Business Plan Financials???? Help!!

Post
newchefpa
Junior Burger
2008/10/22 21:45:11
Hello all,

My husband and I are starting a restaurant and of course the first thing to do is write a business plan right? Well, we've both worked in restaurants for 10+ years each so most of it's no problem, just time consuming. Here's the question: How am I supposed to show any kind of financial statement when I have no idea how much my food is going to cost. We need the business plan to show banks and lenders to get a loan but I don't know what equiptment I can afford to buy until I know how much our loan will be which I have to make a financial statement to get. I feel like I'm in a catch 22 that I can't figure out. Do I pick what equiptment I want and make an educated guess on the food and startup cost and tell the bank how much I need? That seems pushy to me and I don't want to offend anyone that might lend me money. Any help from past experience would be greatly appreciated.
CCinNJ
Sirloin
RE: Business Plan Financials???? Help!! 2008/10/22 22:17:44
Welcome!

Never fear offending a lending institution, with numbers. That is their business. The do not approve or deny loans, based on an assertive or confident position.

There are professionals that handle the "business" aspect of restaurant management (I speak from experience). If you feel uncomfortable writing your own business/financial statement, hire someone to do it for you. If they are good, they will be able to gather, organize, and submit all of the necessary documents you will need to secure a loan.
konnie
Cheeseburger
RE: Business Plan Financials???? Help!! 2008/10/23 00:10:01
Welcome to the forum

I don't mean to sound harsh but you better be a long way from starting a business. If you don't have or can't work up a business plan you shouldn't consider opening a restaurant.

Forget the bank, you need one for yourself. Figure what equipment you will need, what it will cost, develop a menu, contact food supliers for cost, an insurance agent for insurance cost, health dept for rules & regs, and especially how much working capital you will need. That is only a FEW of the things you need. Sorry but you are at least 6 months of hard preparation work before you should even try to open the doors. If not your chance to last a year is less than 5% and will be a miracle..

Mike S.
CCinNJ
Sirloin
RE: Business Plan Financials???? Help!! 2008/10/23 01:15:46
Mike, I agree with you 100% about proper research, for anyone who is interested in getting into the restaurant business. As an owner, you MUST know everything, in terms of what you will need to purchase, cost of operations, etc.

However, when it come to the very "formal" aspect of writing a business plan to secure a loan for a restaurant, there is no shame in seeking an experienced representitive to handle the procedure. Many people have the experience, talent and drive to build and handle the food operations of a restaurant. The same people can benefit from hiring experienced professionals to handle the legal, and accounting aspects of their business.
The Restaurant Mentor
Junior Burger
RE: Business Plan Financials???? Help!! 2008/10/23 01:48:48
Writing a Business Plan (especially the Financial Section) can be very stressful. It is a time when you will doubt if opening a restaurant is even something you want to do. I suppose that is the point of why banks require it. My suggestion is to go to your local bookstore and buy a book on Business Plans for restaurants. This will ensure that you have all the necessary components and will have a section on how to write a Financial Section. Next, create your menu including any liquor, beer, or wine that you plan on serving. Once this is done, you need to write the exact recipes for each of your menu items. From the recipes, create a product list of all the items you will need. Contact your local food distributor and ask them for a pricelist based on the product you need. Once you get this price list, go back to your recipes and cost out each of your menu items.

Once the above is done, you will know what equipment you need to prepare the items on your menu. In addition, think about all the smallwares and supplies you will need to prep, cook, and serve. Make a list of all those items. With this list you can either research online or visit your local restaurant supply company and you will be able to accurately price all the equipment and supplies you will need (and most likely you will find some other items you didn’t think about).

The bank will give you a loan for the amount you requested but you will need to be ready and able to put down at least 30% of the total project cost. This is pretty standard for start-up restaurants using a SBA Loan.

As I mentioned earlier, writing a Business Plan will make you question whether opening a restaurant is really what you want to do. But if you have a solid Business and Financial Plan, you will be way ahead of the game.

I hope this answered your questions.

Robert Dominguez
UncleVic
Sirloin
RE: Business Plan Financials???? Help!! 2008/10/23 02:04:08
I did a business plan a few years back. Call your local food distributor, get their catalog(s), then give him the 'shopping list'. They'll gladly give you a printout of what the current prices are (per case/per item costs). This will help out on figuring the initial inventory costs, plus give you a good ball park figure on designing your menu prices. A lot of ground work in front of you still.. I wish you the best there, especially trying to get a loan in this day and age.
newchefpa
Junior Burger
RE: Business Plan Financials???? Help!! 2008/10/24 13:15:38
Thank you everybody for all your advice. We are definately in the very beginning stages of planing so I absolutly know I have a lot to do before we could open. All we have now is, what we think is, a great idea, a menu (that's still changing), and an opportunity to lease a space either next spring or a year from then. The hubby wants to open in the spring but I have the feeling it's going to be after that. At this point we just don't really know what to do first. I have the dummies books on "running a restaurant" and "writing a business plan" so I see what needs to be done. It's just the order that it should be done in and what people need what information that's confusing me. I figured we should just get the business plan done and from there we would have all the info for everyone that needs it.

Thanks again

Carolyn
Nightshift
Cheeseburger
RE: Business Plan Financials???? Help!! 2008/10/28 01:22:49

When you hire a professional some of what they will go by is history and industry standards. This is the way to go.

quote:
Originally posted by newchefpa

Hello all,

My husband and I are starting a restaurant and of course the first thing to do is write a business plan right? Well, we've both worked in restaurants for 10+ years each so most of it's no problem, just time consuming. Here's the question: How am I supposed to show any kind of financial statement when I have no idea how much my food is going to cost. We need the business plan to show banks and lenders to get a loan but I don't know what equiptment I can afford to buy until I know how much our loan will be which I have to make a financial statement to get. I feel like I'm in a catch 22 that I can't figure out. Do I pick what equiptment I want and make an educated guess on the food and startup cost and tell the bank how much I need? That seems pushy to me and I don't want to offend anyone that might lend me money. Any help from past experience would be greatly appreciated.
Sonny Funzio
Double Cheeseburger
RE: Business Plan Financials???? Help!! 2008/10/28 11:33:02
Hi Carolyn

Opening a restaurant is a huge exercise in being able to multi-task and to move ahead in the face of uncertainty and inexactitude.
Your motto will need to be “complete, careful and thorough”.
The amount of research, writing and figuring required is extensive to say the least.
Your business plan and particularly all financial figures are NOT just to get funding but to help you not go bankrupt as well.

Regarding your equipment ...
The very first thing you need to do is establish a preliminary/draft Kitchen Plan document based on the building you intend to inhabit. The equipment you inherit with your building (if any) will give you an initial list of equipment on-hand verses needed-to-purchase. The health department in many jurisdictions will require you to submit a spec sheet on each piece of equipment in advance - and they may be quite specific as to what they will or will not allow. *Importantly* just because a previous owner may have used a piece of equipment in your building or even in the jurisdiction, that does NOT mean the health dept. will necessarily approve *you* to use it.
Read my previous post at the following link ... about a third of the way down the page, it starts with the words “Yes, Health Department is an important thing” ...
http://www.roadfood.com/forums/topic.asp?TOPIC_ID=16009
The Building department may force you to spend on further building modifications ... keep this in mind as well.
The following additional post I made previously near the bottom of the page at the following link may also help ...
http://www.roadfood.com/Forums/topic.asp?TOPIC_ID=23924

Regarding your Food Cost as stated in your financial statement ...
“Shoot from the hip” as little as possible. This will take multiple steps. The following are some of them.

Predicting Food Cost is based on a few different things.
First, you need to know the basic style of restaurant you want to open and the menu and pricing of very similar restaurants in the area.
Second, for a given period (say, monthly) you need to know your approximate expenses as close as you can possibly nail them down ... your rent, your taxes, your labor - both variable and fixed etc. etc ... essentially you need to do the expense portion of a formal Breakeven Analysis. A very, very preliminary estimate of food expenses will in fact be part of these numbers as well ... at this stage of the game estimating food expense is bound to be "more an art than a science" - do as best you can on that initial estimate.

Once you understand the expenses you expect to incur both fixed and variable, then you need to determine a few things ...

What your total (allowable) seating capacity will be ... this will have to do with your interior space as well as other things like bathroom capacity etc.

What your average customer check might look like ... i.e. the bill for a table of 2 people at a coney island will be quite different than a fine dining place.

Your anticipated volume of business (conservatively) ... considering traffic flow, location, local lunch attendees from offices, and a host of other things.
Volume of business depends in part on what turnover you can expect. That is: the number of times you can re-fill a table with new customers for different periods, days, shifts etc.

THEN, using your expenses, your seating capacity and volume, your average customer check, and a *conservative* estimate of your profit from all menu items (for a serving of broccoli; what you sell it for minus your cost), YOU WILL DETERMINE ...

1) whether your menu, as you have guessed it and at the prices you are intending to charge, has a chance of being profitable enough *to support your business* in view of your volume and seating constraints etc etc.
This is where you will get an initial idea of whether, for instance, a hot dog restaurant in a building with the most expensive commercial rent in town, is even in the ballpark to survive. It makes no sense to knock yourself out on other things until you have a reasonable expectation that your plans, as best you know them, are likely to pay the bills you will incur.

2) finally .... your stated FOOD COST in your Business Plan will be based on the proposed menu that you put through the above rigorous steps.
Of course, this means doing complete recipe sheets for all menu items with all ingredients and then calling restaurant suppliers/purveyors to get pricing.

You should understand that many of the above steps are based on the data used in Breakeven Analysis (which will also be part of your submitted business plan) ... the ability to do a proper breakeven analysis - NOT just a "breakeven number" - is the MOST important financial skill you can have in a restaurant.

It’s worth noting that banks are primarily interested in how they will be protected if you fail. Whereas equity partners are operating under the assumption that you will succeed. Both want complete and competent business plans. Banks are particularly interested in the numbers ... and they particularly want to see extremely well thought out and conservative numbers. And like I said above, you need to avoid “shooting from the hip” and “pulling numbers out of your hat” and instead, nail down the numbers as hard as you possibly can. If you need more info on what a Breakeven Analysis is about let me know and I'll try to post some points.
PopsDogHouse
Double Cheeseburger
RE: Business Plan Financials???? Help!! 2008/10/28 11:46:28
There is software available that may be a big help to you. I have used Business Plan Pro with much success. You will still have to input your pertinent data, but the software is menu driven and will greatly simplify the process. It will also properly format your pro forma financial statements (with data supplied by you of course.)

Follow your dream. But, do so with both eyes wide open. Overestimate your start-up expenses and underestimate your sales. Right now is not a great time to look for a loan from traditional sources because the credit markets are nearly frozen. There are signs of thawing, but it will be a slow process.

Best of luck to you!
Sonny Funzio
Double Cheeseburger
RE: Business Plan Financials???? Help!! 2008/10/28 11:47:30
One other suggestion.
Once you feel you know enough to formulate appropriate questions ... provided that they have rep's in your area, sit down with the local representative for Eco-Lab and Sysco and pick their brains for everything you can get.
This does not mean you will necessarily use their services (don't tell them that, of course), as they can be quite expensive ... but these rep's can provide a solid info and suggestions.
Be prepared with a good list of questions.
CCinNJ
Sirloin
RE: Business Plan Financials???? Help!! 2008/10/28 13:14:29
I would NEVER advise a client to build an equipment list, based on any set menu. Unless it is an absolute specialty business.

You build an equipment list based on the versatility of the equipment, in limited capacity. You could easily fall in love with certain items that would present limited function take up maximum space and cost a ton.

Break down every station, design & propose MULTIPLE menus/selections. If you design a business plan/financial statement with one menu, you are in trouble.

Do not plan to purchase any equipment that is not absolutely NEEDED (during start-up). If/when you (yourself) are in a financial position to purchase additional equipment that is more of a luxury than a necessity, invest your profits back into the business.

Research and plan cost effective advertising. It is all well and good to project and estimate a customer base. The first question any lending institution will ask is how are you going to develop a strong customer base. Opening the doors is not enough to ensure traffic.