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The basics to master restaurant accounting: Budgeting and Forecasting

July 28, 2019

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Budgeting and forecasting your restaurant’s costs are your way to predict the future of your restaurant’s business.

On one hand, your financial limits could be determined by your restaurant budget. On the other hand, your restaurant’s financial forecast defines what you can do within those limits. Your restaurant’s budget gives you an insight into the costs and financial decisions, which you can control.

Restaurant budgeting is a very important process based on educated guesswork. In this article, we will show you the basics to master restaurant accounting concerning Budgeting and Forecasting.

 

Operational budget and sales forecasting:

It is important to know that your startup budget differs from your operational budget. Here are the concepts you should know to make an operational budget:

  1. Accounting Process:

You need to start by hiring outside experts to help you in the budgeting process.

Before starting your operational budget, you will need:

  • POS: POS system includes all the features your accountant might need. You can get your job done and save time as well. A well-designed POS helps you to make informed business decisions as it gives you access to your sales and labor data.

 

  • Accounting software: connecting an accounting software to your POS will help your accountant to create financial reports, and perform financial reconciliation.

 

  • An accountant and/or a bookkeeper: you should hire an accountant who will conduct a comprehensive analysis of your financials to make sure that your operations meet the industry standards. Where your bookkeeper shall keep your financial records.

You should have a record of every single penny you spend and track costs, payroll, and invoices.

 

  1. Accounting Periods:

You, first, shall determine your accounting period. You can use a 12-month period or 13 periods of four weeks each. Choose the period that suits your workflow. If your restaurant has a very busy Thursdays and Fridays but not busy Sundays or Mondays, you would better use the 13-period concept.

 

  1. Budget Goals:

Your budget should include data about sales revenue from two years previous, food and beverage costs, payroll and occupancy costs over the last year, and controllable expenses.

These data will show you your restaurant’s cost historical performance so that you can set budget goals by projecting revenue and expenses. You can collect this data by checking POS reports. This will help you to adopt a strategy that allows you to maximize your profitability and stay within your financial limits at the same time.

 

  1. Determine your costs:

You should determine your fixed costs, semi-variable costs, and variable or non-fixed costs. You can easily anticipate fixed costs as they don’t change. Where semi-variable costs may slightly vary from month to month. Whereas non-fixed costs will definitely change from month to another.

Here is a list of all costs your restaurant’s budget should include:

  • Fixed costs: insurance, rent, loan payments.
  • Semi-variable costs: salaries, hourly pay, utility bills, food costs, small-wares replacements, take out supplies.
  • Non-fixed/variable costs: repairs, marketing, advertising, delivery charges.
  • Controllable costs: labor, marketing, food cost
  • Uncontrollable costs: rent, property, other occupancy costs.

 

  1. Sales Forecasting:

You can forecast your sales using data and reports from your POS. A sales forecast can be affected by the following factors:

  • POS data: sales reports over time, labor costs.
  • Competition: new restaurants near yours, pricing, marketing, advertising and promotions, menu changes.
  • Economic shifts: supplier pricing, food, and beverage costs, minimum wage changes.

 

Use a chart to compare previous sales and calculate the percentage you’ve grown over the last two years, for example. The average increase is used to project your coming fiscal year. You can calculate forecasted sales by multiplying the percentage sales increase with last year’s sales.

 

  1. Breakeven Point:

This point will tell you if you will have a profit or not. It is the point where revenues equal expenses. You can make a profit when your restaurant’s sales exceed the breakeven point.

You can calculate your profit by the following formula:

Profit = Sales – (Labor Costs + Food costs + Overhead Costs)

 

  1. Make your decision:

After evaluating your budget, you can decide how to adjust operations to make a profit.

Whether you hit your goals or not is what defines your next step. You may reduce controllable costs as follows:

  • Search for cheaper suppliers.
  • Re-price your menu.
  • Re-engineer your menu.
  • Cut into labor costs.
  • Consider seasonal hiring.
  • Cross-train your staff.
  • Try to retain employees.
  • Reduce waste.

 

After all, managing budget and forecasting sales require flexibility. Using the right tools and implementing the best practices, you’ll be able to define and fix cost slips to eliminate real issues, modify sales to avoid having a low profit or nonprofit, and schedule staff according to your sales needs.