There are probably more restaurants started and more restaurants that fail each year than any other type of business. There are several reasons that so many restaurants fail:
- Just because you can cook does not mean you can start and run a profitable restaurant
- Owners underestimate how much it will cost to open, and have no working capital left once they open
- They don’t create realistic financial projections BEFORE they start the business
So now I am going to help you by creating an example set of financial projections for your restaurant. I am going to walk through the process that you need to think through as you are creating your projections, and I am going to use ProjectionHub to actually complete a 12 month set of projections.
Restaurant Sales Projections
The first thing you need to do is build a set of sales projections. Let’s assume you are going to open up a cafe that offers breakfast, lunch, and dinner, with a focus on the business professional lunch crowd. In order to develop sales projections you will need a set of assumptions to build off of.
- There are 100 seats in the cafe
- Average order is $10
- At full capacity the restaurant will serve 50 people for breakfast, 100 for lunch, and 50 for dinner
- There will be 3 months of expenses, renovation, training etc before the store opens
- We will assume that the first 2 months of sales will be below your ultimate capacity by 25%
So each month we will project the number of meals sold. At capacity it would be 200 meals per day x 30 days = 6,000 meals, but during the first couple months we will estimate 4,500 meals as sales ramp up.
Expense Projections for a Restaurant
There are 3 different types of expenses that we will need to forecast, your cost of goods sold, general expenses, and startup costs. Here are some basic assumptions that you will need to develop for your own situation.
Cost of Goods Sold Assumptions
- I am assuming that my labor costs will be 30% of sales
- I am assuming that food costs will by 20% of sales
General Operating Expenses
These are all of your normal operating expenses like rent, salaries, wages, taxes, advertising, maintenance, cleaning, accounting, legal, etc. You can see the monthly and one time expenses I entered for the restaurant below. I did not assume that the owner will take a monthly draw each month, so the owner is actually working for free initially in order to help stabilize cash flow during the first year.
Restaurant Startup Costs
Now we need to determine the startup costs that we will incur before we even open the restaurant.
- Furniture = $10,000
- Kitchen Equipment = $30,000
- Building Renovation = $5,000
Once we enter these startup costs we will also enter two loans that the business has incurred in order to cover initial costs. A $10k loan from family and a $15k loan from a local bank.
That is it. Now we need to check and see how the final financial projections turned out for the first 12 months of the business. I have included a link to the Excel file that ProjectionHub produced based on our inputs and assumptions. It looks like you will make money in the first year based on these assumptions.