Many restaurants open and close within months. Their failure can be attributed to many things, but revenue (or the lack of it) is often one of the biggest reasons. Upon inception, restaurants, like many other new businesses, go through a teething stage. During this time, the restaurant needs to find its feet and build its customer base. At this stage, it’s safe to assume it will not be generating as much income as it will once it’s established.

As a result, restaurant financial managers need to create realistic projections to ensure there is sufficient accessible capital, and income flow, to take care of overhead and operational costs for around six months. Many restaurant owners face the challenge of creating forecasts with a degree of accuracy. It may take long, but without investing some time in accurate financial projections, you’ll struggle to find investors and hamper your establishment’s hopes for success.

You’ll need to build a three-year forecast, with detailed plans for year one. The best way to ensure your financial projections are accurate and thorough is to pay attention to the following:

Prioritise expenses

You have a lot more control over your expenses than your revenue, so start by listing these first. Build a list of common categories that expenses fall into, and if you don’t quite know what these are, ask your accountant to help. Overhead costs include rent, salaries, utilities, marketing, franchise, legal and other fees. There are also variable costs such as direct labour and inventory costs.

View revenue from both angles

When you forecast revenue, financial projections are often one of two polar opposites: highly optimistic or realistically conservative. But this could easily demotivate your team or cause unrealistic expectations. Experts advise creating two sets of revenue projections, one conservative and one aggressive. By doing this, you will ensure that you make safe financial calls based on your conservative assumptions that can ease up when revenue streams are steady.

Ensure key ratios match projections

After creating optimistic revenue projections, restaurant owners tend to focus on reaching their revenue goals thinking that expenses can be adjusted if they don’t generate as much revenue as expected. Regardless of what happens with revenue, you still need to be able to pay fixed overhead costs.

Reconcile your revenue and expense projections in the following ways:

  • Look at the ratio of total direct costs to total revenue during a specific timeframe. Aggressive optimistic projections that increase your gross margin by a significant percentage are warning signs.
  • Watch the ratio of total operating costs to total revenue. It needs to portray a positive movement and operating costs must remain small when measured against revenues. Don’t forecast this break-even point too early and allow your restaurant enough time and financing to reach this point.

Creating accurate financial projections for your restaurant will take time and require a few revisions, but this will ultimately support your business and enable growth. From here on, restaurant owners have intuitive tools available to streamline fiscal management like point of sale systems that integrate to leading accounting software.