Why Most Restaurant Operators Never Create a Budget
I've been preaching the importance of having a restaurant budget since becoming a restaurant coach in 2003. In fact, I can tell you, if you don’t want to depend on dumb luck, your budget is critical to your restaurant’s success. So why don’t more restaurant operators have and use a budget? What does the thought of creating a restaurant budget make your skin crawl? Let me shed some light on the dreaded restaurant budget using six common excuses why independent operators never have one.
When it comes to excuses why an independent restaurant operator doesn’t have a budget, I've heard them all. The problem with these excuses is they stop you from doing the next best thing that will improve your restaurant and your life. Here are the top six excuses for why most restaurant operators never create a budget.
Number one, I don't have time. Boo frickin’ hoo? You must be kidding me. You're in the toughest business I know. Instead of focusing on saving $15 an hour and flipping a burger yourself, be an owner, work on budgets, marketing, leading your team, developing your managers and holding them accountable. That is what you're supposed to do.
Number two, I don't understand the numbers. That's not an excuse. Maybe your chart of accounts isn't set up properly, and you need to change it so that you can better understand your numbers. In fact, I teach people that you tell your accountant what your chart of accounts looks like and what numbers goes in them so that you know your numbers. Your accountant doesn’t dictate your chart of accounts.
Number three, I don't need one. Right. How do you know what success looks like? Are you just going to use industry averages? Name a successful business that doesn't operate with a budget unless it's just dumb luck and it happens. You may have been successful without a budget, but then COVID hit, and it robbed you of all your money, your cash flow was nonexistent. And now for the first time in your life, you're going, oh, shoot, I need to make a change. Well, how do you make a change without a budget? It's your proactive plan for success.
Number four, I have a budget I created when I opened my restaurant 10 years ago. Oh, my God. That's laughable, right? Most restaurant owners say, “Yeah, I have a budget. I had a budget when I asked for money from the bank.” Well, that's 10 years old. Even if it's one year old or three months old, it's old. See, you must update that plan for success every single month because I have news for you: You're never going to hit your budget, but you are going to be able to see what systems you need to put in place to change your reality.
Number five, I know what I need to do in sales to break even. What the heck does break even have to do with making money? See, I'll bet money you don't know what your breakeven point is. You just kind of have a general idea of what you've got to do in sales before you've covered all your expenses. But that can change. If your managers start bleeding labor because they're not paying attention, that breakeven point gets creeps up quick. If you are not looking at portion controls and preventing theft and stopping the dumb mistakes that happen daily, your cost of goods sold can creep up on you. But without a budget and active monitoring of your budget, it takes a while before it’s painfully obvious that your breakeven point isn’t where you thought it was. You've become less efficient every single day and it keeps going up. That's not how you plan for profitability.
And finally, number six, I'm following the industry standards. This is one that makes me laugh. So many restaurant owners are looking to the big restaurant “authority,” the National Restaurant Association, for direction, and they say your food cost should be 34 percent and that your labor cost should be 33 percent. Well, number one, that's a 67 percent prime cost. Heck, even if you used the old-fashioned numbers of a 65 percent prime cost – total cost goods sold plus total labor costs, including taxes, benefits, insurance – that total still isn’t right. And I'm here to tell you, if you do $850,000 in annual gross sales, your prime cost target should be 55 percent or less. That's 10 points! If all of a sudden, you're doing $1 million a year in gross sales or for every $1 million in gross sales you do a year, that's $150,000 in bottom line profitability. That’s going from a 65 percent prime cost down to 55. You're at 67. PLUS, who said those were your numbers?
What if you're a pizza and pasta place, and you're running a 34percent food cost, and you're patting yourself on the back thinking you're kicking ass but your ideal food cost should really be 24 percent and running an actual 26 percent. If these are the numbers you should be hitting, that means you're losing thousands upon thousands of dollars every single month because you have the wrong targets.
See, you could be a steakhouse and run the 38 percent food cost on purpose because the cash contribution is so high it makes your labor cost so low that you could still hit that 55 percent prime cost. But if you’re trying to run on these industry averages, you're running off the wrong targets. Those are averages. Is your restaurant average? Are you on the same street corner, same price point, same style of service, same minimum wage? Same quality of product? No. That average is good for nothing. So if using these industry standards is your reason why you don't need a budget, that’s ridiculous.
It's time to throw all those excuses aside. At my company, we create budgets for all our Restaurant Transformation Intensive members as a part of their 24-week initial journey into changing their mindset, their lives and profitability.
And to a person, once that budget is done, they finally understand why they're putting the work in to implement all the systems. They feel empowered that they're going to take control of their future and ultimately understand their numbers and use them to make good business decisions each day.
Stop letting excuses hold you back. Start working on your budget today if you're tired of not being able to leave your restaurant because no one else knows how to run it.
If you would like to learn how to own a restaurant that doesn't depend on you to be successful, watch this free video course that teaches you three key principles to running a successful restaurant.
Be sure to visit my YouTube channel for more helpful restaurant management video tips.
