Tips to Properly Manage Restaurant Budgets

How to Create a Budget

Any successful restaurant owner knows that creating a proper restaurant budget is absolutely necessary. With the large majority of restaurants going out of business within the first years of operation, a restaurant budget increases the likelihood of your restaurant staying open.

The restaurant industry is highly competitive and succeeding long term requires every day vigilance. It is not only important to consider past historical data but also to forecast for the future, with restaurant expenses including food costs and labor costs consistently rising over the years.

Restaurant budgeting that factors in both fixed costs and variable costs is a staple in both restaurant management and overall business plan development. Restaurant budgeting best practice steps that restaurant owners can utilize include-

1. Establishing an accounting process- Restaurant owners may be tempted to try to handle complex accounting tasks themselves to avoid spending money. However, hiring a proper expert is well worth it. Hiring an accounting professional when necessary will help you make sure your estimates and projections are correct.

Hiring a bookkeeper or using an outside accountant to manage restaurant finances allows your restaurant staff to focus on running restaurant operations effectively. Depending on how complex your restaurant budget and restaurant expenses are you may need to hire both an accountant and a bookkeeper.

Consider investing in certain restaurant equipment including a pos system and software programs. Investing in a pos system will keep restaurant finances organized including calculating the cost of goods sold and generating invoices for vendors. A pos system will additionally assist in inventory management and other restaurant business tasks.

Accounting software should be compatible with your pos system in order to be most effective. Labor cost spent on simple manual accounting processes will be decreased significantly with the purchase of accounting software.

2. Choose accounting period- The two most common time periods for restaurant budgeting are 13 four week periods or a 12 month period. Considering that many restaurants make the majority of their money in just a couple days of the week, a 12 month period is not always realistic.

Choosing 13 four week periods is much more accurate for those restaurants as there is a consistent number of weekdays and weekends to analyze. However, if your restaurant generates revenue relatively consistently over weekdays and weekends, a 12 month period may work just fine.

3. Create budget targets- Budget targets include any variable costs and fixed costs your restaurant has. Using both historical performance and projected revenue, restaurant owners can create their budget targets.

4. Define costs- Make sure you understand the difference between fixed costs and variable costs when creating your budget. Fixed costs do not change, like rent or loan payments. Variable costs do change, like restaurant food cost or social media marketing expenses.

5. Forecast sales- A great pos system will help you forecast your sales by using historical data. Once you've forecasted your sales it is much easier to calculate your breakeven point and projection budget.

Common Budgeting Mistakes

Balancing your restaurant budget requires that every day you make sure your restaurant is on track. Avoid common budgeting mistakes including-

1. Over forecasting- Both forecasts and projections must be accurate and realistic. Although it is tempting to over forecast, doing so can lead to disastrous consequences for your restaurant.

Over forecasting may result in overspending that your restaurant cannot afford. A budget plan must be realistic or else it is counterproductive to your long term bottom line success.

2. Forgetting marketing- Marketing is crucial to expanding your customer base and developing your brand. In fact, it is recommended that 3-6% of your monthly revenue is spent on marketing.

Lower cost marketing is available through social media and email address promotions. Whether you are an established fine dining restaurant or a new restaurant that is delivery only, marketing should always be factored into your budget.

3. Staff miscommunication- Every day communication is imperative to long term restaurant success. Staff members should be well informed about your restaurant budget in order for them to perform business processes correctly.

For example, if your management is not aware of your restaurant budget they may not perform inventory management ideally. Additionally, if management is not aware of the projected labor costs in your budget they will likely not be able to schedule staff members appropriately.

When staff members are aware of your restaurant budget they can be much more considerate of it. Outstanding restaurant staff members may even look for ways to further optimize your budget!

4. Ignoring variable costs- Changes in variable costs are important and can completely offset your budget. For instance, if the federal minimum wage is raised your restaurant business will have labor cost changes.

Even weather or street closures are variable costs that need to be considered. If customers are unable to reach your business, there will necessarily be a decrease in sales. On the other hand, events that were not factored into your original restaurant budget like a block party or festival can boost profits.

5. Skimping software- Investing in accounting software is crucial to creating and maintaining a budget plan that is accurate. A great software program will be compatible with your pos system and easy for your staff to navigate.