Building an effective restaurant financial plan can often be overwhelming. There are so many moving parts in any given restaurant, and each one needs the funding to operate properly. Because of this, a generally agreed upon standard procedure is super handy to have around — which is precisely why we’re here.
Today, we’re breaking down how to create a restaurant budget and (crucially) how to stick to it. Beyond that, we’ll take a look at how to make the most of any budget, as well as a few common pitfalls that tend to throw a wrench into even the best-laid restaurant financial plan.
Understanding Restaurant Budgeting and Financial Planning
Before we do anything else, it’s important that we talk about why this matters. A restaurant financial plan isn’t just a guideline, it’s what you should be using to determine how to move forward from any given situation.
Importance of a Well-Structured Restaurant Financial Plan
Building out a thoughtful restaurant budget allows you to do a few things. First and foremost, it allows you to visualize all of your resources. Beyond that, though, it helps cement the importance of certain items; when budgeting, you’ll very quickly discover that some items are crucial to your business, while others will be relatively easy to put on the back burner.
Importantly, though, a well-made restaurant budget will allow you to plan for the future. You’ll be able to project what resources are available to you down the line and invest in new people, tools, and products. And should an emergency pop up, having a pre-established budget for emergencies can allow you to take it in stride rather than scrambling last-second to solve it.
Assessing Your Restaurant's Financial Needs
The first part of building a restaurant financial plan is to assess where you’re currently at. To build a budget, you have to be aware of all aspects of your business and its spending — so let’s start there.
Analyzing Historical Financial Data
There are a number of ways to analyze your past financial data. Whether it’s through the help of an accountant, accounting software, or your own business records, take stock of how you’ve performed in the past. There may be months that bring in more and others that are lower, or you may see a pattern of steady business; knowing to plan for either case will make a consistent budget far easier to create and stick to.
Beyond the ability to plan, taking stock of your past business can help inform future attempts at marketing, staffing, and inventory management. This, in turn, can lead to the ability to plan to, for example, staff more heavily during the busy summer months; alternatively, it could show you what your necessary bare minimum and maximum staffing levels are. That’s where fixed and variable costs come into play.
Identifying Fixed and Variable Costs
For the unfamiliar, fixed and variable costs are two sides of the same coin — your business will always incur costs. How these costs operate though, can vary. Fixed costs are costs that are recurring, like rent. Others, though, will vary day-to-day and week-to-week, we call these variable costs. The most common variable costs in restaurants are generally labor, tax, inventory, utilities, and repairs. These are the costs that will fluctuate regularly, and this is where proper planning — with your historical financial data in mind — becomes important.
Steps to Create an Effective Restaurant Budget
While no two restaurants will be identical in how they budget, there are a handful of steps to take that will make the process far simpler.
Setting Financial Goals and Objectives
First and foremost, it’s crucial to establish clear goals and objectives for the future of your restaurant.
Try to set short-term goals that can be achieved every three to six months; they can be as simple as a small percentage week-over-week growth in sales or a small cut to quarterly labor costs. What matters is that they’re realistic to achieve in your given time frame.
As for the long term, it’s important to set objectives that are a bit further out. Give yourself two to five years of runway, and set a couple of big-picture goals to hit. Whether this is a major increase to business during your slow season (likely through targeted marketing) or even something as big as an expansion or new location, a realistic long-term objective gives you something to work toward.
Estimating Revenue and Sales Forecasts
When establishing a restaurant budget, it’s crucial to be aware of your past and future. While the former is relatively easy, the latter takes a bit more work. It’s very helpful when forecasting budgets to find yourself a professional (or a team of them) that specializes in market research.
This allows you to do a few things at once. Most importantly, it gets outside eyes on your situation. They’ll be able to pinpoint weaknesses, potential opportunities, and strengths to lean on.
Calculating Operational Expenses
Your next step when building a restaurant financial plan should be to figure out your regular costs. You likely already know this, but if you don’t ask yourself a few questions. What do you need each month to keep the doors open and the lights on? How much do you generally pay in labor each month? How often does your equipment need to be serviced, and how much does it cost each time?
Once you have answers to these questions, mark them in your head as the bare minimum for each month’s budget. By adding a small (10-15%) bit of breathing room in your budget, you’ll be able to take surprises in stride — and that’s the whole point of a restaurant budget.
Allocating Funds for Marketing and Promotions
Once you’ve established what your baseline is for recurring costs, you can begin to look forward to secondary costs. Namely, you can plan for marketing, promotions, and events to bring in new eyes.
Whether marketing takes the form of a firm or agency, social media, or hosting events and advertising them through local outlets, a good marketing campaign can do wonders for your business.
With that said, though, there are other things to keep in mind when building a restaurant budget.
Planning for Contingencies and Emergency Funds
The most important part of a well-made restaurant financial plan is that it allows you to plan for the future — both good and bad. Planning for the inevitable emergencies that will occur down the line allows you a safety net to fall back on, and vitally, it gives a chance to recover without missing a step.
When restaurant equipment goes down, employees leave, or you have a particularly slow month, you’ll find that an emergency fund can be a lifesaver. Most businesses opt to keep between three and six months’ worth of expenses (including all of your fixed and variable costs); while how much you can set aside will vary based on the remainder of your budget, it’s crucial to allocate an amount to contingencies.
Key Marketing Channels to Include in Your Budget
Earlier, we touched on marketing as a part of your budget. It’s important to account for a few different approaches if you want a successful marketing campaign.
Digital Marketing: Social Media, SEO, and Email Campaigns
In today's digital age, having a strong online presence is essential for any restaurant. Social media platforms like Instagram and Facebook allow you to engage with your audience, showcase your menu, and promote special events. Meanwhile, SEO (Search Engine Optimization) helps your restaurant appear in local search results, making it easier for potential customers to find you. Additionally, email campaigns can keep your loyal customers informed about upcoming promotions and menu updates, driving repeat business. Allocating a portion of your budget to digital marketing ensures that you’re reaching your target audience where they spend most of their time—online.
Traditional Marketing: Print, Radio, and TV Ads
The success of traditional marketing will vary heavily based on your demographic and area. If you have mostly older guests, print, radio, and TV ads can be a great way to bring more into the fold. But if you’re aiming to engage a young, hip crowd, chances are that traditional marketing just won’t do what you need.
Community Engagement and Events
Community engagement and events are a great way to naturally build a name for your business without too much overhead on extra costs. Whether it’s through a theme night, karaoke event, or a fundraiser, getting involved in the community (and giving them something to do) is a great way to build new relationships and gain guests.
Partnerships and Collaborations
Forming strategic restaurant partnerships with local businesses or collaborating with influencers can significantly boost your restaurant's visibility. For example, partnering with a nearby brewery for a special event or collaborating with a local food blogger for a feature can introduce your restaurant to new audiences. These collaborations often come with shared marketing efforts, reducing costs while expanding your reach. When budgeting, consider setting aside funds for these partnerships, as they can offer a high return on investment by attracting new customers and creating buzz around your brand.
Monitoring and Adjusting Your Restaurant Budget
To ensure that your business is healthy, it’s important to regularly reevaluate your restaurant budget.
Regular Financial Reviews and Audits
You have to make reviewing financials a regular, recurring habit. Take time every month to audit your restaurant and make adjustments as needed. Sometimes things will be great and nothing needs to change — but it’s better to catch things that do need to change before they’re a problem.
Adjusting Budget Allocations Based on Performance
Especially in relation to marketing, it’s important to adjust your restaurant budget (and how much goes where) depending on how it performs. If you find that digital marketing is doing great, but your traditional ads aren’t, invest the money that’s going into print or radio into more time spent on SEO and social media.
Utilizing Financial Software and Tools
There are a lot of tools out there to help with financial planning, and it’s really in your best interest to use them. Just like it’s best to have professionals handle your payroll and market analysis, it’s best to use tailor-built software to keep a handle on your finances.
Common Pitfalls in Restaurant Financial Planning
Not everything is peachy all the time in restaurants, and planning for a restaurant budget is no different. Things will go wrong, but if you know what to look for, it can be easier to get them back on track.
Underestimating Costs and Overestimating Revenue
One of the most common mistakes you’ll see in a restaurant budget boils down to hope — managers and business owners will overestimate how much they regularly bring in and understate their regular costs. This can lead to a snowball effect of lower-than-expected returns, which in turn forces businesses to dip into their emergency funds.
This is why we recommend keeping a little extra wiggle room when planning for costs and underestimate revenue.
Neglecting Marketing Expenses
Marketing is a major part of the restaurant business, and as such, it’s crucial to invest regularly in it. Unless you’re a major name in the area, chances are that you can’t rely on word of mouth alone — so investing funds into building your brand recognition is crucial.
Failing to Plan for Seasonal Variations
This is why we recommend looking at your historical costs and income. If you notice a pattern (say, things speed up heavily in the summer and die off entirely in winter), plan for it. This is why we keep emergency budgets, and if you already know that winter will be slow, you can be prepared for it, rather than scraping scraps together to keep the lights on.
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