If You Open a Restaurant Today, How Many Months Will It Take to Recover the Capital?

 

Restaurants and beverage shops usually originate from passion and end with “out of business”. Otherwise, the owners have to exhaust themselves without any profit and the passion gradually turns into misery. This is because passion alone is not enough to run a restaurant. You also need a mission to have a chance of success.

Particularly at the first step before investing, entrepreneurs have to assess whether there is any possibility for their investment in the restaurant to turn a profit and whether the capital recovery is worth the investment. A lot of people don’t do this, which means they are investing blindly. However, if entrepreneurs conduct a financial feasibility study, they will be able to evaluate the possibility of capital recovery and get an initial answer for whether they should invest in a restaurant.

The first thing you need to know is where the funds are spent. 

 

 The first set of data entrepreneurs need for their financial feasibility study is what the funds should be spent on and in what proportion. For example:

 

Now that you know how you’ll be spending all your funds, you’ll have the initial budget for your restaurant. You can use this information to analyze further whether your investment in this restaurant has a chance of generating enough sales to be worthwhile. The data used in the analysis is from the marketing feasibility study on how much income your restaurant can generate as well as estimated expenses.

For example, consider the ingredient costs and operational expenses. Once you combine these sets of data, you can deduct the estimated expenses from the estimated income and you’ll get the net profit, which is still not the real profit because net profit is an accounting profit. Profit in this definition might be in the form of assets such as buildings and equipment.

Another figure you have to find is the net cash flow, or the real income and expenses, to know how much net cash flow you have for each day.

All of this information will tell you how much you’ll have to invest in your restaurant, how much income you’ll earn each day, month and year, and how much time it will take for the net cash to equal the amount you invested. The most important thing in this evaluation is that the analysis has to be based on real data and not your own guesses.

The goal of a financial feasibility study is so you’ll know the following four returns:

 

 

 

Let’s delve into the details of the investment budget. What do you have to do when allocating and managing funds so you don’t go over budget? First of all, you have to know what type of restaurant you want to open. What is your restaurant’s concept? What’s your target market? How big is your restaurant? How do you need in investment funds? Use this as your preliminary information. Then take a look at the minor details such as the following:

If you’re renting a space, how much is the rental cost? How much is the deposit? Most people overlook the deposit, resulting in miscalculation of their funds. For example, if the capital for your

restaurant is set at 100,000 baht, but the landlord demands a deposit of 4 months in advance and the fee for each month is 100,000 baht, making it a total of 400,000 baht, this immediately becomes a problem because you didn’t prepare for it. Therefore, don’t forget to check the rental conditions thoroughly.
Design and Decoration Costs 

  You should set a budget for the design based on the objectives of the restaurant design. The design and decoration budget should be set for two budget ranges: minimum budget and maximum budget, so you have a flexible budget to work with.

You have to specify in detail what items you need. You can talk to the interior designer or architect about your needs, so they can know your budget. That way, they can design your restaurant to suit your budget and basic needs.

This is another cost people tend to overlook when initially setting the budget, but tend to think of later, thereby resulting in increased costs. You have to be clear from the start about how you’re going to advertise, how much you’re going to spend on it and what kind of sign you want for the front of your restaurant.

This is another one. Most SMEs have to pay it later, because they didn’t put it in their budget in the first place. You have to specify how much money you’ll need for the cost of ingredients for opening your restaurant, so you can properly plan and manage your ingredients.

These costs might not be high, but they also need to be included in your investment budget.

A lot of people might ask why they have to pay employees if their restaurant hasn’t opened. Don’t forget, you have to receive applications, screen employees and train them before opening, so you also have to pay them.

Water, electricity, meter deposit, paper, pen and other miscellaneous fees all have to be included.

This fund also has to be prepared. When your restaurant newly opens and customers don’t know about it yet, you won’t earn any income. However, there are still expenses every day, so you need a backup fund for paying the expenses to keep your restaurant going for a while. Your reserve capital should be enough for at least 3 months. 

 

Now that you know the details and lists involved in the investment analysis, let’s create an example we can visualize. Let’s say that, based on the analyzed information, your restaurant will spend a total of 9,000,000 baht. From the marketing data collected, let’s say your restaurant will have 3,000 customers per month or 100 customers per day and an average income per person of 400 baht. That means your restaurant will have a monthly income of 1,200,000 baht with a 35% food cost or 420,000 baht and other expenses, such as wages, rental fees, water fees and electricity fees, of about 500,000 baht.

Monthly sales per month:          1,200,000 baht

Monthly food cost:                   420,000 baht

Total monthly expenses:           500,000 baht

= Monthly profit:                      280,000 baht

Yearly profit =                          3,360,000 baht

 

Calculation formula = net profit divided by capital multiplied by 100

3,360,000 / 9,000,000

= 0.3733 x 100

= 37.33% per year

The question is Is 37.33% a year high or low? Think about it. If you took make a deposit of 9,000,000 baht at the bank, at the current interest rates, or invest the money in another business, would you get a 37.33% return per year?

In addition, if you want to know how long it will be until the capital is recovered, calculate by using the following formula:

Restaurant investment fund: 9,000,000 / 280,000 = 32.14 months or 2.68 years

If you think a recovery time of over 2 years for an investment of 9 million baht is acceptable, then go for it. However, if you think it’s too long and you want a faster return, one way to do it is to go back and review your investment fund to see how much you can reduce. 

 

 

There are still many other important details that people who want to invest in a restaurant should know. Every detail affects your decision to invest and how the funds will be modified to ensure a desirable capital recovery period. You can learn all these additional details in our free restaurant feasibility study course, click 

Click to read other articles here: