[Ask Tim] The simple formula that can help you budget for your restaurant’s operating costs

In this series, Tim Han shares his experience on running an F&B restaurant.

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When it comes to running a restaurant, you will hear over and over that you have to crunch the numbers first. It’s a simple exercise meant to help you answer fundamental questions – such as:

  • How much rent can I afford to pay?
  • How much should the revenue figure be to break even?
  • How much should i pay myself?
  • How much can I afford to lose before I call it quits?

Thankfully, these are all easily solved by the application of what is essentially primary school level math. To quote esteemed rappers worldwide, let me break it down for you. In a nutshell, everything is a ratio of sales. Therefore,

Sales = Rent + Labour + Food Cost + (Utilities + Misc. Costs)

Looking at the above equation, the things to control are Rent, Labour and Food Cost. These in almost all cases make up the bulk of your cost.  Utilities and other related business expenses tend to have a closer relationship to your sales, scaling relative to them.

Now, assuming you haven’t already opened an establishment, you can do a little number crunching of your own to find out what your sales targets should be.

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The table above is a simple example of applying the formula. However, you should note that this is a theoretical model based off some common assumptions in F&B. In reality, it may be many months before you reach the sales targets. And while labour and food cost may scale down, Rent will be a constant. Be prudent and use rental figures as an anchor in your calculations.

There is much more to explore on this topic but these are the bare-bone fundamentals of establishing some kind of accounting baseline.

Further posts will cover advised percentages, how to determine the maximum revenue of your outlet and an in-depth explanation of how to tweak percentages in your success equation.

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