How To Budget a Restaurant: A Guide for New Restaurant Owners and Managers

With 98% of restaurant operators complaining about the higher labor costs and 97% concerned with higher food costs, learning how to budget a restaurant is more important than ever.

We’ve prepared this guide to help you with the essential steps to create a restaurant business budget, especially for those who are new in the restaurant business.

Also, we’ve included some budgeting tips for Restaurant Managers, steps on how to budget a restaurant, the most common restaurant expenses and benefits of a good restaurant budget plan.

What Is a Restaurant Budget?

A restaurant business budget is a financial plan for your restaurant that outlines expenses and revenue. This helps you set financial targets over a set period (monthly, annually, etc.).

A restaurant budget also helps you manage cash flow, control costs and ensure the profitability of your establishment.

Who Is in Charge of Budgeting in a Restaurant?

Restaurant owners are usually in charge of finalizing the restaurant budget plan, especially for smaller establishments. Restaurant Managers are also in charge of budgeting for all aspects of the restaurant, including back- and front-of-house operations.

Assistant Restaurant Managers can also assist the Restaurant Manager with the budgeting process. They can help keep track of expenses and manage revenue streams.

What Makes a Restaurant Budget?

A restaurant budget plan encompasses different aspects of your restaurant’s financial stability. For any restaurant budget, make sure to include the following:

Let’s go through each component one by one.

Net sales

The term “net sales” refers to the money coming into your restaurant after deducting any discounts, refunds, etc. This includes money from food, drinks and other services.

Net sales = Total sales – (Discounts + Refunds + Allowances)

Prime cost

The term “prime cost” refers to the largest expenses for your restaurant. These are often attributed to the cost of goods sold (or COGS) and the cost of your labor.

• COGS: Money spent on ingredients, beverages and other food items so you can prepare and serve meals for your customers
• Labor cost: Money spent on wages for your staff, taxes and benefits

Prime cost = COGS + Labor cost

Controllable income

The term “controllable income” refers to the amount left after subtracting the prime cost from your net sales. It’s called “controllable” as it shows how well you’re managing costs that you can directly influence, like COGS and staffing.

Controllable income = Net sales – Prime cost

Operating expenses

The term “operating expenses” refers to your restaurant’s expenses for everyday operations. They can include utilities, marketing, emergency and administrative costs. Most of these are fixed costs needed to keep your restaurant running.

These costs can also include technology costs such as point-of-sale systems and other software subscriptions.

Keep in mind that there is no specific formula for calculating operating expenses. Simply just add the various costs of each expense. For example:

Operating expenses = Utilities + Emergency repairs + App subscriptions + Marketing

Net income

This is your restaurant’s profit made after deducting all expenses (including taxes, payroll, rent, etc.) from your total revenue.

Net income = Net sales – (Prime cost + Operating expenses)

4 Steps on How To Budget a Restaurant

Now that you know the items included in a restaurant budget plan, here are steps to draft your own. Check out the items below to prepare your own sustainable restaurant budget plan.

1. Have an Inventory of Expenses and Revenue

List down every source of income and every type of expense for your restaurant. Income refers to the money you make from your food and beverage items, while expenses cover your inventory, rent, utilities and more.

Check out the example below.

Category	Item	Amount
Revenue sources	Food sales	$15,000
	Beverage sales	$4,000
	Small catering orders	$1,000
TOTAL REVENUE		$20,000
Cost of goods sold (COGS)	Food costs	$4,500
	Beverage costs	$1,200
	Total COGS	$5,700
Labor costs	Staff wages	$4,000
	Manager salary	$2,000
	Benefits	$300
	Total labor costs	$6,300
Operating expenses	Rent	$1,500
	Utilities	$500
	Marketing	$200
	Cleaning supplies	$100
	Total operating expenses	$2,300
Technology and equipment	Point-of-sale system fees	$100
	Equipment repairs	$150
	Total tech and equipment expenses	$250
Miscellaneous expenses	Insurance	$300
	Licensing and permits	$50
	Total miscellaneous expenses	$350
TOTAL EXPENSES		$14,900
NET INCOME	TOTAL REVENUE – TOTAL EXPENSES	$5,100

Keep track of fixed costs, semi-variable costs and variable costs. Fixed costs remain the same regardless of your sales or other activities.

Semi-variable costs can stay the same or change depending on the activity or usage. Meanwhile, variable costs can fluctuate depending on your restaurant’s activity or usage.

You also have controllable and uncontrollable costs. Controllable costs are those that you can directly impact as the person in charge of budgeting, while uncontrollable costs tend to be fixed by external factors.

From the table above, here are examples of each one:

• Fixed costs: Rent, insurance premiums
• Semi-variable costs: Utilities, staff wages
• Variable costs: Food and beverage costs, catering costs, cleaning supplies
• Controllable costs: Food, beverage, labor and marketing costs, cleaning supplies
• Uncontrollable costs: Rent, utilities, insurance, licensing and permits

2. Implement an Accounting Process

Now that you know your revenue streams and total expenses, you can take other steps to make sure you’re keeping track of everything correctly and that you have an operational budget.

Point-of-sale systems will be your best friend in your budgeting plan. These can reduce human error and can simplify your budgeting and forecasting for your restaurant.

You can also hire an Accountant and/or Bookkeeper so you can focus on your other equally important tasks. An Accountant can review and analyze your sales, income and expenses, while a Bookkeeper can track, organize and keep your financial records.

3. Set Budget Goals and Monitor Progress

Set specific, measurable and achievable goals to ensure your restaurant’s long-term success. Here are some examples of financial goals you can take on for your establishment:

• Increase bimonthly revenue by 7%
• Aim to reduce food costs by 5% over the next quarter
• Increase net profit by 15% within six months

These goals all have deadlines and can be easily measured and monitored by tracking and analyzing your sales data and financial statements.

4. Manage Labor Costs Efficiently

Labor is definitely one of the biggest expenses for restaurants. Managing labor costs can get tricky and, if not handled properly, may lead to compromised service quality.

Here are some steps you can take for your labor management.

• Schedule staff aligned with peak hours: Know your peak hours and assign more staff to cover the demand. Assign fewer Servers during slow hours. Don’t be afraid to use scheduling software to schedule your staff more easily.
• Track labor hours and monitor overtime: If you see your staff working more than 50 hours in a week, then it’s time to hire more part-time workers, especially during holidays or busy seasons. Make sure to adjust hiring based on demand.
• Keep labor costs under 30% of your total revenue: Keeping your labor costs in check will allow you to save up or invest in other aspects of your restaurant.

Top Expenses of Restaurants

The top expense of a restaurant may vary depending on the type of establishment, the number of your staff, your location and more. However, the following items are usually what make up the top expenses for most restaurants.

Restaurant Expense 1: Food

Food costs are usually the largest expense for most restaurants. Food costs include the price of ingredients, as well as the raw materials used to prepare menu items.

Pro tip: Keep food costs between 28% and 35% of your revenue.

Restaurant Expense 2: Labor

You need people to keep your restaurant running smoothly, so hiring enough people is a must. Keep in mind that aside from wages, labor costs also include the following:

• Job benefits
• Uniforms
• Retirement plans
• Overtime pay
• Insurance
• Training
• Payroll taxes
• Time off

Pro tip: Keep labor costs under 30% of your revenue.

Restaurant Expense 3: Rent

The amount of rent can vary depending on location, the size of the space and the area’s foot traffic and demand. Make sure to check the lease agreement carefully to understand the terms, including rent increase, utilities responsibilities and other additional fees.

Pro tip: When deciding your location, make sure your restaurant’s revenue can comfortably cover rent along with other operational expenses.

Restaurant Expense 4: Marketing

Although marketing expenses are not usually as high as the previous items, it’s a necessary expense that you should invest in. Marketing expenses are usually spent on advertising, social media management, loyalty programs and more.

Always monitor the return on investment from each marketing activity so you know which gives measurable results and avoid overspending on activities that don’t work.

Pro tip: Keep marketing expenses between 3% and 6% of your revenue.

Benefits of Good Restaurant Budgeting

If you don’t have a clear budgeting process, you may find yourself not having enough cash when you need it. Here are at least three benefits of a well-planned, sustainable restaurant budget plan.

Improved profit margins

According to Toast, the average profit margin for restaurants is between 3% and 5%. With a clear budget, you can optimize costs and unnecessary spending, which can ultimately help improve your restaurant’s profit margins.

Better cash flow management

By having a clearer overview of your budget, you can anticipate low cash flow, plan for fluctuations and spikes in sales and avoid expensive mistakes. You can also be better prepared for emergencies, necessary repairs and other unforeseen situations that can impact your finances.

Informed decision making

By having a good understanding of your revenue, sales and income, your restaurant’s management team can make more informed, wiser decisions. This is especially important when it comes to staffing, menu pricing and more.

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