10 Key Components of a Restaurant Capital Budget

Once a quarter, I teach “How to Open a Specialty Food Shop” at The Institute of Culinary Education. I love this class! I get to meet with new, aspiring and inspiring hospitality owners. Over the course of the 2 day lecture, I speak a lot about raising money and the little secret behind the capital budget. So, how does a new fast casual restaurant account for the capital budget and what is the capital budget? The capital budget is the money needed today to finance the pre-launch of your business and the secret is… raising enough additional money to cover for working capital. The working capital is the extra money on hand for that rainy day. Yes, new owners will have rainy days when their cash flow is negative. Typically, I like to see enough working capital on hand in the bank to cover 1 year of operational fixed costs. Each concept is different, whether we are working with bakery – cafes to an all american sandwich fast causal restaurant. There are 10 key take aways one must always account for when preparing for the capital budget.

1) Architect, Construction & Equipment. Find a great designer you connect with and believes in your concept. You want an awesome looking space, that is functional too. (Think about whether you will need a hood system or not and where the venting is). This cost differential can be large and make a difference. Of course, if you do not need to install a hood system, this may and most likely will change the production of your products as there will be no open flame. The equipment keeps the engine running. Remember, only buy equipment that makes sense for your operation. Use your menu as a guide to what equipment and display cases you should be purchasing.

2) Professional Services. This includes lawyers, accountants, bookkeepers, chef consultants, brand managers and yes us – management advisors. Depending on the expertise on your team, you may need all or a few of these services. The important thing is that you have the expertise on your team to ensure you are giving your business the best opportunity for success.

3) Marketing / Branding. Marketing encompasses your internal marketing campaign, your external outreach, the advertising you buy and the services of a public relations firm. Some operations want all of these services, others want just a few. My recommendation is to hire a PR company and let them do the hard work for you. Figure out who you are in the marketplace, then move to external and internal marketing.

4) Technology. I love technology and the benefits it provides. This is your point of sale company, security services, recipe management, inventory management, e-commerce and web development.

5) Pre-Paid Rent. Find a place that fits your concept and can maximize sales potential to cover your rent. It is sometimes better to pay more in rent with a higher expectation of guest flow than a smaller dollar amount with very little guests coming through the door.

6) Pre-Opening Inventory. This is the inventory needed to run your business, non-alchoholic beverages, alcoholic beverages, raw ingredients, packaged products, paper and packaging, glassware, service ware and any other items needed to present the product to your guests.

7) Furniture and Fixtures. This is the fun stuff that we all get so excited by, creating the decor of the operation. This includes, Lighting, chairs, tables, fabrics and many more accoutrements to create the space that sets the tone of your culture and ultimately, the guest experience.

8) Opening Staff and Training Costs. Think about your management team and when you need to bring them on board to help shape the concept. Once you have the management in place, hiring and training your staff is essential to your success.

9) Working Capital. After you have tabulated how much you need to open the doors for day 1 opening, this is the additional money to keep you afloat.

10) Flexibility. As an owner, there will be ups and downs during the capital budgeting process. Maintain the awareness of how much money you have to spend and remain flexible to where you may need to alter your budget.

Happy Budgeting… TaraPaige Group