Restaurants are like roller coasters: The elation from the high quickly diminishes from a rapid, frightening steep plunge. And just like a roller coaster ride, a plunge in the restaurant business is often followed by another high.
The ups and downs of culinary consumption can come and go as quickly as the boardwalk ride, or they can linger for what seems like months on end depending on the financial situation.
The good news: We are in complete control of fluctuating finances because of the percentage structure the foundation of the business is based on.
The bad news: We have to pay close attention to every department and budget line item and quickly change a plunging direction if we are to succeed. This process and discipline begins when we develop our first projection spread sheet.
I recently received an email asking me to review a spread sheet because the new owner was concerned about the high net income percentage he would eventually make. The 37% profit for the financial years’ last month and the 25% income for the first year had him mystified and he asked for some advice as he thought he might have missed a category.
It turns out he missed the same category many of us miss when we do projections on any new project: Reality.
After doing projections for eight of my own restaurants and assisting with others, I find it difficult to recall projections that compared to realistic numbers. The process was simple enough: The dining room was laid out on paper, the menu computed to average per person cost, customer counts were projected for each night and the numbers began to roll. My partner, Kranston, the spread sheet guru of our duo would be inputting and computing, continually asking if I wanted to change a certain number or add a particular line item. Together we managed to project years of business pretty accurately.
The shortcomings of the projection process were mine. In our first exercise, because of inexperience, I failed to include adequate waste, loss, theft, breakage, equipment failure, and maintenance, insurance and advertising costs.
In each of my other projects, because of experience, (I claimed the numbers that I didn’t include in our first projections and eventually appeared wouldn’t be as high because I had the experience to deal with them), the numbers were not quite accurate.
And, I have never met a restaurateur whose personal confidence in product, concept, design and self, didn’t allow for overly aggressive income figures. If we went into the game thinking we were going to be one of the 80% who fail, why would we toss our salad into the culinary ring?
Projects are invaluable tools. They not only give us an overview of the road ahead, but a realistic look at the journey will become a major component of our business plan. Although it isn’t easy to discount ability, we all need to learn that projections shouldn’t be trimmed to show huge profits, but should be loaded to show minimal profits.a This attracts investors and money managers, friends, family and fools, much quicker than pie-in-the-sky numbers. It proves we know of what we speak and have the sensibility to expect the worst, while having a plan to overcome the problems.
In most projection sheets we seldom see slow Monday nights, or snow storms on once busy Friday nights. We can’t visualize recession at our location and people that enjoy our food seldom live paycheck to paycheck.
A few months ago I stopped into a new caf? in
“Oh, I decided not to open at night. I made my numbers the first few days so I don’t need the night business. I am closing after lunch everyday,” he said. Upon leaving I asked my wife if she thought he had ever been in
Numbers and projections are how we see the business and our business world. In order to really have a sense of the capital requirements and the profit we will reap reality needs to be a filter on every line item.
Here are a few things I learned about projections:
1). Your food cost is always higher.
2). Your liquor cost is always much higher.
3). Your waste and loss is more than you could imagine.
4). Payroll never comes in as projected.
5). Equipment breaks.
6). Utilities increase.
7). Advertising doesn’t appear to be working so we buy more of it.
8). Credit card processing costs increase
9). Soon you will look for another space and a portion of your cash flow will contribute to your second location.
10). Reality is: Don’t close at night. You’ll need the cash flow.