Finding Breakeven for a New Restaurant May Be Elusive for Months
Finding Breakeven
Notwithstanding the current economic conditions, which complicate projections, a breakeven revenue number may be difficult to determine for new restaurant startups. Most restaurant operators look at fixed costs, employee costs, the average cost of goods(a percentage), administrative costs and deduct those numbers from hypothetical monthly sales figure. In theory, the formula should work.
The new restaurant invariably misses their breakeven target. Startup operations are evolving into their final form that may take many weeks, months or years. Varying figures are caused by uncontrollable, inconsistent and blind projections based on conditions that do or don’t occur. It is not unusual for business plans to be more accurate in projecting sales than actual costs.
Revenue can be related to a fixed number of seats, restaurant capacity and cuisine. Costs have a whole realm of variables for every expense item that makes accuracy elusive. A few practical examples include:
- Initial inventory is an expense that you can easily over and under estimate the future percentage of your cost of goods. You may change products, forget components, miscalculate usage and change recipes in the early stages. Your customers may even dictate some changes such as brands of alcohol or preferred mixes.
- Your facility may consume a lot more utilities expense in the early stages than on a long term ongoing basis. You work longer hours, discover the best on and off times and find you have to balance air conditioning and heating differently.
- Even simple costs like the number of towels you need weekly, amount of staff hours to clean, dishwasher chemical consumption and many more add up to big variations to the bottom line.
- Administrative costs like office supplies, printing, computer maintenance, storage and accounting costs can be easily over estimated with larger expenditures in the first few weeks than on an ongoing basis.
These fluctuating calculations can cause restaurant operators to forget they have one thing in common with every other type of business – they must make a profit to survive. Even more important in the first months of operation is cash flow. Can you support your cash needs until you stabilize the restaurant and make whatever changes necessary to make it profitable? More restaurants fail from lack of cash than any other single cause.
Figure your breakeven point carefully today, again next week and every week until the number stabilizes for several weeks and/or months in a row. This simple process may help you run a restaurant that will survive and prosper.
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