Around 60% of newly opened restaurants have failed – or run into serious financial difficulty – by their third year. A lack of financial planning or inadequate budgeting is the prime reason for this.
If you’re planning to open a restaurant, this is likely to be both an exciting and stressful time, and you’re probably juggling multiple balls as you find your way around the start-up process. It is vital, however, not to skip the budget planning step. Properly devising a budget, including formulating a contingency plan, could be your restaurant’s best chance of not ending up part of the 60% statistic mentioned above. Here’s what you need to do and be aware of:
Opening Costs
Start by sitting down and working out the budget you have available to get your restaurant off the ground. Determine your revenue for this; is it from personal savings, a bank loan, or have you secured angel investment? Get a solid figure in front of you.
Next, note down every single expense you will incur to open your restaurant. This will include any legal fees regarding getting the hire on a premises, the cost of fixtures and fittings, restaurant chairs and tables, any business software and devices you’ll need to purchase, and kitchen equipment. Build a marketing element into your budget, as well as the cost of staff uniforms. List every cent you’ll need to spend to ensure that what you’ve got will cover everything required.
Ongoing Costs
Your next task in planning your budget is determining the business’s regular outgoings. These are likely to include:
- Rent
- Wages
- Food
- Drink
- Supplies
- Insurance
- Administration costs
- Utility charges
When planning, be sure to factor in likely monthly or seasonal variances; heating bills will be considerably less in the warmer months, for example, while admin charges relating to accountancy fees may only need to be paid a couple of times a year.
Once you’re up and running, monitor these projections carefully, and update your system or records with the actual cost figures as they come in to keep your budget on track and as accurate as possible.
Create a Sales Forecast
Putting together a sales forecast for the month at the end of the one just gone is also important to maintain an effective budget. A forecast will enable you to ensure that you’re likely to have enough money coming in to cover your expenses and can also help you to plan supply buying and staff rotas – if you know, the last weekend of the month always tends to be your busiest, for example, you can plan for this.
Look at Sales vs. Costs
Once your restaurant is open, you’ll need to regularly assess the sales you’re generating against your running costs. To do this effectively, deploy a profit margin formula, which will give you an accurate measure of how well your restaurant is doing, taking into account both your short and long-term expenses and commitments.
Doing this frequently means that you’ll spot a problem early and can take action to resolve it, whether that’s in reducing overheads, coming up with ways to increase revenue, or both.
Contingency Budget
You need a contingency budget; from unexpected repair work on your premises forcing you to close for a few days to low initial sales volume while your restaurant is in its earliest days, having some backup is vital.
Professional restaurateurs recommend having around $40,000 is the right figure to have put aside for contingencies.
Avoid Overspending
There are a few things that new restaurant openers are more likely to overspend on than anything else. Here are the things that, with a little creative thinking, you may be able to spend less than you planned on:
Marketing
It’s a given that you will need to market your new business, but social media and other online platforms offer you a way to do so for free. Facebook, Twitter, and Instagram all provide marketing ideas specifically geared toward restaurants wanting to reach out to their very first customers.
Furnishings
Rather than buy high-end, why not look into reclaimed options for a cheaper and more sustainable choice? A quick sand down and a lick of varnish could transform a sturdy, large wooden table or two into beautiful pieces of restaurant furniture.
Alternatively, shop around extensively; while you need to source high-quality items that’ll last and be comfortable for your customers, you may be surprised at the inexpensive range of furnishings available.
Tech
You’ll need some things from the off: some sort of point of sales system, for example, handheld card readers, and some devices and equipment for the office. You could look for second-hand items to drastically reduce start-up costs – it’s a more environmentally-friendly approach, too.
When it comes to software – such as that relating to your point of sale system or your website – many companies offer free or discounted trial periods, which could be worth making the most of. It’s also a good idea to start on the cheapest package possible regarding your comms plan, for example, as the vast majority will let you upgrade in the future if you need to.
The Takeaway
The most important thing when it comes to budgeting is being realistic. Use figures that are as accurate as possible, and take the time to include every likely expense and revenue stream when making your plan.
A proper budget will allow you to look ahead to the future so that you can plan for tough patches and also for growth.