If you run a restaurant, you know how important it is to have a clear and realistic financial plan. A financial plan helps you track your income and expenses, set your goals and strategies, and plan for the future. But how do you create a comprehensive financial plan for a restaurant? Here are some steps you can follow to get started.
The first step is to analyze your current financial situation and performance. You need to gather and review your financial statements, such as your income statement, balance sheet, and cash flow statement. These documents show you how much money you are making and spending, what your assets and liabilities are, and how much cash you have on hand. You also need to calculate your key financial ratios, such as your profit margin, food cost percentage, labor cost percentage, and break-even point. These ratios help you measure your efficiency, profitability, and financial health.
Restaurant business involves a lot of moving parts.In most cases, what would be considered in planning for a restaurant may be different from what is required in planning for another restaurant. In general, it is important to first and foremost have a proper understanding of the particular restaurant business model, understand the customer type, Understand the peculiarities of the location of the restaurant, understand the impact of seasons to the business,Understand the different suppliers characteristics,understand the local and national laws for such business,understand the competition and understand the vision and core values of the business owner.A good knowledge of all this will be of great help.
Conduct an Initial Financial Assessment If you don’t understand a problem thoroughly, you cannot solve it. Financial reporting enables us to see the picture in high definition. We can compare our cost performance with the industry and past performance benchmarks as well as “where we need to be." “Where we need to be” is our theoretical cost, the product of the recipe cost and what was sold during the relevant period. Thus, when accounting does its job, we can see where the leakages in profitability are coming from. Focus on numbers and analyze your business carefully. As Abraham Lincoln once said, "If I had six hours to chop down a tree, I'd spend the first four sharpening the axe."
The next step is to set your financial goals for your restaurant. You need to define what you want to achieve in terms of revenue, profit, growth, and sustainability. You also need to specify how you will measure your progress and success, such as by using benchmarks, targets, and indicators. Your financial goals should be SMART: specific, measurable, achievable, relevant, and time-bound. For example, you might set a goal to increase your revenue by 10% in the next quarter by launching a new menu item and promoting it on social media.
I set up financial statement level top level goals like revenue, cost of sales, labor cost and OPEX and then break them down to each component. These financial goals are general and then more specific guideliness. That being said, most important thing to remember about goals is that reaching the goal is not the purpose of the goal. Creating a system that will prevail in the long run is the ultimate goal. True long-term thinking is goal-less thinking. It’s not about any single accomplishment. It is about the cycle of endless refinement and continuous improvement. To me this way of thinking combines, the passion of hospitality, the heart, with the financial success, the brain.
The third step is to develop your financial strategies to achieve your goals. You need to identify and prioritize the actions and initiatives that will help you improve your financial performance and position. You also need to estimate the costs and benefits of each strategy, and allocate your resources accordingly. Your financial strategies should be aligned with your overall business plan and vision, and reflect your competitive advantage and market opportunities. For example, you might develop a strategy to reduce your food waste by implementing a better inventory management system and training your staff on portion control.
The fourth step is to prepare your financial budget for your restaurant. A budget is a detailed plan that shows how much money you expect to earn and spend in a given period, usually a year. A budget helps you control your cash flow, monitor your performance, and adjust your strategies if needed. To prepare your budget, you need to project your sales and expenses based on your historical data, market trends, and financial goals. You also need to consider any potential risks and uncertainties that might affect your income and costs, such as seasonality, competition, or regulations.
The final step is to implement and review your financial plan for your restaurant. You need to communicate your plan to your staff, suppliers, investors, and other stakeholders, and get their feedback and support. You also need to execute your plan with discipline and consistency, and track your results regularly. You should compare your actual performance with your budget and goals, and analyze any variances or discrepancies. You should also evaluate the effectiveness of your financial strategies, and make any necessary changes or improvements.