supplies in a restaurant, including items like tableware, kitchen utensils, and cleaning materials, should ideally cost around 2-3% of total revenue. To optimize these costs, consider bulk purchasing for discounts, invest in durable, long-lasting supplies, and regularly review and manage inventory to avoid overstocking or wastage
- Bulk purchasing: Buy in bulk to benefit from discounts and reduce per-unit costs.
- Invest in quality: Choose durable supplies to reduce the frequency of replacements.
- Manage inventory efficiently: Regularly track and adjust inventory to prevent overstocking and wastage.
- Negotiate with suppliers: Work on getting better deals or discounts from your suppliers.
- Reuse and recycle: Where possible, opt for reusable items to cut down on recurring purchases.
- Monitor usage: Keep a close eye on the usage of supplies to identify areas for cost savings.
- A restaurant budget gives you better financial oversight, helps manage food costs, cash flow, and makes it possible for you to grow your business.
- Your restaurant budget is a living organism; review it regularly.
- Restaurant budgets will vary from one restaurant to another. Keep your goals in mind when setting your budget.
- A restaurant food ordering system allows you to keep track of your sales and revenue.
- Most restaurant costs can be categorized as semi-variable and variable costs rather than fixed.
- Setting a restaurant marketing budget is a natural step toward building your business.