management | 11 mins read

The Simple & Easy Way to Budget Expenses Using Your Sales Forecast

the simple easy way to budget expenses using your sales forecast
Michelle Jaco

By Michelle Jaco

Introduction

A restaurant's budget and sales forecast give an idea of what to expect in the future and it helps make sense in determining if you are heading in the right direction with your business.

Based on the calculations, operations can be customized with the intended goal of increasing brand awareness, serving quality food, increasing customer retention, and the overall profit.

In essence, with a budget in place, you know the limits that can't be surpassed, whereas a sales forecast shows future expectations. Simply put, restaurants try to run smooth operations keeping in view the calculated forecast while staying within the allocated budget.

Though there are some costs that are beyond one's control or cannot be predetermined with a budget in place, you at least know what can be controlled. This allows you to make financial decisions in a cost-effective manner without compromising the food.

Let's dive into the details of how you can create a budget utilizing your sales forecast, along with conceptualizing how these factors will also help your business grow.

Budget vs Sales Forecast

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Before we move further, let's understand the differences between a budget and sales forecast.

Budget

  1. What it Means A plan that shows available resources for a certain period
  2. Quantifies - What you want to achieve in the predefined period
  3. Time Span This is for the short term; for instance, the first sales quarter
  4. Flexibility Since it is for a short span of time, not many changes are practiced. The key is to decide on a budget and stay within it.
  5. What it does - Stops you from overspending while managing day-to-day operations
Sales Forecast
  1. What it Means With the help of past and present data, future trends are estimated
  2. Quantifies - What the restaurant will achieve in the predefined period
  3. Time Span Forecasts are usually done for the long haul; this can stretch across a number of years
  4. Flexibility Since this may be in practice for a number of years it is flexible in nature. With many changes happening in real-time and due to budget constraints; the forecast may be revised a number of times.
  5. What it does - Helps in preparing a budget and making strategic plans as per the predicted forecast

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Resources to Utilize in Determining an Operational Budget

Remember, a budget for new restaurants will look very different from their operational budget.

Here are some tested and proven methods to prepare your budget.

1. POS System
Managing transactions through a Point of Sale system can provide a realistic image of your current standing. This helps simplify calculations and predictions for short term budgeting and long-term sales forecasts.

Additionally, a good POS system can be connected to your accounting software for access to sales and labor data. This helps you make well-informed decisions, as all independent and dependent variables can be viewed together.

2. Accounting Software
With accounting software connected to your POS system, you can access financial reports and tax proceedings, as well as see if all transactions are properly accounted for.

3. Accountant Professional(s)
If accountancy is not one of your strong suits, then it is a good idea to hire a professional to handle your finances. Their analytical skills allow them to see if you're abiding with industry regulations and standards; they also maintain all of your records in an organized manner.

In fact, they can provide you with real-time calculations of your cost of goods sold, labor costs and will also have comprehensive data on all your liabilities.

How to Determine a Breakeven Analysis

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1. Define Your Accounting Period
Setting an accounting period that is right for your food-based business is vital. You can pick from

  • A year, i.e. a 12 month period
  • 13 months
The 13 month period is a practical approach for businesses who do reasonably better over the weekends as compared to the weekdays since it represents each day there will be four Tuesdays, four Thursdays, four Sundays, etc.

2. Have Clear Sight of Intended Targets
Ideally, you can base your calculations on prior performance. This will help you predict future demand, sales, and costs.

The good thing is that with a dedicated POS system, you have detailed insight into all the trends and figures associated with them.

Variables you may take into consideration include
  • Costs of acquired beverages and food
  • Costs incurred for procuring alcohol
  • Labor costs
  • Costs associated with handling customers
  • Past sales revenue
  • Costs and expenses that could have been controlled

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3. Define Each Cost
Realistically speaking, you need to keep some extra money aside as a precautionary measure to be better prepared in case an unexpected expenditure arises. For this, it is a good idea to review how certain situations unfolded in previous years.

The costs that you need to define for your restaurant business include

  • Semi-Variable Costs - These costs are a hybrid between fixed and variable. This cost incurs every month, and it may also vary on occasion. Typically, this can include electricity bills, salaries, overtime pay, hourly wages
  • Variable Costs - Costs that change as sales fluctuate; this includes the cost of ingredients based on the number of served meals
  • Fixed Costs - These are costs that stay fixed throughout, for instance, property insurance, rental insurance
  • Costs That Can Be Controlled - These may include food costs, labor costs, marketing costs
  • Costs Beyond Your Control - You cannot alter these costs; they are long-term fixed and necessary, e.g. rent, property taxes, taxes on supply vehicles

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

Components of Sales Forecasting

For an accurate sales forecast, start by looking at the previous year's records how things unfolded with consideration to demand, revenue, expenses, profits, etc.

The good thing is that you can fetch all the needed figures, trends and previous shortcomings through detailed reports from your POS system.

Simply put, you should consider the following aspects

  • Sales events - holidays, such as Christmas, Thanksgiving, Memorial Day and limited promotions, that include daily discount offers, flash sales
  • Economic Trends - Food costs, tax hikes, recessions
  • Competition - Increase or decrease in direct and indirect competition
  • Point of Sale Data - Labor costs, sales figures, number of customers
Also, compare your sales between the past two or more years and see if they have increased or decreased. Armed with the above-mentioned figures, you can understand why the change in sales has happened.

1. Calculating Sales Forecast
The calculation process does not require you to be a math wizard; rather, some basic knowledge can get you by. You just need to have previous figures and based on those, you need to make assumptions for the future.

On the off chance that you have no previous data or records, start by learning how other restaurants manage their forecasts and how they acquire valuable data and figures.

The formula to calculate your sales forecast is

Number of customers who eat a meal at a table multiplied by the projected avg. sale of food
+
Number of customers who eat a meal at the table multiplied by the projected avg. sale of drinks
=
Anticipated sales


Considering this, if a restaurant serves on average 20 people during the morning shift, with each person on average spending $15 on food and $5 on drinks, then the calculation would look like this

(20*$15) + (20*$5) = $400 Anticipated Sales

With this formula, you can make predictions of each and every service, and see if there is a variance. For instance, you can calculate sales forecasts for breakfast, brunch, lunch, dinner, special occasions, etc.

These calculations can help you adjust your costs in the future to match potential demand.

2. Combine the Forecast and Budget to Create a Projection Budget
Now, you have to combine the budget at hand with the expected sales so that everything is properly streamlined. This, in turn, helps you assess the current allocated costs and understand if your available resources will match with the projected sales.

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3. Breakeven Point and Profitability Analysis
With a clear picture of your limits and potential reach, you can now move up a notch and calculate your breakeven point.

This is the number you need to reach to be in a no-profit, no-loss situation. Here is the formula

Fixed costs/(per unit sales price - Variable costs/unit)

At this point, you can also calculate your profit based on your assumptions and calculations of the future through the following formula

Sales (Overhead costs + Labor costs + Food costs)

This indicates that sales need to be over and above your costs to make a profit.

4. Decided What Changes are Required to Enhance Profitability
With clarity on how your expectations may lead you towards a profit, loss or breakeven, you can make all the necessary changes by

  • Raising retail prices of your items for end-users
  • Cutting variable costs by finding better and more economical suppliers
  • Training your staff to handle food with care to avoid spoilage and wastage
  • Retain old employees with good track records
  • Hire people as required and don't be overstaffed throughout the year hire when there is a predicted increase in customer influx, etc.

Common Budgeting and Forecasting Mistakes

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If you belong to the restaurant business, then you are well aware of how much budgeting and sales forecasting matters and how much effort is needed to cut costs without affecting the overall quality.

Here are some common issues that many restaurants make while budgeting and forecasting, and how you can avoid them.

Trying to Predict Sales on Your Own
Instead of basing the sales forecast on industry standards, many restaurant owners and managers tend to overestimate. No doubt, dreaming big is a good thing but losing sight of reality is a bargain no one should take.

Remember, incorrect forecasting can lead to overspending as people feel that even if they surpass their budget, they will still be making a profit.

Marketing and Promotions Costs are Not Accounted For
With more competition in the restaurant industry than ever, restaurants need to invest in augmenting their marketing efforts.

Even though these initiatives are what can fill empty seats and increase your overall sales, many owners consider it to be an expense that can be avoided.

But the fact is that marketing plays an important part in the growth and success of your business, so you should always establish a set budget.

Not Keeping Management in the Loop
Your management team is responsible for everything within your restaurant, so it is necessary to keep them in the loop about all your cost restraints so they can handle the inventory accordingly. This will also encourage them to remain stringent on policy with it comes to food wastage, spoilage, theft, etc.

Also, they will handle the staff accordingly. For instance, during off-peak hours, they will reduce the available staff so as to bring down the labor costs.

Losing Sight of External Factors
External factors and uncertainties are unavoidable, like a road closure due to construction or an ongoing protest, earthquake, or other natural disasters.

It is always a good idea to keep yourself well-informed by tuning in to the local weather channel, familiarizing yourself with the labor law.

Though some factors are beyond your control, others can be predicted in advance this allows you to make the necessary changes so as to stay on track with your sales forecast.

Avoiding the Use of Software
Paper-based calculations, physical files and documents, and spreadsheets are now a thing of the past.

Simply put, manual entry and calculations can be flawed due to human error, clumsiness, and lack of accountability. Hence, restaurants need to start using software and applications that can help them gather and analyze all the necessary data.

Remember, any mistakes in budgeting and sales forecasting can lead to a domino effect, causing all of your future calculations and predictions to be wrong.

Plus, with proper software and tools, you can

  • Identify problems before they go out of hand
  • Cut costs where possible
  • Schedule staff as required
  • Recover sales before they reach a point of no return
This and much more can be handled with streamlined software.

An Optimal Solution for Budgeting, Sales Forecasting, and Cost-Cutting

One way of ensuring that your sales forecast takes into account all the necessary internal and external factors is by using Zip Forecast.

Here are some key features and benefits

1. Easy Integration with Point of Sales Systems
Integrating Zip Forecast to your current POS system could not be easier as it has a dedicated integration tool.

2. Adjust Forecasts to Account for External Factors
If there is an influx of customers due to an event, occasion, etc., or conversely, if there are many empty tables due to bad weather, you can adjust your forecast to reflect all such factors.

For instance, if there is a 90% chance of rain coming Thursday, you can make the adjustment in Zip Forecast.

The plus point is that sales and transactions can be edited for the very same day and on 15-minute intervals.

3. Customize Staff Forecast as Per Site Requirements
If you have multiple sites with different customer flows, Zip Forecast gives you the option to add customized matrices for each site.

Make site-specific changes by making minor adjustments to the number of required staff, as per different sales ranges.

4. Optimize Work Schedules as Per Sales Forecasts
With Zip Forecast, you can make daily staff forecasts on 15, 30, and 60 minutes intervals. This helps you line up the right number of waiters, cashiers, supervisors, chefs, etc. for any given time.

Additionally, you can eliminate chances of over or understaffing by making precise forecasts of how many staff members will be required at a particular time throughout the day.

5. Improved Profit Margins by Lowering Costs
With a centralized overview of all of your costs and with a precise sales forecast, you have a better chance of staying within your budget.

Also, you are provided with a detailed outlook of how much labor costs will be incurred while setting schedules.

Key Takeaway

Budgeting and forecasting are both vital for a restaurant's growth and success; this means that you have to ensure that all factors that affect these calculations are being accounted for.

With Zip Forecast, you can rest assure that all predictions are in line with your current and past position. And the good thing is that you can have a comprehensive overview of all your costs so you can adjust them as needed this also helps you increase your profits.

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