Restaurant Budget Writing 101
QUESTION From: Erin in NJ
“ I know this is gonna sound pretty pathetic but I’ve been reading a lot of your articles and keep coming across talk about ‘P&L’ and ‘Pro Forma’. I know it’s important to track costs and sales but our POS does all that for us.
We run reports at the end of each week and save them for our accountant. I want to forecast our sales more accurately and improve profits and realize that a P&L would help us accomplish that so how exactly do I create one? Can you help to just get me started with the basics? Thanks!”
HH ANSWER:
Great Question! I have a feeling more of our readers will benefit from your question than they’ll admit as I often encounter operators who need a lot of direction and hand-holding when setting up their financials (budgets, and tracking systems).
As those who have attended the Auguste Escoffier School of Culinary Arts can tells you “Chefs are responsible for a lot more in a restaurant than just cooking the food! They also have to design recipes, place orders, establish the cost of each dish, and figure out how much to charge for them. This is all part of managing the restaurant’s food costs and Math Mastery is one of the four key non-culinary skills that chefs must have, and these can be the difference between a brilliant career and an ordinary one.”
Most restaurants leave a tremendous amount of money on the table because of three reasons:
Inadequate Training
Not Accurately Tracking or Forecasting Financials
Poor Menu Development & Pricing
Transaction Data and financial reports are only as valuable as you make them. Printing them out and handing them off to someone does absolutely nothing to facilitate an understand of how your business is doing and how to make it better.
Now I know that not everybody has a head for numbers but if you’re running a business you really ought to force yourself to, at the very least, record sales and cover counts daily… along with some details re: whatever makes each day different from another (from day of the week and weather to specials you may have run and local events ) in a manager’s log or Red Book.
Doing this will help you, over a short period of time, establish a baseline that, overtime and with context, will serve as the basis for not only more and more accurate forecasting - but for also updating your annual budget and readily identify over-spending, waste, undercharging, overcharging and any lack of consistently before it makes too big of an impact on your bottom line or negative guest perception.
I know it’s a bit cliché but… If you want to improve some thing you really do have to be measuring it.
Think of your Restaurant’s P&L as a checking account ledger for each and every category of items that cost you money and make you money....all combined into one big chart.
The P&L (budget) and Pro Forma (trailing tally of current performance) should be broken down by month and since most costs are also expressed as both a monetary value AND as a percentage of revenue, you will first have to determine your average guest check and then forecast the number of guests ea month. (This article should help with that: https://www.hospitalityhelpline.com/finance/2019/2/22/target-percentages)
Once you have that baseline of guests and gross revenue established, you should have a row for each of the following items that runs across and through each monthly column whether it’s in excel, numbers, Quickbooks or whatever chart / accounting system you’re using.
Keep in mind that the overall general target cost (AKA “Prime Cost”) which includes your biggest P&L impact items is typically 60-65% of your Gross Revenue.
i.e.,
Total labor 30-35% (mgmnt at 10%)
+
Total Cost Of Goods Sold (23-30%)
Divided by Gross Sales
(For more info on Pricing and Costing - check out this article: https://www.hospitalityhelpline.com/new-blog-1/2018/4/16/2-equations-every-restaurant-manager-should-know)
(For more info on Inventory & Ordering - check out this article: https://www.hospitalityhelpline.com/tech/2019/9/2/taking-control-of-your-restaurants-inventory-management-system )
Of course there are exceptions to every rule but unless you’re in a “billboard” location, selling incredibly expensive (or inexpensive food), modeling your concept based on DNEtProfit or hiring an abundance of highly skilled labor due to a unique concept - a 65% prime cost should get you in the right ballpark.
HERE’S A LIST OF THE ITEMS THAT YOUR P&L (budget) & ProForma (trailing ledger) SHOULD ACCOUNT FOR:
SALES
Dine In Sales
To Go Sales
Delivery Sales
Third Party Delivery Sales
Catering Sales
Gift Card Sales
Total Food Sales
Delivery Fee Income
Total Gross Sales
COST OF GOODS
Food Cost
Packaging Cost
Total Cost of Goods
Total Cost of Goods Less Food Discounts & Rebates
Gross Profit on Sales
Other Income
Gross Profit and Other Income
PAYROLL EXPENSES
Management Salaries
Manager Salaries
Manager Salaries OT
Bonus Expense
Supervisor Payroll Expense
Supervisor OT Payroll Expense
Total Management Salaries
Hourly Wages
Hourly Crew Payroll Expense
Hourly Crew Overtime
Total Hourly/OT Expense
Employer Payroll Expense
Group Insurance- Management
Empr Medicare Expense
Empr Social Security Expense
FUTA Expense
SUTA Expense
PTO Salary Expense
Workers Compensation Ins Expense
Total Employer Payroll Expenses
Employee Benefits
Employee Incentives
Manager Meals
Total Employee Benefits
Total Payroll Expense
CONTROLLABLES
Administrative Expenses
Menus Expense
Business Travel Expense
Cash Over/Short
Computer Supplies Expense
Coupons
Delivery Process Fees
Delivery Fees
Third Party Fees
Dues & Subscriptions
Fed Ex/UPS Expense
Gift Card Expense
Internet Service Expense
Late Fee/Finance Charges
Non-Payroll Training Expense
Office Supplies Expense
Printing Expense
Promo Food
Promotion (LSM) Expense
Promo LSM - Dining to Donate
Recruiting Expense
Total Administrative Expenses
Restaurant Expenses
Cleaning Supplies Expense
Ecolab Product Expense
Restaurant Supplies Expense
Laundry Expense
Paper Products
Smallwares Expense
Total Restaurant Expenses
Operating Expenses:
Cable Service Expense
Common Area Maint
Grounds Maintenance Expense
Janitorial Services Expense
R&M - Equipment & Fixtures
Telephone - Long Distance
Telephone - Regular
Trash Removal
Uniform Expense
Utilities - Electric
Utilities - Gas
Utilities - Water
Total Operating Expenses
Total Controllables
Unit Contribution
NON CONTROLLABLES
Accounting/Auditor Fees
Advertising Expense - 4 Walls
Advertising Expense - Local
Advertising expense - National
Third Party Processing Fees
Technology Stack(s) Cost
Amortization Expense
Bank Charges
Delivery CC Fees
Online Ordering CC Fees
Depreciation Expense
Employee Hotline Service
Equipment Rental/Lease Expense
Franchise Royalties Fee
Group Benefit Plan YE Adj
Insurance Expense
Interest Expense
Legal Fees
License & Fees
Management Fees
MC/Visa Expense
POS Support
Penalty Expense
Rebates
Real Estate Tax Expense
Rent - Building
Rent - CAM
Rent - Percentage
Rent - Straight Line
Vacation Pay YE Adj
Total Non-Controllable Expense
NET INCOME (LOSS)
Hope that helps! If you could use a hand to get up to speed a little quicker, please don’t hesitate to reach out directly.
Regards,
Josh Sapienza | Managing Partner
UbiquityAdvisors.com & Paire.io: The Dating App For Your Taste Buds