Restaurant Business Plan
All too often people enter the food service business with great food and no solid business plan. A restaurant business is a lot more than delicious food with a smile. Don’t get me wrong, those are the foundation…but we need clear financials, marketing strategy, a management plan, and defined targets for success.
You can start by separating what we call your ‘Sunk Costs’; meaning any one-time expenses you need to incur just to get your doors open for business. A little imagination can help here…items like chairs, tables, construction, equipment costs, POS systems, security, initial food costs, signage, and so on.
Then lay out your monthly reoccurring operating costs. These include: utilities, wages and salaries, rough food costs, advertising, insurance, legal costs, et cetera. Think of any expense that may reoccur monthly and add it to the list. Now you will have your one-time cash outlay plus your monthly expenses estimated. Add your one-time costs (‘Sunk Costs’) and your monthly expenses and you will have an estimate of your first month cash requirements. This is a base starting point. Next you can take on the arduous task of generating your standard financials.
You will need to generate a Cash Flow projection sheet. This will include all costs and all projected sales, along with financing and payments detailed by the month. Remember to generate a minimum balance for your Cash Flow, because if you run out of cash you will have big problems finding more. Banks are allergic to lending money to food service businesses behind in cash, as this can indicate a trend of losses. You must have the financing you require before you start operating, because no financial institution will come to your rescue if your cash flow is in bad shape. Be realistic with your numbers and secure enough capital up front, and avoid this trap.
A Pro Forma Income Statement is next. Gross Margin = Net Sales - Cost of Goods Sold (COGS). Add your Variable Expenses and Fixed Expenses, and then subtract them from the Gross Margin for the Net Profit (or Loss).
Then we generate a Break-Even-Point (BEP) calculation. The idea is to find the point in time where your expenses (Sunk, Fixed and Variable) are equal to your Projected Sales. This is the golden moment, where you see how long it will take you to start earning a profit…in other words, when your earnings equal your expenditures.
Take these steps before approaching a bank for financing, and you will earn their confidence. You will also have an idea of the journey you are setting off on. The popular analogy is to treat a business start-up like a vacation; draw a clear road map with a defined destination target (your BEP). This way you will not be flying in the dark and hoping to get somewhere good…you will be travelling with a strategy and the confidence that goes with solid planning.