Starting an early stage food enterprise and growing to a multiunit operation involves a lot of moving parts to line up successfully. One that is paramount is to implement an operational budget in setting your business up for financial success. Budgeting is the most basic and effective tool for managing your business finances yet, many operators forego this crucial step because of the additional time and work involved. For all food businesses, the budgeting process can help identify the realistic profitability and financial metrics of the enterprise. In short, it can save you the grief of overspending and help you better manage different aspects of your operations.

We often get asked the question, “How do I go about preparing for an operational budget?”  A good budget stems from a well-understood concept with a streamlined product menu and we start with building the sales formula.  Our sales formula in preparing for an operational budget is highlighted below, we will use an early stage bakery as a sample.

1)     Identify your product groups.
The product groups are your different revenue streams that you will be offering.  Ex: Baked goods, savory product, home made beverages, coffee, tea, packaged product.

2)     Clarify your hours of operation taking into mind the seasonality of the business.
This will enable you to identify the day parts you are open, the hours per day and whether or not you are open for weekend and weekday business.

3)     Price the product groups per day part for an average check.
For example, the savory group may have a smaller check average at breakfast than at lunch.

4)     Identify a targeted location.
This is one of the most important things you can do for your enterprise. Finding a location that works for your business. Remember, rent in NYC is typically around 10% of sales. So if you are looking for a 1,000 sq foot space in NYC and the broker quotes you $200 / sq foot, your rent per year will be $200,000. This means that in order to make your rent worthwhile, your business needs to generate $2,000,000 in sales per year.

5)     Once the targeted location is set, engage in traffic counts.
We follow traffic counts for nearby food businesses of the target location you are looking to open as well as similar concepts in other locations.  You want to cover all day parts and this is the part of your research that may take a few days to cover all bases.

Once your research is complete, you are now ready to build your sales with the above inputs.  The key to building and best leveraging an operating budget is to make sure that your concept can support the expenses required to keep it running. It is nothing short of a balancing act.

We have a financial pie chart, which aids in this balancing act. The costs may vary for your operation, but the pie must always be equal to 100%. The level of investment made into the business goes beyond the numbers, it lies in good people, quality of food, training and standard operating procedures to keep the enterprise humming along with strong profits.