A business that has a solid financial plan in place isn’t guaranteed to succeed, but a business with no financial plan is practically doomed. Restaurant owners, who operate in a uniquely challenging market, can’t afford to neglect careful financial planning. Being diligent about creating, reviewing and adjusting the business financial plan is an essential part of keeping a restaurant’s doors open long-term in an industry with thin profit margins.
Because a financial plan is so imperative to a restaurant’s success, working on it can also be daunting—especially if you’re a restaurant owner whose passion is food and not finance.
Whether you’re just starting the process of opening a restaurant, or giving your existing financial plan a check-up, working with your financial and business advisors is always the best way to make sure your plan is comprehensive and is designed to help you achieve your financial business goals.
WHAT’S INCLUDED IN A BUSINESS FINANCIAL PLAN FOR RESTAURANTS?
A restaurant’s financial plan encompasses many parts. It’s kind of a living organism that will evolve and change over the course of a restaurant’s lifespan. Some of the key components in a restaurant’s financial plan include:
- A detailed and accurate chart of accounts (“CoA”), and a plan for maintaining it. Restaurant bookkeeping is notoriously complex. If the business’s chart of accounts doesn’t correctly reflect every transaction, expense, liability, etc., you’re going to make financial decisions for your restaurant based on inaccurate data. (Not to mention, run into trouble at tax time.) So, your CoA is an essential resource every time you’re doing any kind of financing planning. It needs to be customized to your restaurant's structure so you’re able to track specific things like your meat costs and front-of-house labor expenses.
For new restaurants establishing a CoA for the first time, there also needs to be a clear plan in place for maintaining it. Software can automate a lot of the data collection but someone needs to be in charge of managing and reviewing the CoA to ensure it stays accurate and current. Outsourcing to a bookkeeper is one option, or you may feel comfortable keeping bookkeeping in-house. If you or a partner are going to be in charge of your own CoA, you’ll need to plan on carving out time to keep it updated. In this case, you would also want to make sure that a trusted partner or manager understands the CoA in case someone needs to step in in your absence.
- Profit and loss statements, balance sheets and cash-flow statements. These documents are key components of a business financial plan across all industries, not just restaurants. Restaurant owners and their advisors use these statements to assess the business’s past performance and current financial health, and to identify trends and opportunities that will shape the restaurant’s financial future.
- Sales/revenue forecasts. While forecasting future sales is an imperfect science, forecasts can be tremendously useful tools in your financial plan. They can guide restaurant owners to make strategic decisions about things like staffing, inventory and hours to maximize profits. The process of forecasting future revenue uses metrics including historical data, market research and educated guesses about customer behavior. (For example, a sports bar that’s huge with hockey fans might be able to assume that more customers are going to come to the bar and stay for longer periods in October than they did in August.) As a general rule, it gets easier to do accurate sales forecasting the longer a restaurant is open because owners have so much data to work with, and an understanding of how customers use their business. But a new restaurant owner can also work with their advisors on forecasting.
- Break-even analysis. A break-even analysis is part of a new restaurant’s business financial plan. The name is pretty self—explanatory: it’s an analysis to determine how much revenue your restaurant needs to bring in before you break even. For new restaurant owners, figuring out your break-even point can help you set realistic goals and shape decisions about pricing, staffing, and other variable costs.
- Market analysis. What are your successful competitors doing right that you can learn from? What are your less-successful competitors doing wrong that you can do differently? How much are restaurants that are similar to yours charging? How much are they paying in operational costs? These are just some of the kinds of questions market research can answer. You can do some of your own just by visiting competitors, studying their menus and watching the habits of their customers and staff. More extensive market research can give you deeper insights into what it takes to succeed for a restaurant like yours in your area. It gives you a lot of additional data to consider when you’re setting or changing prices, analyzing the “sellabiliity” of your menu, evaluating new vendors and making many other financial decisions.
- Short-term and long-term financial goals. Every restaurant owner has their own idea of what success looks like. In the short term, what are your goals for the next month and the next year? What about the long term? Do you hope to open a second location? Would you like to expand or renovate your existing space? Do you want to add a food truck or start offering catering? Having clearly-defined goals for the restaurant’s future allows you and your advisors to make strategic financial decisions now.
HOW OFTEN SHOULD RESTAURANT OWNERS REVIEW THEIR BUSINESS FINANCIAL PLANS?
Some restaurant owners monitor their financials hour to hour. Others take a more relaxed approach, maybe glancing at daily reports but not digging deeply into the business’s financial status until they sit down with their accountant. Generally speaking, it’s good practice to review the core elements of your financial plan every month, or more often if you’re concerned. Pore over all your financial statements, CoA, payroll reports and any reports your bookkeeper or accounting software generates. If anything’s trending in the wrong direction, or seems confusing or off in any way, obviously you want to figure that out sooner rather than later.
DOES YOUR RESTAURANT BUSINESS FINANCIAL PLAN NEED HELP?
You’re the expert on menus and hospitality, but Sachetta LLC’s business consulting team can help you do the heavy lifting on the business side of your restaurant. From tax planning and creating the business financial plan for a new restaurant, to helping an established restaurant operate more efficiently, we’re here to give restaurant owners whatever business support they need to thrive. We can’t help in the kitchen, but we’ll help everywhere else. Contact us today!
Georgios Liakakis, CPA, MSA is a Certified Public Accountant and holds a Master’s Degree in Accounting from the University of Massachusetts Lowell. He joined our team in 2016 and focuses on both business and individual taxation.