A well-thought-out budget is key to ensuring your restaurant turns a profit every month. Read our article to find out how to do it.
Creating a budget for your restaurant doesn't have to be a daunting task. If you tackle each part of your budget line by line, you'll find it's easy to do. Balancing your budget may take a bit of juggling of finances, compromising on costs in a few areas or omitting some things, but it's necessary to set yourself and your restaurant up for a profitable year.
Start with Industry Standards
You need to be able to measure your accuracy. Using industry standards is like setting up a target for your arrow. You know you want to hit the bull's eye, but you can compare your numbers with what is considered ideal so you'll know whether you're hitting under, over or way off the target completely.
For an annual budget, the important numbers you want to look at are either your projected sales or last year's revenue, labor costs and food costs. You can also adjust the numbers for a monthly view, which will keep you on track throughout the year. So, it is a good idea to estimate how much money you expect to make in one month.
For example, say you expect your restaurant's total sales for January to be $50,000. The industry standard for food costs is below 30%, so you know you want your food costs to stay below $15,000 for the month. You then need to factor in labor costs. According to most restaurant industry standards, labor costs should be no more than 20%, so you want to spend no more than $10,000 on labor. You now have your prime cost, which is comprised of food and labor costs. That's 50% of your budget.
A helpful tool is budget software made specifically for restaurateurs, which helps you track your costs and revenue. All you have to do is create a budget and then enter your sales at the end of the day. You then get reports that let you know whether you're on track for the day, week and month.
An In-Depth Budget
You shouldn't stop at food and labor costs. You should also factor in how much you're paying for rent or a mortgage, which should be 6 to10% of your gross sales, per industry standards. Using the example above, that means you should be paying no more than $5,000 per month. You can expand your budget to include cost of operations, including electricity and gas, equipment rental, water and paper products. Generally, 3 to 5% of restaurants' operating costs go to electricity and gas, which in this example would be about $2,500 per month, on the high end.
What Should Your Gross Profit Margin Be?
This is the question that no one can answer except you. You want to aim for a gross profit percentage of 65 to 70%. If you find that your gross profit percentage is lower than you want or need it to be, you should reevaluate your menu and make sure you're costing it appropriately. A 30% food cost is the high end of what you should aim for, so you can reduce costs either by sourcing your goods at a lower cost or by marking up menu items.
Adjust your budget here and there to make up differences from one column to the next to get to a desirable profit margin, and then keep an eye on it.
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