Opening your Restaurant – Part 2 – Creating a Projection

Part 2 – Creating a projection

If you have a promising product/restaurant concept, let’s create a projection!

P&L Projection & Profitability

Ok, so let’s say now you have the right product for the right market, is your product going to be profitable? This is probably one of the biggest questions you must ask yourself. There are many “great” products that will make people happy. But would it be profitable enough for you to make you successful? What if it causes a loss? Are you financially stable enough to bear the losses in the beginning? If so, for how long? The truth is that many newly opening restaurants do not do so well. According to The National Restaurant Association, they estimate a 20% success rate for all restaurants. About 60% of restaurants fail in their first year of operation, and 80% fail within 5 years of opening. There are numerous reasons why this is happening. One of main reasons why they fail within 1^st year of operation is because they do not have right budget and P&L projection. This is very important because while you are creating a P&L projection, you come up with many different scenarios and actually see whether you will make money or not. Many people who start restaurant businesses only think about how great their food tastes but do not think carefully about all the expenses they have to pay, all the expenses before they open, daily expenses, and even closing expenses if things go wrong! After managing the hospitality industry for numerous years, I have come to understand that many inspiring restaurateurs end up closing their dream restaurants because they did not have realistic understanding of budget and P&L projection. The reality is, unless you managed the restaurant business for a long time, you would not be so familiar with it. Hence, it is critical that you have the right budget, P&L projection, and the right person to help you with it. Even with careful planning, there will always be something you did not take into consideration, therefore you must remember to have extra buffer while you are planning for it. Here, my goal is to advise everyone to carefully plan their budget and P&L projection. Let me remind you, every location and every restaurant budget will vary but with experience and careful planning you can get close to it to minimize the difference to help you succeed. Unless you are a non-profit organization, you must produce profit in order to sustain your restaurant business or grow your business as a successful restaurateur. Below is one of the P&L projections I created a long time ago for one of the new restaurants opening project. Again, it is important that you refer to the information below only to use it as a reference and guide you, but numbers will change completely based on your situation. Hope this information helps you!

		Weekly		Monthly
Sales		$ 25,543.50		$     110,688.50
	Food cost	$    7,663.05	30.0%	$       33,206.55	30.0%
Gross Margin		$ 17,880.45	70.0%	$       77,481.95	70.0%
	Salary	$    1,346.00	5.3%		0.0%
	Labor	$    6,544.00	25.6%	$       28,357.33	25.6%
	Total Payroll	$   7,890.00	30.9%	$       34,190.00	30.9%
After Labor Margin		$   9,990.45	39.1%	$       43,291.95	39.1%
Expenses	Admin	$       200.00	0.8%	$             866.67	0.8%
	Licenses & Other taxes	$         83.33	0.3%	$             361.11	0.3%
	Credit Card Fees	$       766.31	3.0%	$         3,320.66	3.0%
Supplies	Supplies	$       500.00	2.0%	$         2,166.67	2.0%
Janitor/Laundry	Laundry	$         95.00	0.4%	$             411.67	0.4%
	Sanitation	$       500.00	2.0%	$         2,166.67	2.0%
	Hood Cleaning	$         92.31	0.4%	$             400.00	0.4%
Utilities	Utilities	$       766.31	3.0%	$         3,320.66	3.0%
Management fees	Professional Fees	$       750.00	2.9%	$         3,250.00	2.9%
	Repairs & Maintenance	$       255.44	1.0%	$         1,106.89	1.0%
	Rent	$    3,500.00	13.7%	$       15,166.67	13.7%
	Advertising/Promo			$                      –
	Insurance	$       275.00	1.1%	$         1,191.67	1.1%
	Worker’s Comp	$       242.31	0.9%	$         1,050.00	0.9%
	Property Taxes	$       383.15	1.5%	$         1,660.33	1.5%
	Payroll Taxes	$       236.70	0.9%	$         1,025.70	0.9%
	Principal payment			$                      –
				$                      –
	Total Exp	$   8,645.85	33.8%	$       37,465.33	33.8%
	Net Income	$   1,344.60	5.3%	$         5,826.62	5.3%