Say you’re opening a sit-down bistro known for remarkable steak frites, a family-owned convenience store right on your block, or a specialty liquor store with high-end wines. At some point, you’ll need to sit down and figure out your business budget plan.
We know. Budgeting might not be fun. But it’s an integral part of building any small business and a key factor in maximizing profits. Without a small business or restaurant budget, your bottom line could quickly fall victim to unexpected costs and expenses, an unfortunately common fate. According to FSR Magazine, 60% of restaurants don’t survive into their second year, and 80% go under within five years, mainly because they don’t account for rising wages and food costs.
It’s also important to factor in the amount of time it takes to become profitable. The Restaurant Times reports that it takes quick service and casual dining restaurants an average of three to six months and 18 months, respectively, to become profitable, while fine dining restaurants generally don’t break even for at least two years.
The bottom line? You’ll need to spend your money wisely to sustain your business through its most challenging time — the beginning. Luckily, building a business budget plan can help. Here are a few pointers to get you started.
Before you can create a business budget plan, you need to know how much revenue your business will generate each month. Of course, it can be tricky to calculate revenue when you’re just starting out. Established restaurants and stores can use last year’s numbers to calculate their projections, but you’ll have to simply estimate to the best of your ability.
Retailers like convenience stores and liquor stores can estimate potential sales by analyzing local foot traffic. If your budget is limited, you can simply stand outside your building with a clicker counter and track traffic manually. On the other hand, if you have resources to invest in a demographics tool, you’ll gain insight into the types of consumers in your area, not just the number of potential ones.
For restaurants, the process is a bit simpler. Start by determining the number of seats in your establishment and estimating how quickly each table will turn over. If you multiply the expected number of guests each day by their anticipated order cost, you’ll have a rough estimate of your revenue — but remember, this is not the same as profit. Your revenue will be the amount of money your restaurant brings in before costs like food, labor, rent, and equipment are taken into account.
Pro tip: If you plan on offering takeout or delivery through DoorDash, your revenue could be even higher. These services allow you to increase the number of customers you’re serving regardless of your restaurant’s in-house capacity. For insights into what customers crave most, check out the 2021 Restaurant Online Ordering Trends report.
Business expenses for restaurants
Now that you have a rough idea of your income, you can start thinking about how much to allocate toward major expenses like labor, rent, and inventory. With these tips, you can create a restaurant budget that takes common beginner challenges into account, from managing inventory to hiring the optimal number of workers.
Food and alcohol spend
The first order of business for any fresh restaurateur is, of course, the food — and it requires a sizable investment. According to Toast’s Restaurant Success Report, 52% of restaurant professionals struggle most with high food and operating costs. The best way to get — and stay — ahead of food costs is by building them into your restaurant budget plan from the start.
- Step 1. To determine food costs and menu prices, begin by evaluating the number of ingredients in each dish. For instance, if you plan on serving chicken tikka masala, you need chicken breast, yogurt, and garam masala. But you also need a wealth of additional ingredients — black pepper, cumin, paprika, cayenne, lemon, and ginger. The more sophisticated and complex your menu items are, the more costly your ingredient list will be. Be sure to account for all of the hidden costs in your dishes and factor them into your budget before finalizing your menu.
- Step 2. Sourcing is the second major factor in determining food spend. It’s important to find local purveyors you can rely upon while relentlessly tracking and optimizing your spending. If you can, compare all purveyor options and prices at the outset. Buying food in bulk can further cut costs, but you may have to adjust over time to reduce food waste and spoilage. Although seemingly small, these changes can add up to big savings.
- Step 3. As you start lining up your menu, you’ll also need to decide on a food cost percentage, or the portion of sales spent on food. If you don’t know how much of your sales you’re spending on inventory, all of your other budget items can become skewed and lead you dangerously close to the red — without you even realizing it. At most restaurants, food cost percentage falls between 28-32%.
- Step 4. With an ideal food cost percentage in mind, it’s time to calculate your restaurant’s anticipated percentage. To do so, simply add up the ingredient costs for each standard menu item and divide the raw food cost by your ideal food percentage. In other words, divide your cost of goods sold (COGS), or the amount you’ve spent on ingredients and inventory over a determined time period, by your total sales.
Clearly, sales volume is a big part of this equation. It can be impacted by restaurant hours, estimated number of covers (e.g. the people you’re feeding), and how many pickup and delivery orders you’ll fill — in addition to your on-site service. Projecting sales volume can help inform a lot of financial decisions, and if you’re not happy with your food cost percentage, finding a way to increase your sales volume can be a big help.
Labor costs are another major consideration in your restaurant budget. Think about who you’ll want — and who you’ll absolutely need — on your team.
- Step 1. Determine how many front-of-house staff members are essential. How many servers for Saturday night? What about Sunday brunch? A slow Tuesday evening? Will you need a host, sommelier, bartender, or barback? Quantifying your team is a delicate balance. While labor costs go up with each employee you hire, they also boost overall efficiency and productivity.
- Step 2. Next, calculate your back-of-house needs: a head chef, line cooks, bussers, and so on. How many are required to meet the bare minimum of operation, and how many more to speed things up? These choices are all up to you, your projected sales, and what sort of restaurant environment you’re hoping to create. Once you decide on a starting point for your team, add up their hourly wages, and determine your total labor costs — then factor that into your budget plan.
Perhaps you create a short-term plan now, and a long-term plan as you expand. But while you quantify your team, don’t forget to qualify it. You want the right people at your restaurant — people who love what they do and believe in your restaurant’s overall mission. Building a team that cares about your restaurant may take some time. But ensuring that all of your hires are within budget will take away the added stress of hidden labor costs, and let you focus on what matters most: finding the best person for each job.
Rent is going to be a main factor in determining a location for your restaurant. A budget can help you determine what you can afford and where you should be cutting costs to better accommodate your rent — or vice versa. Consider following the rule that suggests rent expenses stay within 10% of a restaurant’s gross sales. This can help ensure that your location isn’t doing your establishment more harm than good.
Ideally, your restaurant location should be an asset, helping you cater to your target market, bring in customers that are excited and passionate about your food, and put you on the map in a place where the word can easily spread. But, of course, working within your square footage needs and your allotted budget are necessary concerns — especially if you want to make it through slow patches without your rent becoming a threat to your business.
So, finding a location that allows you to reach your target market, but still meets your square footage needs and your budget — even when sales may be down — is key. And accounting for all of this from the start is the best way to keep food cooking and your doors open.
Business expenses for convenience stores
- Rent. Location can make or break your business. Take foot or car traffic into consideration when choosing a place to rent, as well as any nearby competition. At the same time, you’ll want to honor the same 10% rule as restaurant owners. Keeping your rent in the 5% to 10% of revenue range is generally advisable if your budget permits.
- Inventory. Gone are the days of popping into a convenience store only to find soda and chips. In 2019, CNBC reported that fruits and vegetables sold just as well at convenience stores as popcorn and pretzels. As people seek out more produce and healthy prepared meals, you’ll have to factor the price and shorter shelf life of these perishable items into your business budget plan.
- Fuel. Around 80% of convenience stores in the U.S. sell motor fuel, and 80% of all motor fuel sales occur at convenience stores, the NACS reports. If you plan on offering gasoline or another type of fuel to entice customers to stop at your store, your upstart costs will be higher. Factor in necessary licenses and permits, the costs of upgrading the facility, and any inventory to get you started.
- Licensing. Similar to fuel, you will need a license to sell a few popular convenience store items, like tobacco and lottery tickets. Additional permits may be required, too, like occupancy and sales tax permits. These add up quickly, so be sure to do your research.
Need a way to reach new customers and bring in more revenue? DashMart is a retail platform designed specifically for convenience stores. Simply submit your inventory and the DashMart team will help you list products on the platform where hungry customers can easily find them.
Business expenses for liquor stores
Planning on opening up a liquor store? Unlike restaurants and convenience stores, liquor stores don’t need to worry about managing much perishable inventory. Most alcohol is shelf-stable and doesn’t need to sell as quickly as pantry staples like milk, eggs, or prepared foods. That said, you will still need a budget to ensure your store has a smooth takeoff.
- Rent. Like restaurants and convenience stores, you’ll want an affordable lease with a good location. Aim for the same goal of allocating 5% to 10% of your revenue toward rent to keep your budget manageable.
- Inventory. Although alcohol is more shelf-stable than most food items, it’s quite expensive. To stock your store, you’ll need plenty of capital to purchase pricier beverages like wines and liquor — potentially hundreds of thousands if you’re opening a big store with a wide selection. Buying in bulk can help keep these prices down.
- Liquor License. The alcohol industry is highly regulated, and in order to sell liquor, you’ll need to secure a permit through your local government. According to NerdWallet, these can range anywhere from $300 to $14,000 depending on where your store is located.
Don’t forget that every city, county, and state has different rules and requirements governing the hours and days of the week when you can sell alcohol. These restrictions can affect your overall sales, so be sure to take them into account when projecting income.
Continuing to monitor your budget
Now that you’ve built a small business budget plan, you can sit back and relax, right? Not so fast. After opening your new business, you’ll need to constantly adjust your budget to maintain healthy books and records. This will become even more important as you add in expenses over time, like maintenance and repairs or marketing and advertising.
Fortunately, smart point-of-sale (POS) technology can help you optimize your revenue once your business gets off the ground. When you’re ready to add digital ordering into your restaurant or small business’s capabilities, the DoorDash Merchant Portal can provide you with a new perspective on what’s working and what’s not. Gain valuable analytics about your top-performing items, customer ratings, and new and repeat patrons.
If you’re looking for a way to build a bit more wiggle room into your business or restaurant budget plan, learn more about partnering with DoorDash — and all the added revenue you can bring in. And for extra budgeting help, download our easy-to-use Restaurant Budgeting Template.