Last month, our Restaurant Group blog discussed the importance of determining a restaurant’s break-even point. This month, our focus turns to what the U.S. Small Business Administration (SBA) describes as the “essential roadmap for business success” — a start-up restaurant’s business plan. You have an idea for the perfect restaurant. You have sketched out your ideas on a napkin and now you want to move on to the next step: Drafting a business plan for your new restaurant. The three major components of a good business plan are the financial projections, the investors’ analysis and a growth plan narrative.
Well laid-out financial projections make a statement. To your bankers and investors this represents the roadmap to the future. It presents the financial viability of the restaurant and gives stakeholders the ability to evaluate their risk and reward. It also gives them comfort knowing that you see the big picture and have the business acumen to run your restaurant as a business enterprise.
Your financial projections should include forecasts of your pre-opening costs and your first five years of operations. The three main components of your financial projections are income statements, balance sheets and cash flow statements. To build your statements, you will need to develop sub-section statements which will flow into your main statements.
These sub-sections include:
- Capital Budget
Here, you will detail costs such as construction; permits; furniture and equipment for your bar and kitchen; outside services, including accounting, legal and design; exterior needs, such as landscaping and parking lot; pre-opening expenses, including inventory, menu development, uniforms, training, marketing et al.; and reserves for contingencies and working capital.
- Sales Projections
Develop your sales revenues forecast by projections per day; per meal period; per category (food, liquor, beer, wine); table turns and covers (restaurant capacity times table turns). You will separately need to consider special event revenue.
Costs for each sales category should be estimated based on a percentage of revenue.
- Labor Projections
These projections are crucial. Hourly labor costs will be one of your largest expenses. Based on your sales projections, determine the number of hourly employees needed for each position to staff the restaurant and apply an average hourly salary. Identify your management needs, including general manager, chef/kitchen manager, sous chefs, assistant managers, et al. Separately, determine payroll taxes, workers’ comp, health insurance premiums and other employee benefits.
- Other Costs
These items include direct operating expenses; occupancy costs; general and administrative expenses; repairs and maintenance; credit card charges; depreciation and amortization; and interest.
- Marketing Expenses
These include promotions, advertising, marketing programs and social media.
Use your cash-flow statement to track not only cash flow from operations, but also from debt financing, loan principle repayments, additions to furniture and equipment, investors’ equity contributions and distributions.
Investors’ Analysis by Investor Type
Sources of investor funds will include capital contributions from, and the distributions to, each type. This section should also present each investor type’s internal rate of return (IRR) after five years.
Growth Plan Narrative
This section will include your summary of significant assumptions, including year-to-year percentages of increase in revenues, cost of sales, wages, and operating expenses.
You should develop three sales scenarios: worst case, anticipated, optimistic. Use the anticipated scenario in your projection, but disclose the IRR for the other scenarios. Discuss your marketing initiatives.
Finally, compare your projections with industry standards. For example, a typical rule of thumb for hourly labor costs at a table-service restaurant is 18-20 % of sales.
For more tips on how to create a business plan for your restaurant, contact Bob Rifkin at 312.670.7444. Visit ORBA.com to learn more about our Restaurant Group.