Why Are Restaurant Budgets So Important?
In the past, during new client reviews, we took a handful of financial key indicators – revenue, discounts, cost of goods (food and beverage costs), labor cost, gross profit, net profit, and cash flow – and compared them between clients who utilized a budgeting tool against those who did not. Restaurants that utilized a solid budget performed better in EVERY category identified above.
Top 4 Restaurant Budgeting Lessons:
1. Stay the course
Operations that budgeted costs were in line as compared to their budgeted revenue figures. They were able to make adjustments for unforeseen circumstances and maintain consistent profitability (i.e. they allowed themselves to become proactive restaurant operators as opposed to reactive restaurant operators… big-time bonus to tipping the profit scale in the right direction).
2. Budget efficiently
Operations that did not budget consistently, consistently ran into a cash crunch that stemmed directly from a lack of knowledge on when to purchase equipment, pay for advertising or other marketing services, or miscalculating their tax obligations.
3. Budgets matter no matter your restaurant size
Whether a restaurant did 1 million or 5 million in sales, the percentage of decrease in costs and retained earnings was almost the same. Simply stated, there is just as much money left on the table in large organizations as there is in small ones.
4. Budgets can help reduce turnover
For restaurants that budgeted properly, turnover was lower, significantly lower! Now don’t get confused here; this isn’t about forecasting or scheduling. This is about understanding how much the operation is spending on hiring, training, and providing for their employees.
3 Reasons That Restaurants Don’t Budget
There’s always an unglamorous reality check involved in these types of reviews as we discuss our analysis results with the clients who don’t have a budget. When asked why they didn’t have a budget in place, the top three reasons, in order, are outlined below:
1. Bad habits and routine
Most operators stated that routine consistently won the battle over what’s best for the business.
2. Paralysis by analysis
Some operators mentioned that they would spend too much time focusing on too many non-critical areas of their operation and they simply got lost in the analysis of all the numbers.
3. Lack of discipline
Even though they agreed to the importance of a budget, some operators admitted that they felt that budgets are too hard to update on a regular basis, or they did not have enough time to spend updating it correctly.
A budget is as critical to a restaurateur as a lighthouse is to a sailor. Both can be the key element between you surviving or dying during rocky times.
Ask yourself these questions and allow your answers to determine your next action:
- How much profit do you believe you can realistically earn from your operation in the next year?
- What are 3 areas that can potentially have the greatest impact on reducing your costs?
- How will the reduction in costs for these areas impact the guest experience?
- How will they affect your employees?
- What are the 2 ideas that you have for increasing your revenue?
- How will these ideas increase your bottom line without affecting your guest and your employees negatively?
Operational budgets can seem like a total beast if you don’t know where to start. However, they do not have to be complicated!
Here at RASI failure is simply not an option; we’re powered by restaurant industry-specific management system backed by a team of knowledgeable experts who are here to assist you in succeeding.
Stay tuned for our upcoming blogs about the importance of budgeting for your restaurant where we’ll cover the Decision Making Triangle. Don’t know what that is? Check out the rest of our Resource Center… we’ve mentioned it before (a time or ten)!