When to Update Your Restaurant Financial Plan
Your restaurant financial plan is important to the success of your restaurant and it is essential that you update it regularly. In this video, I will show you how using a restaurant financial plan, i.e., a budget, every day lays out your restaurant’s plan for financial success. Plus, I will show you my Google Sheets budget system and tell you how you can get your very own copy of it.
A restaurant budget is your financial plan for success. Using your budget regularly and keeping it updated changes your operating stance from a reactive mode to a proactive mode. It's your plan for success. It's not based off of industry averages. It's based off your restaurant’s specific needs. Maybe you have high debt service. Maybe you have really high rent. With a budget you can look at the various ways to control costs to afford these other expenses, such as keeping your prime cost lower (total cost of goods sold plus total labor cost, including taxes, benefits insurance) or making a complete menu change.
The only way to know what you can afford and what you have to make is your restaurant’s financial plan.
If you click the video above, you’ll can watch me demonstrate how my Budget Builder MVP system in Google Sheets helps make budgeting very simple. It has been programmed to operate like software, but don't get me wrong, it is not software. It is a powerful spreadsheet.
In Budget Builder MVP you can set it up with:
- Your chart of accounts
- Your sales
- Your labor cost a
- Your general ledger
The National Restaurant Association says a typical restaurant runs a 5–8 percent profit margin, which equates to a nickel to 8 cents on the dollar. I don't know about you, but I wouldn’t put my family's future at risk to make a nickel to 8 cents. I could get a job for that and make more. As a restaurant owner I want you at 15–20 percent profits, depending on your goals and your sales.
If you’re doing $850,000 or less in annual sales, you’re probably not going to hit that. You might hit 10–15 percent. But as soon as you get to $2 million dollars or more, your goal is 15–20 percent without giving up on your core values. With a budget, a financial plan in place, you can make proactive decisions about what systems to add to your business to get you to those financial targets.
Another key number I cover in this demonstration is prime cost. A lot of restaurant industry experts say restaurants want a 65 percent prime cost. I’m here to tell you if you do $1 million or more a year in sales, your prime cost should be 55 percent. That means on $1 million dollars, if you're running 65 percent, and I want you at 55, that's $100,000 in bottom line profitability on the same sales you're doing right now with no get-rich scheme and no marketing.
To get there you do have to put systems in place to hold management accountable, but with a budget in place, you know the exact numbers you need to hit to achieve those targets. If you don’t keep your budget up to date, how do you know if you’re hitting the right numbers? How can a coach, a consultant, an expert, anybody work with you if there is no budget?
A budget is critical because it's your plan for success. In this video I show you exactly how critical a restaurant budget is and how you can use it to identify areas where costs need to come down to make that 15-20 percent profit margin. In working with your restaurant’s real numbers, counting on profits from your restaurant is no longer a pipe dream.
On a monthly basis, you're going to measure your financial plan and change your financial plan. No longer do we create a budget, ask for money to open a restaurant and ignore it, then laugh when we see it because it is so far out of the reality of your restaurant’s real needs.
If you’re not one to watch my videos on YouTube, I definitely encourage you to watch this one for the demonstration of how the numbers play out. And you can find out how to get a copy of my Budget Builder MVP Google solution.
(If you’d rather skip the DIY version of creating your restaurant’s budget, know that if you become a member in my Restaurant Transformation Intensive premium group coaching program, we do your budget for you with you.)
No matter how you do it, create your restaurant financial plan for success as soon as possible. You’ll understand your business so much better and be on your way to financial freedom in your daily life.
If you would like to learn how to own a restaurant that doesn't depend on you being in it to be successful, watch this free video course that teaches you three key principles to running a successful restaurant. If you're ready right now to make some serious changes in your restaurant, you can also book a 60-minute call with me where we talk about your challenges and figure out exactly what is holding you back from having a restaurant that doesn’t depend on you being in it to be successful.
Be sure to visit my YouTube channel for more helpful restaurant management video tips.
