One of the things that cause large numbers of restaurants to shut down after opening for only a short while is financial mismanagement from the onset. Financial plans are very important for people thinking to enter the restaurant business. This is because running a restaurant involves many different details, all of which are related to finances. As a result, if finances are mismanaged from the beginning, it will be difficult to find success. So how should a restaurant allocate its budgets? We have some guidelines for you below.
Regardless of the size or type of your restaurant, we recommend splitting your budget into three parts as follows:
- Investment capital for business launching: 60-70%
- Circulating capital for the restaurant to survive about 4-6 months: 20-30%
- Marketing budget: 10-20%
Investment capital for Business Launching
This is certainly the largest budget. It consists of the initial restaurant investment and includes the following:
- Business purchase costs
- Design fees
- Permit application fees
- Construction fees
- Electricity, water and gas utility installation fees
- Decoration fees
- Equipment fees
- Utensil and dishes fees
- Other fees such as CCTV installation fees
All of these expenses are necessary in ensuring that the restaurant can be launched and are usually things that can cause your budget to bloat. Particularly for decoration work, if the entrepreneur can maintain cost to remain within limits, then other budgets will not be impacted. With that said, the heart of this section lies in the restaurant’s concept and design work, especially the restaurant’s plans, which are very important and determine whether or not your budgets will bloat.
So, what entrepreneurs have to spend a lot of time working on is the restaurant’s concept. Eliminate all excesses, because the biggest contributor to a bloated budget is excesses, inconsistent concepts and constant revisions. Always remember that if you want to break-even quickly, you have to keep your costs within your limit. The more your budget bloats, the longer it will be before you break even.
Restaurant Circulation Capital
This part is an extremely important part and directly impacts the status of many restaurant businesses. Many restaurants fail to survive in the long run because they lack circulating capital. They lack circulating capital because they fail to plan their budget allocation appropriately and spend too much in the first part. Although the restaurant business is a business that generates good cash flow, this applies only when the restaurant is well-received by customers, and large numbers of customers use the restaurant’s services every day, and for the most part that does not happen.
So, in starting out as a restaurant business owner, it is necessary to set a budget aside enough for the restaurant to operate for about six months. This means that, even if the restaurant has no customers for those six months and the restaurant is always suffering a loss, the restaurant will still be able to stay open with enough funds to purchase ingredients and cover rent, water, electricity, employee salary and owner salary costs. This is necessary because new restaurants might need some time before customers get to know them and spread the word. Don’t just rely on a fluke. Play it safe instead.
We recommend that you separate this budget. This is because a problem frequently encountered by SME restaurants is that the restaurant is great and well-decorated but the restaurant doesn’t have its own marketing budget, so each marketing activity has to be done conservatively because it’s necessary to spend out-of-pocket money first, which should not have to happen. This is particularly true in this highly competitive era. Customers have lots of options, and lots of restaurants try to raise customer awareness by lots of different channels such as restaurant signs, broadcast vehicles, and so on. Because all of this is important, you should keep your marketing budgeting separate from the beginning so that you can fully plan your marketing activities from the start when your restaurant is launched.
Just to remind you again, managing your investment within your plans so you can open your restaurant on schedule directly impacts the future of your business. Whether the restaurant will reach the break-event point sooner or later and whether the restaurant will survive or not are largely determined by the first step, which is financial management. The more you save without impacting the quality of your restaurant’s concept, the sooner you will be able to reach the break-even point.