A restaurant budget for the year ahead

Last year's budget took an afternoon. It started with the sales the owner hoped for, added a ten per cent rise because it felt right, divided by twelve and set costs against it. By March, the venue was behind every month; by July, nobody looked at the budget at all. A restaurant budget built on hope is abandoned as soon as reality arrives. One built from covers, month by month, with the venue's own seasons in it, becomes the tool the owner steers by all year.

A good budget answers simple questions in advance: how many guests will we serve each month, what will they spend, what will it cost to serve them, which months will make money and which will lose it, and when will the cash run tight? It does not need to be complicated. It needs to start from what the venue actually does, not from what the owner would like it to do.

This guide covers how to build a restaurant budget from covers, month by month, with seasonality, fixed and variable costs, labour and cash flow in it, the two months worth being pessimistic about and how to use the budget through the year. Every venue and figure in it is an example.

Most restaurant budgets fail for the same reasons. They start from a sales target rather than from covers. They divide the year into twelve equal months, ignoring the seasons. They leave out costs that arrive quarterly or annually. They treat every cost as either fixed or variable without thinking. And once written, they are never compared with what actually happens.

Each of these is fixable. A budget built from covers, with real seasons, all the costs and a monthly comparison, stays useful long after the afternoon it was written.

A budget is a plan for income and spending over a period. A restaurant budget sets out, month by month for the coming year, the expected covers, sales, costs and profit, so the owner can see in advance how the year should unfold and notice quickly when it does not.

It is a plan, not a prediction. It will be wrong in places. Its value is in making the assumptions clear, so that when the year differs, you can see which assumption was wrong and what to do about it.

Start with covers, not sales. Covers are what the venue can count and plan for: how many guests each service will serve, based on what it served last year and what has changed. Sales follow from covers and spend, and costs follow from sales and covers.

Building from covers keeps the budget honest. A sales target of "ten per cent more" means nothing until you ask how many more guests that is, on which nights, and whether the room and the team can serve them.

Take last year's covers, month by month, and if you can, service by service. They are the foundation, because they reflect the venue's real pattern: its busy and quiet months, its strong and weak services. If you have more than a year of history, look at two years to see whether the pattern repeats.

Note anything unusual in last year: a month the venue closed for repairs, an exceptional event, a new competitor nearby. Adjust for these, so the budget does not copy a one-off into the coming year.

Then adjust last year's covers for what will be different this year. Is trade growing or shrinking? Is a new menu, a refurbishment or a price change planned? Will the opening hours change? Are there events in the calendar that were not there last year?

Be specific about each change and its effect, and be cautious. A budget that assumes every change will add guests is a budget built on hope by another route.

Where you can, budget covers by service: lunch and dinner, weekdays and weekends. Services differ in trade, spend and cost, and a budget that lumps them together hides where the money is made.

It also helps later. If the year falls behind, a budget by service shows whether the gap is in weekday lunches, weekend dinners or somewhere else, which points straight to what to do.

The budget is also the moment to question when you open. A service that rarely covers its own labour and energy, such as a quiet Monday lunch, shows up clearly when covers are budgeted service by service. Closing it, or opening later, may cost a few covers and save more than those covers contribute.

Budget any change to the opening hours in the month it starts, with the labour and energy it saves alongside the covers it loses. Then check the result against the budget for a few months: some guests move to another service and some go elsewhere, and only the actual figures will show which happened.

Next, estimate spend per cover for each service, from last year's figures, adjusted for any price changes and changes to the menu. Spend per cover often differs widely between lunch and dinner, and between weekdays and weekends.

Be careful with price rises. A price rise usually raises spend per cover, but it may also reduce covers a little, especially for price-sensitive services. Allow for both.

If you plan to change menu prices during the year, put the change in the budget in the month it happens, not spread evenly across the year. A price rise in the spring lifts spend per cover only from that month, and it may lower covers slightly for a few weeks while regulars get used to it.

Budget supplier price rises the same way. If your main suppliers have told you their prices will rise, or energy and rent are due for review, put the higher figures in the month they take effect. A budget that assumes this year's costs for the whole of next year will look better than the year turns out.

Multiply covers by spend per cover for each service, and add up the services, to get sales for each month. That is the top line of the budget, built from the bottom up.

Compare it with last year's sales and sense-check it. If the budget shows sales twenty per cent higher than last year, ask what exactly will produce them. If the answer is not clear, the budget is too optimistic.

Seasonality is the most important thing a budget can capture. Most venues have months that are much busier and much quieter than the average, and a budget that ignores them makes the quiet months look like disasters and the busy months like triumphs, when both are simply following the pattern.

Building from last year's monthly covers puts the seasons in automatically. Our guide to seasonality: planning for the quiet eight weeks covers how to map and plan for the quiet stretch.

Variable costs rise and fall with sales: food and drink, card fees, commissions, packaging and some labour. Budget them as a percentage of each month's sales, using last year's percentages adjusted for any changes, such as supplier price rises or a new menu.

Getting the split between fixed and variable costs right matters, because it decides how the budget responds to busy and quiet months. Our guide to fixed and variable costs: the split that decides covers how to sort each cost.

Fixed costs stay the same whatever the trade: rent, rates, insurance, salaries, loan repayments, software and service contracts. Budget each one in the month it is actually paid, or spread evenly if you prefer, but make sure costs that arrive quarterly or annually are included.

Missing fixed costs are one of the most common budget errors. Go through last year's bank statements and accounts line by line, so nothing that recurs is forgotten.

Labour is the hardest line to budget, because it is partly fixed and partly variable. Budget salaries as fixed. For hourly staff, budget the minimum team for each service as fixed, and the extra hours for busy services from the covers, using your usual covers per hour worked.

Check the labour budget against the trading pattern: busy months should carry more hours, quiet months fewer. A labour budget that is the same every month will be too high in the quiet months and too low in the busy ones.

Subtract variable and fixed costs from sales for each month, and you have the budgeted profit or loss month by month. Expect some months to show losses: for many venues, the quiet months do, and the busy months make up for them.

Look at the whole year and at each month. The year's total shows whether the plan works; the monthly results show when the venue will need to lean on the profit from other months.

Every budget should be pessimistic about two months: your two quietest months of the year. For many venues, they come together, often straight after the busiest season. They are the months when trade is lowest, costs barely fall and cash is tightest, and they are the months most often over-budgeted.

Budget them below last year's figures unless you have a strong reason not to, and plan what you will do if they come in lower still. If the budget works with pessimistic quiet months, it will survive the year. If it only works with optimistic ones, it is fragile.

A budget shows profit; cash flow shows when money actually arrives and leaves. A venue can be profitable over the year and still run short of cash in a particular month, because bills from a busy season arrive in the quiet months that follow, or because a large annual payment falls at the wrong time.

Add a simple cash flow view to the budget: the cash at the start of each month, what comes in and goes out, and the cash at the end. Our guide to cash flow: profitable and still short in January covers how it catches venues out.

Budget for capital spending too: new equipment, repairs that cannot wait, a refurbishment, a replacement for the dishwasher that is near the end of its life. These are not monthly running costs, but they need cash, and they often arrive at inconvenient times.

List what is likely to be needed in the coming year, estimate the cost and decide when to do it, ideally in a month with enough cash and enough quiet to manage the disruption.

Things go wrong in every year: equipment breaks, a key member of staff leaves, a supplier raises prices, a road closure empties a month. Build a small reserve into the budget, or plan for one in cash, so the unexpected does not become a crisis.

A budget with no room for the unexpected is a budget that will be wrong by spring. A modest reserve, set aside from the busy months, turns most surprises into inconveniences.

The budget is most useful when a few restaurant KPIs are tracked against it each month: covers, spend per cover, sales, food and drink cost as a percentage of sales, labour as a percentage of sales, prime cost and the bottom line. Each shows whether the month is on budget and, if not, why.

Keep the list short, and look at it every month. Our guide to restaurant KPIs worth tracking every week covers which numbers matter most.

Each month, compare the actual figures with the budget, line by line. Where they differ, find out why. Fewer covers than budgeted? Lower spend? Higher food cost? Each difference points to a different action.

The comparison is the whole point of the budget. A budget that is written and never compared is just a hope with numbers in it. One that is compared every month is a tool that shows where to act, while there is still time.

Halfway through the year, reforecast the remaining months. Keep the original budget for comparison, but update the forecast for the rest of the year with what you now know: the trend so far, changes in costs, new plans.

A reforecast keeps the plan realistic. It may show that the year will end better or worse than budgeted, and it gives you six months to do something about it rather than discovering it at the year end.

A new venue has no history, so its budget has to start from assumptions: the covers it expects, based on similar venues and its capacity; the spend per cover, based on its menu and prices; and its costs, based on quotes and contracts. Be especially cautious with the first few months, when trade builds slowly.

Compare the budget with the break even point. If the venue only breaks even at a level of trade it is unlikely to reach for months, plan the cash to cover that period. Our guide to break even point: the covers you need by Tuesday covers the sum.

In a group, budget each venue separately, from its own covers, seasons and costs, and then add them up for the group. Shared costs, such as a central office or group marketing, should be budgeted at group level and shared between venues in an agreed way.

Each venue's manager can own their venue's budget, which makes them far more likely to manage to it. The group view shows the overall picture and which venues are ahead or behind.

Involve the people who will manage the budget. The head chef knows what food costs are likely to do; the manager knows what the rota needs; each can contribute to their lines and take ownership of them.

A budget the team helped build is a budget the team works to. One handed down from the office is easily ignored, especially when it does not match what the team sees every day.

An invented bistro builds its budget from last year's covers, service by service and month by month, adjusted for a planned price rise and a new Sunday lunch. Spend per cover comes from last year, raised by the price change for dinner but not lunch. Variable costs are budgeted as last year's percentages; fixed costs are listed line by line from the bank statements, including the annual insurance and the quarterly energy bill.

The owner budgets January and February below last year, as the two quietest months, and the budget shows losses in both, covered by profit from December. A simple cash flow view shows cash will be tightest in early February, so she plans to set aside cash from the festive weeks. Each month, she compares actuals with the budget, and in July she reforecasts the second half of the year.

servearound does not build budgets or hold costs, so the budget in this guide lives in your own spreadsheet or accounting tool. What it gives the budget is last year's trade, month by month: reservation analytics show covers day by day and by meal period for any range of dates, payment analytics show what was collected by day and how it was tendered, and the dashboard shows revenue, covers and spend per cover against the previous period.

Through the year, the same reports give the actual figures to set against the budget each month: covers, spend per cover and revenue from the dashboard, covers by service from reservation analytics, units and revenue by dish from the menu report and, for a group, the dashboard across all venues or for one. See Analytics.

With covers, service by service and month by month, from last year's figures.

Multiply budgeted covers by spend per cover for each service, and add them up.

As a percentage of each month's sales, from last year's percentages adjusted for changes.

Your two quietest months of the year.

Because a venue can be profitable over the year and still run short of cash in a particular month.

Every month, line by line.

Keep the original, and reforecast the remaining months halfway through.

The people who will manage the lines: the head chef, the manager and, in a group, each venue's manager.

A restaurant budget for the year ahead should be built from covers, not hope: last year's covers by service and month, adjusted for real changes, multiplied by spend per cover to give monthly sales. Budget variable costs as a percentage of sales, list every fixed cost in the month it is paid, budget labour from the minimum team plus the extra hours busy months need, and let seasonality show in every line.

Be pessimistic about your two quietest months, add a cash flow view and a reserve for the unexpected, and plan capital spending. Then compare actuals with the budget every month, tracking a few restaurant KPIs, reforecast halfway through the year and involve the people who manage each line, so the budget stays the tool you steer by.