Writing up a restaurant financial plan is an essential part of assessing whether you will be running a lucrative business. It helps you ensure that your financial strategy is feasible by examining every aspect of your restaurant - from your start-up costs to your estimated sales projections and break-even point.
A financial plan can also act as a forecast to show you what you should anticipate over the first few years to effectively plan your restaurant's growth. If you want to know more about creating a financial plan for your eatery, we’re here to guide you through the process.
What is a Restaurant Financial Plan?
A restaurant financial plan is a set of documents outlining the business’ current monetary position, long-term financial goals, and strategies to achieve these outcomes. With a financial plan in place, you can make intelligent use of your money to build a successful business.
While these plans don’t follow a strict format, they generally serve the purpose of outlining your net worth and spending patterns. Then you consider your financial goals and explore ways to realize them. This will involve budgeting and taking out loans.
Finally, you’ll calculate a breakeven analysis and explore ways to expand your revenue.
How to Create a Financial Plan for Your Restaurant
The summarized version of your financial findings in your restaurant business plan comes from this comprehensive financial plan document. It lays everything out in more detail. Number-crunching investors or bankers will be interested in analyzing this document when you’re doing the rounds to secure funding for your business.
It also acts as a tool for projecting income, planning cash flow, and preventing unexpected financial dips.
1. Funding and Company Structure
The first step in creating your restaurant’s financial plan is to assess your current monetary position. You’ll also need to determine how much funding you require to open the eatery doors to welcome diners.
Restaurant start-up costs are typically pretty hefty. A lot goes into getting the business off the ground. Here is a list of expenses that you’ll likely need to factor in at the start:
- Restaurant licensing fees
- Land and building
- Kitchen and bar equipment
- Dining furniture
- Interior design and finishes
- Exterior finishes
- Move-in costs
- Pre-opening expenses
- Restaurant marketing and advertising
- Opening inventory
- Initial working capital (money required for starting daily operations)
Depending on how much capital you have available to begin with, it might be necessary to secure loans or funding to bridge the gap and get your restaurant open for business. This will require you to approach the bank or seek out investors.
It’s best to get a head start on researching your funding options and loan opportunities. The sooner you can discuss your financial needs with people who can extend you credit, the sooner you can kick start your eatery business.
A neat document with expertly calculated projections will help reassure potential lenders that you have a solid plan and can handle financial management.
LLP Or LLC Company Structure
In your financial plan, you should also clearly define your company structure. Are you going to set your restaurant business up as an LLP or LLC?
A limited liability partnership or LLP is largely based on a partnership agreement and offers partial protection from other partners’ dereliction of duty or business obligations. Adversely, limited liability companies or LLCs are separate business entities that protect the owner from the business’s debts and liabilities.
Having this information in there is essential, as it affects how you pay taxes, distribute profit, and handle debt. Lenders will want to know the setup before giving you access to funds.
2. Market Analysis
As part of the exercise around creating your restaurant business plan, you would have done a deep dive into your target market, competitors, the general state of the restaurant industry, and your niche. This will prepare you to develop a pricing strategy for your eatery’s offering.
It will also give you an idea of what your sales projections might look like.
As a new restaurant, you’ll need to ensure that your pricing is in line with your competitors. However, your pricing can fluctuate based on several factors.
Firstly, a unique restaurant concept with little to no competitors may be able to set its ideal prices and take them to market. However, even if you have a more standard concept eatery, you may be able to increase your pricing above the market average based on your ingredients and menu concept.
On the other hand, you may be able to lower your prices for a competitive edge if you can source cheaper ingredients and have lower operating costs. Generally, your prices should reflect your restaurant’s perceived value.
Sales happen when diners come in to eat at your restaurant, drink at your bar, or get takeaways or deliveries. They are the lifeblood of your business. You’ll need to create a sales projection in your financial plan to determine whether you can run a profitable business.
Your sales projection is based on your customer and order data. It should cover points such as:
- Average customer orders
- How many appetizers, main courses, and desserts are ordered per person?
- How many customers per shift (lunch and dinner)?
- The maximum seating capacity of your venue
- What is the average bill per person?
- What is the average number of customers per week?
A sales projection like this will help you anticipate your cash flow. You can establish the approximate inventory level to have on hand and the cost of securing that (cost of sales).
If you’re offering delivery and takeaway services, remember to add packaging and commissions charged by online delivery or reservations apps to the COS. You should also note the staffing requirements for preparing and serving your menu items.
3. Financial Projections
Overheads are the day-to-day running expenses your establishment will incur. For your restaurant financial plan, it’s best to get figure estimates from suppliers so that you have an accurate idea of how much daily operations will set you back.
Here are some of the main expenses involved in creating an overheads budget:
- Weekly labor costs
- Management salaries
- Employee benefits
- Music and entertainment
- Annual licensing fees
- Marketing and advertising
- Consultation costs
- Administrative expenses
- Building occupancy
- Staff uniforms
- Cleaning products
- Asset depreciation
Once you have your projected sales, estimated cost of sales, and overheads budget outlined, it’s time to prepare the cash flow statement. Completing this projection will help you determine whether you have enough funds to run your restaurant or if you need additional finance.
Be realistic when calculating this. It’s recommended that you do 6- and 12-month projections to capture any seasonal fluctuations.
4. Operational Profit/Loss
Operational profit and loss statements and projections factor in your longer-term financial goals, business growth, and profitability.
It should tie in long-term cash flow projections, growth plans, and investment opportunities and repayments. Work with an accountant here so you can develop the projections together and understand if actions are needed to secure your eatery's financial viability.
5. Break-Even Analysis
The last - and arguably most important - part of your financial plan is conducting a break-even analysis. This calculation will help you determine when your business will turn profitable.
To do this, work out how much you need to sell to ensure all your expenses are covered. Any sales above this are then considered profit.
Break-even point may be years away if you have loans to settle. But, with an understanding of your fixed costs, you can determine how much to mark up your food and beverages. You can also uncover where your revenue goals should be to keep afloat or turn a profit.
Writing up a restaurant financial plan requires attention to detail. This document is critical to helping you understand the financial viability of your restaurant business.
New restaurants can be prone to failure if they’re not managed correctly. A comprehensive financial analysis can reduce this risk and help you become a successful restauranteur.
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