Will You Reach Your Budget Goals?
Much like a business plan, a budget needs consistent review and updating. Without comparison to actual performance, it will do nothing for your restaurant.
By building a cadence of accountability and review, you’ll be able to see how good your estimates were and stay on track with improvements as needed.
The Importance of Good Budgeting
In an ideal world, your budget is a perfect reflection of reality, but the restaurant business is a fast-paced world of constant change and uncertainty.
You can’t predict when your dishwasher will give out or when tour buses of guests are going to unload in front of your restaurant (unless of course, they have a reservation).
With good forecasting, you can make strong assumptions about these occurrences. The reality is that your restaurant budget is often a set of informed guesses based on past performance.
Hard Numbers, or What You Can’t Do Without
Some of your budgeted expenses are absolute. Outside of a few select profit-sharing arrangements, your landlord doesn’t care how much business you did this month; they still want the same amount in rent.
This is the place where budgeting and comparison with actuals in hard numbers shines. Ideally, you’ll be far above the minimum for these expenses, so fluctuations don’t put your whole business at risk.
Other expenses will change, though. Your budget probably makes assumptions about sales, then the cost of making those sales. If one varies up or down, the other will too.
For these expenses, it may make sense to set targets around percentages, rather than fixed numbers. That way, if your sales exceed your estimates, you’ll be able to account for, say, the increased food cost to make those sales, so long as the share of expense relative to sales stays in line with your goals.
Consistent tracking of sales, expenses, and performance will give you valuable insight into how well you’re performing and how close you are to your goals over any period.
Looking for a way to keep track of all this? We can help! Give us a call, and we’ll get you set up with a seamless bookkeeping system.
You can’t talk about budgets and actuals without talking about variance. Generally, the variance for restaurant financials is a simple formula:
Actual – Budget
It may help to see this as a percentage, but for most purposes, you’ll be fine with the simple difference calculation. Once you have a variance number, you can look for reasons for it.
Explaining your Variances
Once you have a set of variances calculated, you can do real work on understanding your performance. If the variance is 0, you’ve predicted accurately. If it’s a nonzero value, up or down, you now have a point to begin investigating.
Let’s take food cost variance for instance. There are several reasons your food cost might vary from the budget. A few common causes include:
- Faulty estimates – Did you accurately cost your recipes to account for all factors? Did one of your suppliers change prices or quantities?
- Over-ordering, spoilage, and waste – These are all hallmarks of kitchen inefficiency, all of which can throw off your budget in the real world. If you’re throwing out product unexpectedly, it will show in your actual numbers. By estimating and comparing, you’ll be able to root out problems before they start or understand your true costs of doing business.
- Pilferage – As much as you might want to trust your staff implicitly, there’s always the possibility that a line cook is walking out the door with steaks and chops stuffed under his jacket.
Though this is a small set of examples, explicitly tied to the ways that budget vs. actual analysis can be applied to food cost, the same principles apply to almost every other metric in your restaurant, from beverage cost to labor cost.
Consistent Comparison Drives Results
By regularly comparing your budget figures to actual performance, you’ll keep your restaurant running smoothly and efficiently. You’ll be able to spot underperformance quickly and stop problems before they escalate.
With accurate actuals, you’ll also be able to refine your budget going forward, incorporating changes based on real-world numbers to reflect reality accurately. When you start to work on next year’s budget or even a smaller budget for next month, you’ll be able to get closer to having no variances, putting every dollar where it belongs.
If you’re a restaurant owner looking for guidance on where your money should go,
Arrow Cloud Bookkeeping can provide resources to build an appropriate budget for your business.