Creating an annual budget involves estimating about how much money you will spend in different areas of your restaurant. For instance, you know there will be expenses associated with running the business, but it will help you enormously if you can anticipate those expenses and stay within a financial plan from one month to another. An annual budget gives you goals to reach and limits to beat. The budget is also essential to plan for the restaurant's future spending. Here are a few tips for creating a budget that works for your restaurant.
Plan by Month or Period
Most restaurants use a system of 12-month or 13 four-week periods to track their annual budget. By breaking the budget down into these types of sections, it is easier to see when money is moving in and out of the restaurant.
Determine Your Projected Sales
Ascertaining your projected sales, also known as a sales forecast, helps you figure out how much your restaurant will make in sales during a given period. There are many ways to determine your restaurant's projected sales. It comes down to making an educated estimate about the customer traffic and resulting sales your restaurant generates.
Anticipate Your Costs
In the restaurant, budgeting is often a game of balancing costs and income. In fact, a budget is much like a profit and loss (P&L) statement extended over a longer period of time. Be prepared to account for the following costs in your annual budget:
- Rent or mortgage payments
- Loan payments
- Operational supplies
- Repairs and maintenance
Food service professionals suggest that you plan to spend about 30 percent of your budget on food, 25 percent on labor, 10 percent on rent or mortgage, and 3 percent on utilities.1 The rest goes in small parts to operational expenses, marketing, taxes, maintenance and other variable costs. These are simply estimated guidelines to follow, as every restaurant's expenses and budget are different. Look below for a graphical representation of these suggested expenditures.
Know Your Breakeven Point
The breakeven point is the volume of sales needed to cover all expenses without making a profit. It is the bare minimum amount of sales the restaurant operation needs to bring in to survive. It is important to know your restaurant's breakeven point so that future financial decisions can be made in hopes of making a reasonable profit.
Analyze Your Financials Every Period
Examining your P&L and your budget on a weekly and monthly basis will help you keep your bases covered in terms of realizing your expenses and income. Evaluate your budgeted operating expenses and your actual expenses, as well as the net profit you anticipated and what your restaurant actually made. Make a note of any areas in which your expenses exceeded your budgeted amount.
When budgeting for the year, especially if you are doing so for the first time, it helps to have a budget worksheet. Download a sample budget worksheet (xls) to your own back office computer.
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