Restaurant Budgeting 101

Restaurant budgeting 101 is a great place to start when it comes to trying to figure out your restaurant’s numbers. I’ve never wavered that the two most important systems any restaurant should have are budgets and recipe costing cards. Why? Because they're critical to your success. Let’s leave recipe costing cards on the table for now and focus on restaurant budgeting. Click the video below or keep scrolling for restaurant budgeting 101.

Let me start off by explaining the difference between a profit and loss statement and a budget. A profit and loss statement is like the rearview mirror in your car. It allows you to look backwards and see what your numbers were. The problem with looking behind you is you can't change the past. It is too late. And most restaurant owners get their profit and loss statement 15, 20, 30, even 60 days after the end of the tracked period. This means by the time you get your profit and loss statement, even if you have a great accounting firm and you get them 15 days in the next period, you're looking at the past. You’re looking backward and seeing the problem. Maybe it’s that your food cost was too high. You say something to your chef about it, but your chef has been making the same mistake for the last 45 days and now you want them to fix it? It is too late.

Now, don't get me wrong, a rearview mirror is important. You need to know where you’ve been. But a budget is your proactive plan for success. Let’s use that food cost example. Let's say you're running a 38 percent food cost. That's what the past shows you. That’s way too high to make money today, especially with a $15 minimum wage on its way and all the other expenses robbing you of all the profitability you work so hard to have.

Well, if your food cost starts at 38 percent, I'm going to tell you a typical restaurant runs seven to nine points above their ideal food cost. If there was no waste, no theft, no spoilage – if you ran a perfect restaurant, which is impossible – even with a rock star chef and kitchen managers, you are going to be two points above ideal. It’s impossible to be perfect. Considering those two points, that means you have this gap of five to seven points that you need to reel in pretty quickly.

If you start 38 percent food and then use two very simple clipboard systems: a key item tracker, which reduces theft, and the waste tracker, which lets you shine a spotlight on the mistakes being made in the kitchen and front-of-house. With these two systems, instead of looking backwards 15 days into the next period while your food cost was high, you see the problem today and you fix the problem today. You take a proactive management approach. Combine these two clipboard systems with my Restaurant Checkbook Guardian, otherwise known as the purchase allotment system, and you can drop your food cost two to three points guaranteed. It will take you two months: one month to train and one month of using the systems and holding your management team accountable.

With these systems, you tell your management team how much money they can spend on their next order of food, bottle beer, draught beer, wine, liquor, all separately to stay within budget, how to go into the week on budget versus buying all this food and hoping you’re going to use it. You make sure it's not wasted, stolen, or spoiled by simply implementing those two clipboard systems and this one spreadsheet.

Using these three systems you can go from 38 percent to 35 percent. Managing these food costs is all part of managing your increasing labor cost.

Remember I told you the two most important systems are budgets and recipe costing cards? That’s the next step. Start working on recipe costing cards in month one. But because you're busy, because you're getting back into season, and we know it takes 40, 60, 100 man hours to get done, you’re going to say it's going to take your three months. In month one you start the process. Months two and three you’re working on them, and you finish in month four. Then you can do something called the Menu Profitability Monitor where you find out where your ideal food cost is. And then you’re going to menu engineer for profit and bring your food costs down.

Let’s say the Menu Profitability Monitor told you the goal is 26 percent actual food cost to make it. That means you need to aim for a 24 percent ideal food cost. This leads to menu, recipe and product examination. You’ll re-engineer an item itself, like getting rid of one ingredient and replacing it with another. You’re never buying down cheaper ingredients if it compromises the quality, but if it’s possible to go with something less expensive at the same or better quality, that’s good. You’re also going to change your mix and influence people to buy something else.

You go through all this rigamarole such as raising prices on certain items until you can create a menu through menu engineering that produces a 24 percent ideal or 26 percent actual food cost. This means you have line checklists and portion controls, and you’re using the Key Item Tracker, the Waste Tracker and the Restaurant Checkbook Guardian. You’re doing lots and lots of things to make sure you can bring that gap from seven to nine points down to two.

Then in month five, you put the new menu on the table and bring that food cost down to 26. You can’t just snap your fingers and say, “We've got to lower our food costs,” and then it happens. You have to create a plan for success.

Your budget is your proactive plan for success. You decide what systems you're going to put in place, how quickly you can put them in place and what your expected results are. And ultimately, you create your plan so that at the end of 12 months, you know how much money you're going to make or lose.

That's why budgets are critical to your business. Believe it or not, creating your plan for success, your budget can be one of the most empowering things you will ever do when it comes to running your restaurant in a way that allows you to achieve restaurant prosperity, freedom for your restaurant and the financial freedom you deserve.

If you want to transform your restaurant, you need to incorporate a budget into your plan for success. It's a critical step if you want to be able to leave your restaurant and trust that it will be run how you want it run when you’re not there.