A solid food and beverage budget strategy is vital for a restaurant or bar to survive. Without one, managers can’t have a true grasp of operating revenues and expenses. Knowing these numbers is critical to ensuring your gross revenues can cover all of your restaurant and bar expenses.
While having an accurate budget that is reflective of your business is important, creating that budget can be difficult. Deciding how to get started, what information to include, then managing and updating that budget over time can seem frightening. But with some guidance, you can learn the best practices for budgeting to ensure your business achieves long-term success.
Creating a Budget
The first step to creating a budget is creating a forecast, or goal budget. A forecast budget is a projection of your estimated income and expenses at a certain time. You should include any expected increases or decreases, or other changes to your finances. If your business is affected by seasonality, for example, this should be accounted for.
Next, you should determine your actual, current revenues and costs. For most restaurants or bars, revenues come directly from selling menu items or merchandise. Calculating the average revenue your bar or restaurant generates is key. Depending on your business’s volume, you may want to determine this number on a daily, weekly or monthly basis. Once you have a good picture of your revenue, you can better plan for your expenses.
Understanding food and beverage cost control formulas is a critical step to success.
First, you should determine the cost of your sales. This figure represents how much it costs to make each menu item or the cost of the ingredients.
You also need to determine the cost of serving the menu items or the labor cost. This is the total cost of servers, bartenders, cooks, managers and any other staff member. Your labor cost should be the total amount paid during the applicable daily, weekly or monthly period.
Finally, you need to determine your fixed and variable overhead costs. Some examples of fixed or uncontrollable overhead include rent or equipment leases. Variable overhead costs include utilities, repairs, marketing, entertainment and any other expenses that change periodically.
These costs generally vary between food and beverage businesses. It is important to ensure you are accounting for all of your business expenses. For this reason, it can be helpful to create multiple budgets that reflect different time periods. This can ensure you are capturing those monthly rent payments and those annual accountant fees.
Budgeted Income and Expenses vs. Actual Income and Expenses
Once you have determined your current costs and expenses, you will need to compare this to your forecasted budget. If your actual numbers are lower than your forecasted figures, there is room for change. Typically, these discrepancies can be eliminated by increasing revenues, decreasing expenses, or both. To increase revenue, you will need to drive more customers to your business and this can carry a marketing cost. Some marketing methods like social media are proving an inexpensive, yet effective strategy.
Another option to increase revenue, though risky, is to increase prices. Without proper evaluations, price increases can do more harm in driving customers away. Alternatively, you can aim to decrease your restaurant or bar expenses. The most effective option is to evaluate your budget to determine where you can make changes. Controllable costs, such as marketing, entertainment and labor, are viewed as the best way to cut costs. Long-term obligations are not usually tied to variable costs, making them easier to manipulate as needed.
Depreciation, Labor and other Considerations
An important, yet forgotten component of budgeting is depreciation. Purchasing equipment for a restaurant or bar is a large expense that must be maintained over time. Measuring depreciation helps you calculate the useful life of the equipment in your business. You will better understand how quickly that item gets worn down and when it should be replaced. In addition to depreciation, it is also important to account for random, urgent repairs. Having an emergency fund can mitigate surprises when this occurs.
Another variable component of budgeting is labor. Labor needs can fluctuate and it can be difficult to schedule staff without proper budgeting metrics in place. Budgeting, especially over time, can help discern your busiest and slowest periods. Online software systems can integrate with your POS systems to quickly track these metrics. As a manager, you can quickly determine your hiring needs ahead of schedule. It’s important to account for additional labor fees, such as taxes and benefits. This ensures you include the total cost of labor in your business budget.
As a bar or restaurant manager, you should also consider evaluating your operating costs routinely. Like labor, many variable costs tend to fluctuate. Certain utilities or other operational costs can quickly change and dent your budget. Operational systems, such as POS systems, can also increase in price. Other times, there could be a potential for cost savings by changing systems or providers.
Proper food and beverage inventory management is also key in understanding your budget. You should not be over (or under!) ordering on a week-to-week basis. This will help you stick to your budget—in the present, as well as the future.
One final consideration that has impacted everyone is COVID-19. Many restaurant and bar managers have seen drastic changes in their budgets. Incomes and sources of revenues have shifted to more non-traditional methods. Delivery companies, for example, often charge service fees that must be budgeted for. Delivery options also call for additional expenses, such as takeout containers or silverware. Other related expenses, such as cleaning supplies or masks, have also become a necessary budget item. While these changes were substantial, they also echo the importance of budgeting and preparedness.
Through the 2020s and beyond, budgeting will continue to be vital to restaurant and bar survival. Knowing revenues and expenses, and how to increase and decrease them, is crucial. Creating and managing a bar or restaurant budget helps you make decisions that will impact your business for years to come.
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