When restaurant operators are faced with challenging times in the business cycle, the need for an operating budget becomes more critical. An operating budget helps set achievable goals for both revenue and expenses. While the previous year’s actual operating history is a good guide for developing a budget for the coming year, a realistic assessment of market conditions that will affect the restaurant’s future business is essential.
American Express OPEN Culinary Advisor Dick Williams has put together these helpful tips on budgeting:
- On equipment. Consider leasing equipment rather than buying it. When cash flow is reduced in an economic downturn, it may be prudent to lease equipment thereby spreading the cost over several years.
- On employees. Write job descriptions for all positions in the restaurant so that employees know all of their duties and can be held accountable. Detailed job descriptions help in overall restaurant management by focusing on duties to be performed by each employee during the times they are scheduled to work.
- On schedules. Schedule labor by considering peak demand periods. You should stagger shift start and end times to coincide with typical guest flows. Be sure to consider positions in the front-of-house and back-of-house.
- On food. Date stamp all product upon delivery. In times of rising food prices, it is important to eliminate waste and spoilage by making certain that the product delivered first is always used first. Establish a first-in, first-out system of stock rotation.
- On inventory. Take inventory with your chef and bar manager monthly. This allows the restaurant manager to be aware of all product on hand. It reduces the opportunity for inventory manipulation by staff. This is especially important if the chef or bar manager is offered incentive compensation for meeting or exceeding budgeted cost ratios. You can establish a perpetual inventory system that tracks purchases and sales on a daily basis and calculate the food and beverage cost to date. It takes approximately 90 days to establish this type of control system with fairly accurate results.
- On payment. Consider non-cash ways to make purchases. Credit card rewards, savings programs and frequent flier points can be effective cash substitutes, as can bartering. Cards also help manage cash flow by allowing an extra period of repayment for short-term needs.
In addition to his advisory role with OPEN, Williams, a 40-year industry veteran, serves as Managing Director and Founder of HVS Food & Beverage Services, a global consulting and services organization focused on the hotel, restaurant, shared ownership, gaming and leisure industries.
Williams entered the restaurant business by serving a two-year apprenticeship under a Swiss chef at the Café Promenade. Soon after, Richard became the Executive Chef at the Chateau Pyrenees Restaurant with increased responsibilities in management. Subsequently, he moved into front-of-the house management as the Managing Partner at two restaurants.
Undoubtedly, his most well-known venture has been the revitalization of the world famous Buckhorn Exchange Restaurant in Denver. Representing the Buckhorn Exchange since 1978, Richard has instilled vital changes as the restaurant manager and enhanced its reputation.
In addition to acting as manager and owner to several of Denver, Colorado’s finest restaurants, Williams has performed over 500 real estate appraisals of restaurants, hotels and resorts since joining HVS in 1993. He specializes in market studies, feasibility studies, appraisals, and on-going consulting needs for several historic restaurants and hotels. His extensive background in business management has formed him into a widely successful business and restaurant owner in the Colorado area.
Richard is a graduate of the Cornell University School of Hotel Administration. He is a certified general appraiser and a licensed real estate broker and holds the MAI designation of the Appraisal Institute.