How to Create a Restaurant Financial Forecast
Do you enjoy cooking and have always wanted to open a restaurant of your own? For this dream to become a reality, you must create a restaurant financial forecast and put it at the center of your project.
As a potential business owner, creating a financial forecast for your dream business is the closest means to seeing your company’s future. And the same applies to the restaurant business. Creating a financial forecast for a restaurant will enable you to review all the budgetary requirements for opening your restaurant. In addition, it will also help you understand the potential profitability of the restaurant business better.
No doubt, the thought of creating a financial forecast for your restaurant might seem like a complex task. And this is why, in this article, we will provide you with all the information you need to make creating the financial forecast an easy task.
In this article, we will evaluate the budget’s role and the data required to make it work. We will also look at the three main sections of the restaurant business plan with the spreadsheets that make them up. Furthermore, we will outline the different tools that will assist you in creating your forecast.
The Importance of Creating a Financial Forecast for a Restaurant
The financial forecast enables you to determine the profitability of your project. During financial forecasting, you will get to evaluate every aspect of the restaurant you envision. These include costs and menu prices to ensure that it is financially viable.
You will also outline the investments needed to start your business, such as kitchen equipment and furniture, to determine how much money you will need to get started. Another important part of creating a financial forecast is that it will give you an idea of what to expect in the future. And with an idea of what to expect in the future, you can confidently plan your business development.
Note: The budget for your restaurant will be essential during fundraising. A banker or investor will certainly request these figures when you present your project. Therefore, you should ensure they are accurate and appealing.
The Information Required to Create a Restaurant Financial Forecast
The financial forecast for your restaurant will depend on the necessary specific data you should gather ahead of time. First and foremost, you must have conducted market research to assess the commercial potential of your location. Conducting market research enables you to answer questions such as:
- What will the average spend be per person?
- How many times will the average customer visit the restaurant in a year?
- What will the seating capacity of your restaurant be?
- How many people are you expecting to come into your restaurant during business hours? During this assessment, you should consider the potential customers nearby, such as office workers, students, and families. Also, divide it into lunch and dinner sittings and on weekends and weekdays.
- What restaurants are nearby? Do they serve the same cuisine as you, or do they have a completely different menu?
Your market analysis will also factor in the marketing strategies you intend to implement to make your restaurant known. Be it the cost of creating your website, advertising, or hiring people to help you distribute flyers on the street, include all marketing strategy costs in your budget.
Furthermore, you will need to create a detailed list of the necessary resources that will help keep the restaurant running daily. You should also ensure you factor in insurance, staff, and the cost of purchasing a liquor license if you want to create a budget that is as feasible as possible.
The Sales Forecast for your Restaurant
Setting out a sales forecast is the first step you should take when creating financial projections for your restaurant. And one of the ways you can start estimating your sales projections is by assessing the maximum capacity of your restaurant. Furthermore, when compiling this data, you need to remember and consider the following information:
- The opening hours of the restaurant
- The number of available seats
- The duration of time each customer spends at the table (table turn time)
- The amount of time it takes the kitchen to prepare the dishes, as well as the acceptable wait time before they get to the table
Once you have determined your maximum capacity, the next thing you should evaluate is the occupancy rate of your restaurant. The occupancy rate measures the percentage of tables customers occupy during peak and off-peak dining hours.
The next thing you should determine after evaluating your occupancy rate is the number of customers likely to enter your restaurant daily based on market research data. After assessing the number of customers that will likely visit your restaurant, the last part you should evaluate is your average revenue per guest. However, the assessment on this part will vary based on your menu prices and the customers your restaurant intends to serve.
The Overhead Budget for your Restaurant
Your overheads are the expenses your business needs to incur for its smooth daily operation. To ensure that the figures for your overheads are as accurate as possible, you need to quantify each expense item using estimates from your suppliers.
Restaurants usually have high overhead costs in terms of payroll. To maintain the smooth running of your restaurant, you will need staff. These include kitchen and dining room staff and seasonal workers coming and going during the summer or winter. As a result, it is therefore critical that you accurately estimate the number of employees you will require by factoring in the number of potential customers, and the amount of staff needed for busy days and times versus slow days and times.
Creating a schedule will help to actually envision how much staff you will need, and it will help answer questions such as do you need everyone working the same hours, or if will it be better to stagger start and end times.
In addition to payroll, your overheads should include utility bills for water, gas, and electricity. Your rent for the restaurant premises should also be part of your overhead.
Required Investments for your Restaurant
Investment plays a crucial role in every business. You will need to make several investments to get your business up and running. And your restaurant business is no exception.
Before launching your restaurant, you must stock your kitchen and dining room with the necessary equipment. Because of this, you need to create a list of all the equipment you will need for your restaurant.
However, this will vary depending on the concept of your restaurant. For instance, let us assume you make your ice cream or bread. It means you will have to account for extra investments. Compare prices for kitchen equipment, furniture, cutlery, glassware, and all other items required for the launch of your business.
The Financial Forecast Tables for your Restaurant
Now let’s look at the financial forecast tables for your restaurant.
#1. The Projected Profit and Loss (P&L) Statement for the Restaurant
The projected P&L table will give you an insight into how your business will grow in the first three to five years. It will also allow you to determine whether it is likely to be profitable or not.
Maintain a close watch on your earnings before interest, taxes, depreciation, and amortization (EBITDA). In addition, keep an eye on your operating costs. The essence of tracking your operating costs and EBITDA is to ensure that your business model is viable.
#2. Your Restaurant’s Projected Balance Sheet
The projected balance sheet table summarizes the assets and liabilities of the company. It will show you the business’s debts, such as suppliers, taxes, etc. It will also give you an overview of what the company owns, such as fixed assets, inventory, etc.
#3. Your Restaurant’s Projected Cash Flow Statement
The projected cash flow statement of your restaurant will assist you in determining the amount of money your restaurant generates or spends. With this information, you will be able to determine whether the restaurant will have enough cash flow to repay its loans and fund the business’s growth in the future.
How you Can Create your Restaurant’s Financial Forecast
At this point, you can see why your restaurant budget is a vital component of your project. Therefore, it is crucial to make it as precise as possible.
On the other hand, this technical step can be difficult. And this is why we are providing you with different solutions to assist you along the way. Listed below are some of the ways you can create a financial forecast for your restaurant:
#1. Using a Spreadsheet
One of the ways you can create your restaurant’s financial forecast is by using a spreadsheet. Spreadsheet software, such as Excel, provides a low-cost solution because you can purchase a license or use a free version, such as Google Sheets.
While it is beneficial, it also has its disadvantages. One of the downsides of using spreadsheets like Excel to create a financial forecast is the ease at which you can make mistakes. As a result, using Excel to create a restaurant’s financial forecast is a better option for those with a strong accounting background and advanced knowledge of financial modeling.
In essence, if you do not have a strong accounting background and advanced knowledge of financial modeling, Excel is probably not the best option for you. Nevertheless, you do not have to panic. There are other options available below.
#2. Hiring a Consultant or a Chartered Accountant
Using the services of a consultant or a chartered accountant will allow you to obtain accurate figures from a professional standpoint. No doubt, hiring a professional to assist you in creating your financial forecast will save you time. However, their professional services come at a price.
At an estimate, seeking professional assistance for a simple three-year financial forecast (including an income statement, a balance sheet, and a cash flow statement) will cost anywhere from around six hundred to several thousand dollars.
#3. Using Online Financial Forecasting Software
Another alternative is to use online financial forecasting software for restaurants. One of the advantages of using this software is you can easily create financial forecasts, letting the software handle the calculations.
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