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Introduction to budgeting and forecasting for restaurants
March 15, 2022 at 7:00 AM
Introduction to budgeting and forecasting for restaurants

In the highly-competitive NYC restaurant industry, it’s critical to have a clear picture of your business’s future financial potential if you want to ensure long-term success. An accurate understanding of your past and present finances can help you see into the future.

At its most basic, budgeting and forecasting are about using where you’ve been to get to where you want to be. Although they are closely connected and intertwined, they provide different functions. Understanding these functions is crucial to the success of your business.

Many NYC restaurants look to Vilardi and Co. for these and other financial services. Let us help you understand the basics of restaurant budgeting and forecasting so you’re better prepared for your future.

Use real data

Don’t rely on your gut. Use as much hard data as you have available. Your point-of-sale (POS) likely includes reports for sales and labor data. Your accounting software should generate other necessary financial reports. It is important to have thorough bookkeeping and accounting processes in place and make sure there is a record of every dollar you spend. There will be some educated guesswork, and there will always be things out of your control, but having a budget gives you a framework for the decisions you can control.

Set accounting periods

You can use 12 one-month periods, or 13 periods of four weeks each. For most restaurants, there are consistent busy days of the week. You can generally expect significantly more sales on a weekend night. Therefore, the 13-period method typically offers a better basis for comparison and projection for most restaurants. Every period has the same number of days, and an equal number of each day, i.e. four Mondays, four Saturdays, four Sundays.

Define costs and set budget targets

Gather all of your financial data from the previous 1-2 years, including payroll costs, occupancy costs, controllable expenses, food and beverage costs, etc. Determine which costs are fixed vs. variable, and which costs are controllable or non-controllable. Use this historical data to project future costs and set budget targets. Your budget defines your financial limits so you can maximize profitability.

Forecast sales

If your budget defines your financial limits, your forecast determines what you’ll be able to do within those limits. Start by gathering the previous two year’s sales reports and analyzing them for any trends or anomalies. Was there an event nearby that caused a spike in revenue? Will that event happen again? Were there extreme weather events that negatively impacted sales? Take note of any in-house promotions, menu price increases, or other factors that significantly impacted sales. Use this data to determine your percentage increase in revenue year-over-year for each period. This will give you a baseline number to forecast future revenues. For more in-depth information on forecasting methods, read our Guide to Financial Forecasting.

Bring it all together

Combine your sales forecast with your budget targets to create your projection budget for each period. It should include all of your budgeted cost and sales projections vs. actual costs and sales. This will be your tool for tracking how closely you come to hitting your targets, and for tracking those variances. Bonus tip: include notes about any variances to assist with future budgeting and forecasting.

Know your breakeven point

Restaurant profit can only happen when sales exceed the breakeven point. Profit = sales - (labor + food costs + overhead). It is wise to calculate and be very familiar with your breakeven point. Use this information to make real-time decisions and adjust operations for maximum profitability.

Ensure your success with experienced NYC financial experts

With proper budgeting and forecasting, your restaurant can approach the future with confidence and clarity about its direction. Since 2000, Vilardi & Company has been helping businesses throughout New Jersey and the NY metro area create and implement these financial tools. We want to empower your company’s success, too. Contact us today for a consultation!