How to Create a Restaurant

Operational Budget
First, a note to new restaurateurs: if you haven’t opened your doors yet, your start-
up budget is going to look a lot different from your operational budget. 
If you want to know how to draft a solid operational budget, however, here are the
steps you’ll need to take with your restaurant accountant.

Step 1: Implement an Accounting

Process
We’re going to guess accounting isn’t one of your core competencies. (If you were
an accountant in a past life, congratulations on the serious advantage!) 
First, hire outside expertise to assist you with the budgeting process. You’ll thank
yourself later when you’re not bogged down by general ledger maintenance or
manual account reconciliation. 
Here’s what you’ll need before you start your operational budget:
A point of sale: A mobile POS reduces reporting errors and can include
accounting software integrations to simplify budgeting and forecasting. The most
sophisticated POS systems allow mobile access to your sales and labour data, so
you can make informed business decisions. 
Accounting software: Accounting software that connects to your POS will allow
your accountant to generate financial reports, determine tax contributions, and
perform financial reconciliation.
An accountant and/or bookkeeper: Your restaurant accountant will perform in-
depth analysis on your financials to ensure your operations are meeting industry
standards. Your bookkeeper is in charge of keeping your financial records.
Combined, these restaurant experts take financial management off your shoulders. 
The important thing is to make sure you have a record of everything you spend.
Your accounting system and POS can automate cost tracking, including your Cost
of Goods Sold (CoGS), labour costs, and supplier invoices. 

Step 2: Set Accounting Periods

Before you start budgeting, you’ll want to define your accounting period. There are
two periods a restaurant can use: a 12-month period or 13 periods of four weeks
each. 
Many restaurants have consistent busy days and consistent slow days. For
restaurants that know their Friday and Saturday nights will yield substantially more
revenue than Monday and Tuesday nights, the 13-period method serves as a better
basis for comparison and projections. 
Thirteen periods of four weeks each have the same number of each day. Four
Mondays, four Fridays, four Saturdays, etc.
Once you decide which method is right for your restaurant, you’re now ready to set
targets within those periods.

Step 3: Set Budget Targets

The information you’ll be working with in your budget includes:
 Sales revenue from two years previous
 Food and beverage costs  
 Alcohol costs
 Payroll costs over the last year
 Occupancy costs over the last year
 Controllable expenses
You’ll set budget targets by projecting revenue and costs based on historical
performance. 
Check your POS reports: how did you perform within the same time frame last
year? 
From there you’ll learn how to adjust your strategy so you can stay within your
financial limits while maximizing your potential for profitability. 

Step 4: Define Your Costs

The nice thing about restaurant costs is that many of them are fixed. Fixed costs
don’t change, making them easier to anticipate and include in your budget. But
you’ll also have to account for semi-variable costs, which will change slightly from
month to month. 
Then there’s non-fixed costs, which are guaranteed to change every month. You’ll
need to include some padding in your budget based on your previous year’s
restaurant expenses, so that you can project these to a degree of accuracy.
Here’s the breakdown of the kinds of costs you’ll need to define for your budget.
Fixed costs: Costs that won’t change. 
Examples: insurance, rent, loan payments
Semi-fixed/semi-variable cost: Costs that are guaranteed but can vary every
month. 
Examples: salaries, hourly pay, utility bills, food costs, smallware’s replacements,
take out supplies
Non-fixed/variable costs: Costs that respond directly to changes in the restaurant
and sales volume.
Example: Repairs, marketing, advertising, taxes, delivery charges 
 When you’re budgeting, it also helps to know costs you can control versus what
you can’t. By defining these costs, you can determine your must-haves against
your nice-to-haves.
Controllable costs: Costs you can control. 
Examples: labour, marketing, food cost
Uncontrollable costs: Costs you can’t control. 
Example: rent, property taxes, other occupancy costs

Step 5: Forecast Your Sales

Before we can create a restaurant budget breakdown, you’ll need to analyse your
previous year’s events so you can include your sales forecast. 
Use your POS to analyse past sales reports for trends and anomalies. When
reviewing past performance, you’ll also want to consider the following factors:
 POS data: sales reports over time, labour costs, average check, guest head
counts
 Sales events: promotions, events, community festivals
 Competition: new neighbouring restaurants, pricing, marketing and
promotions, menu changes
 Economic shifts: supplier pricing, food costs, changes to minimum wage
Create or access a chart in your accounting system that looks something like the
one below. This chart is completed year-over-year, but you could dive deeper,
comparing the four-week periods in each month. 
Example chart: Sales % difference for 2016 and 2017
MONTH SALES 2017 SALES 2016 DIFFERENCE PERCENTAGE DIFFERENCE (DIFFERENCE / SALES
2016)
January $15,078 $14,001 $1,077 8%

February $17,001 $16,100 $901 6%

March $15,694 $15,102 $592 4%

April $16,893 $15,300 $1,593 10%

May $17,505 $16,003 $1,502 9%

June $17,428 $16,102 $1,326 8%

July $18,004 $16,270 $1,734 11%

August $17,982 $16,529 $1,453 9%

September $15,893 $14,602 $1,291 9%

October $15,002 $13,878 $1,124 8%

November $14,928 $13,728 $1,200 9%

December $16,569 $14,876 $1,693 11%

Year $197,977 $182,491 $15,486 8%

From this chart, sales look good! The restaurant business is growing, with an
average sales increase of 8%. Ask the question: did you increase menu prices or
actually do more business?
Now that you’ve looked at the percentage you’ve grown over the last two years,
use the average increase to project your coming fiscal year. Here’s how to create
that chart: 


 Create a column for your previous year’s sales
 In the next column, multiply that figure by the average sales increase you
determined in the last chart
 Add these figures together to complete your forecasted sales column
2018 Sales Forecast
 MONTH SALES 2017 INCREASE 8% FORECASTED SALES

January $15,078 $1,206.24 $16,284.24

February $17,001 $1,360.08 $18,361.08

March $15,694 $1,255.52 $16,949.52

April $16,893 $1,351.44 $18,244.44

May $17,505 $1,400.4 $18,905.4

June $17,428 $1,394.24 $18,822.24

July $18,004 $1,440.32 $19,444.32

August $17,982 $1,438.56 $19,420.56

September $15,893 $1,271.44 $17,164.44

October $15,002 $1,200.16 $16,202.16

November $14,928 $1,194.24 $16,122.24

December $16,569 $1,325.52 $17,894.52

Total Sales $197,977 $15,838.16 $213,815.16

Step 6: Create Your Projection Budget

Now that you’ve projected your sales, you can combine your budget with your
expected sales so you’re seeing everything in one place.
Here’s what your spreadsheet should look like, with instructions for each column:
BUDGET BUDGET % BUDGET BUDGET ACTUAL ACTUAL VARIANCE (ACTU ACTUAL % OF
ITEM (COST MONTHLY YEAR MONTHL YEAR TO AL MONTHLY – SALES (ACTUA
PERCENTAG (PROJECTE (PROJECTE Y DATE (IT’S BUDGET L MONTHLY
E FROM 2018 D SALES D TOTAL (RECORD JANUARY MONTHLY) COST /
 COST FROM SALES IN ONCE SO THIS IS ACTUAL
FORECAST) JANUARY IN 2018 SALES ACTUALS THE FIRST MONTHLY
SALES FORECAST) ARE MONTH SALES)
FORECAST) KNOWN) AND THE
TOTAL TO
DATE.)

Food and   $16,284.24 $213,815.16 $16,500.00 $16,500.00 $215.76  

beverage sales

Food and 35% $5699.48 $74835.31 $5,810.00 $5,810.00 $110.52 35%

beverage
costs

Payroll costs 30.0% $4885.27 $64144.55 $4600.00 $4600.00 -$285.27 28%

Other 12% $1954.11 $25657.82 $2050.00 $2050.00 $95.89 12%

controllable
expenses

Occupancy 9% $1465.58 $19243.36 $1300.00 $1300.00 -$165.58 8%

costs

Depreciation 4% $651.37 $8552.61 $651.37 $651.37 $0.00 4%

Profit 9% $1465.58 $19243.36 $2088.63 $2088.63 $623.05 13%

Total   $16121.40 $211677.01        

Expenses

Step 5: Calculate Your Breakeven Point

Now that you’ve projected your total costs and expected sales for the year, it’s
wise to calculate your breakeven point – which will ultimately tell you if you’re set
to make a profit. Restaurant profit can only occur when sales exceed the breakeven
point. 
The formula for calculating profit is:
Sales – (Labour + Food costs + Overhead)
Step 6: Take Action!
Now it’s time to evaluate your budget so you can make decisions and adjust your
operations for profitability. 
Based on whether or not you’re hitting your targets, your budget might tell you it’s
time to reduce your controllable costs. Here are some options.
Revisit food and beverage costs. 
 Find cheaper suppliers
 Implement pour testing for your bartenders
 Raise your menu prices and/or re-engineer your menu
Reduce labour costs. 
 Review seasonal hiring
 Crosstrain your staff
 Focus on staff retention