Restaurant budgeting guide to plan better financial projections

Running a restaurant means every dollar counts, especially in an industry where profit margins are often razor-thin. In fact, the average profit margin for restaurants is only around 3-5%.

Tracking where your money’s coming in and going out is super important if you want to keep your business profitable. One of the best ways to do this is by setting up a restaurant budget that you can stick to and monitor regularly. While building a budget may seem a bit overwhelming at first, it can be a powerful tool in helping you stay on top of your financial goals.

To make it easier, we’ve created a straightforward guide to help you and other brilliant restaurant owners out there create (and manage) a budget for your restaurant business.

What is a restaurant budget?

A restaurant budget is an important tool for making sure your business is financially on track. It helps you estimate if your restaurant is set up to make a profit or risking a loss.

With a restaurant budget, you can monitor every dollar you’re spending and bringing in, helping you check if you're meeting your revenue and expense targets for the year. It’s a straightforward way to keep tabs on your financial goals and adjust if needed.

What is the importance of a restaurant budget?

So, now you're up to speed on what restaurant budgeting is - yay! Let's start talking about why it's a brilliant idea to start doing it. Here are the top benefits for restaurant businesses:

• Improve restaurant sales: By keeping tabs on your spending, you’ll spot where you’re bleeding money or where you could bring in a little more. Plus, it’s a great way to see if there’s potential to upsell, offer new menu items, or roll out promotions that could get customers ordering just a little more. In fact, a 2023 study found that 37% of dine-in guests and 40% of takeout customers would order more if there were more affordable options alongside discounts. The more you track, the better you can target those revenue-boosting opportunities.
• Control expenses: It’s all too easy for expenses to get out of hand, especially in the restaurant industry where margins are so tight. But with a budget, you can keep a close eye on costs in real time, spotting anything that might be creeping higher than it should. Whether it’s food costs, utilities, or monthly expenses, a budget helps you to monitor it all and cut back on waste.
• Optimize profit margins: A well-structured budget helps you balance what you’re spending with what you’re bringing in, ensuring you’re not overspending. From tweaking your menu prices to adjusting portion sizes (because who doesn’t love a perfect balance?), or even refining staffing schedules, your restaurant budget gives you the power to make strategic choices that protect your bottom line.

What is involved in a restaurant budget?

You wouldn’t bake a cake without knowing the ingredients, right? That would be a disaster. Well, the same goes for your restaurant budget, before you get started, let’s quickly go over the key components so you know exactly what you’re working with:

• Fixed costs: These are the expenses that stay the same no matter how busy your restaurant is. Think rent, business loans, insurance, and some utilities. They’re predictable, so they’re easy to track.
• Variable costs: These change based on your sales – stuff like food costs, beverage costs, and things like your utility bills during a busy or slow month. Just FYI, You could also have semi-variable costs like your phone bill or certain employee wages (think overtime), where the base rate stays the same, but extras can vary depending on demand.
• Labor costs: This includes employee wages, payroll taxes, employee benefits, and other labor expenses.
• Food and beverage costs: This one’s huge for restaurant owners. It includes all the ingredients you need to make your dishes and drinks.
• Marketing and promotion: You need to get the word out about your restaurant to drive sales. So you'll need a marketing budget for things like online advertising, print ads, and social media promos, etc.
• Maintenance and repairs: Things break, unfortunately, so this will be for fixing kitchen equipment or sprucing up the decor. It’s part of your restaurant costs that you need to plan for.
• Miscellaneous costs: These are the little things that don’t always fit into other categories. When you create a restaurant budget be sure to think about those unexpected expenses, external factors, depreciation, or even those surprise health inspections (ugh).

TIP: This is just a quick overview. If you want to get the full rundown, check out our other blogs to learn more about food cost management and how to handle variable costs.

How do you budget for a restaurant business?

Alright, so now that you know what goes into your restaurant budget, let’s get into the “how-to” side of things. Here’s a breakdown of the steps to keep your budget on track and your restaurant profitable:

Analyze your costs

Before setting any financial goals, it’s essential to know what you’re spending and why. Every expense matters here: any and all fixed and variable costs. For example, if you’re running a fine dining restaurant, your food and labor costs might be much higher than a casual diner’s due to the quality of ingredients and the fact that quick service restaurants require less training.

On the flip side, a small café might find that utilities and labor costs fluctuate dramatically depending on the season. By looking at these costs in detail, you can see if there are ways to boost your efficiency, like adjusting opening hours in quieter months to save on labor or stocking only what’s needed.

Forecast revenue in the restaurant industry

Once you know your costs, it’s time to estimate what you’ll bring in. Revenue forecasting might feel like a guessing game, but it’s about making educated predictions based on past sales data, local trends, and industry reports. For example, if you’re running a seasonal beachside restaurant, you may expect a surge in summer but a dip in winter. Look at past seasons to estimate how much more you’ll need to make in peak months to cover any leaner months.

New restaurants without historical data can use industry reports or talk to local businesses to understand demand. For example, data might show that 40% of customers order delivery on weekdays—something that could help a pizzeria forecast weekday delivery revenue.

Project realistic financial goals

Say you’ve forecasted monthly revenue at $50,000, decide on a specific percentage for labor, food costs, and overhead. An efficient budget could set labor costs at 30%, food costs at 28%, and the rest for overhead. It’s helpful to build goals that also anticipate growth, like adding seasonal menu items that yield higher profit margins or reducing waste to keep food costs down.

Allocate funds effectively to different areas of your restaurant

Start by assigning percentages based on industry standards (labor, food, rent, and marketing). For example, you might set labor at 30%, food at 25%, rent at 10%, and marketing at 5% of revenue. If you notice marketing tends to perform well, you might consider increasingthat percentage in certain months for promotions to boost business.

Set the right pricing strategy for your menu 

Pricing is an art and a science. Aim for prices that cover food, labor, and overhead while appealing to customers. Menu engineering (highlighting high-margin items or promoting bundle deals) can drive profitability. Take a steakhouse as an example; selling high-end cuts requires pricing that reflects quality while balancing food costs. In contrast, a fast-casual spot might lean on combos or daily specials to keep customers returning.

Monitor and evaluate regularly to adjust your budget 

Check-ins help keep expenses on track and allow you to adjust before issues arise. Look at your budget monthly, reviewing line-by-line to see if any costs have fluctuated unexpectedly. If your food costs suddenly spike, it could be due to supplier changes or increased demand, so keep an eye on these factors. Adjusting labor expenses when business is slower can also make a big difference.

Tips to improve your budget’s efficiency 

Budgeting is great and all, but an efficient budget? That’s what will boost your future sales. These tips will help you make the most of your resources, cut unnecessary costs, and streamline your spending.

Optimize your stock control

Efficient stock control helps you avoid two big issues: overstocking and waste. Over-purchasing leads to waste, especially with perishable ingredients that expire quickly. When food is wasted, it’s not just a loss in products, but also a financial hit. Almost 90% of food waste either ends up in landfills or is incinerated, creating a massive environmental impact. In fact, it’s responsible for CO₂ emissions equivalent to those from 14 million cars.

This is why investing in smart stock management is essential. Your restaurant POS terminal can help track usage rates, expiration dates, and ordering patterns, allowing you to forecast accurately and avoid buying excess stock. For example, tracking food and beverage costs monthly lets you adjust orders as demand fluctuates, keeping you from tying up cash in unnecessary inventory that could instead go toward enhancing customer experience or upgrading equipment.

Automate labor management 

Labor costs are one of the largest expenses in the restaurant business, and mismanagement here can quickly derail your budget. In 2022, 75% of restaurant owners predicted labor costs would rise. By 2023, 89% reported this increase as a reality. This shift often stems from staffing needs during peak hours, unexpected absences, and high turnover rates, each of which can lead to unplanned overtime, affecting your labor cost percentage.

Automating labor management through scheduling and payroll software ensures your staffing levels match demand. For instance, these tools can track trends, like which hours or days are busiest, so you can schedule more effectively without overstaffing. They also help to avoid human error in payroll and time tracking, reducing unnecessary costs and freeing managers to focus on guest service.

Reduce utility costs

Energy costs for heating, cooling, lighting, and cooking vary but are typically unavoidable. A detailed approach to reducing these expenses starts with identifying inefficiencies. For example, energy-efficient lighting can reduce electricity costs immediately, while properly timing and managing kitchen equipment can limit spikes in energy use during service hours.

Negotiate with suppliers 

In 2022, wholesale food prices rose by 14.7%, the largest increase since 1974. While prices dropped slightly by 0.3% in 2023, this decrease wasn’t consistent across all products; beef prices rose by 13%, pasta by 9%, and pork and eggs fell by 8% and 28% respectively (National Restaurant Association, 2024). This unpredictability underscores the need to negotiate with suppliers actively.

By building strong supplier relationships, you can secure consistent prices and discounts on bulk orders, which stabilizes your budget. Locking in fixed prices for high-use items like protein or staple ingredients not only provides budget predictability but also reduces the impact of unexpected market changes. The potential savings go directly toward your bottom line, making it easier to withstand any future increases without passing costs onto customers.

Tools for better restaurant budgeting

If you want to run a tight ship, it’s time to put technology to work in your budget. With so many moving parts in a restaurant, budgeting tools are essential to track and manage costs in real-time. And the stats don’t lie: nearly half (46%) of restaurant owners say business intelligence is their top technology investment priority for 2024. Let’s break down the best tools to make budgeting easier and more effective.

Point of sale solutions 

Beyond taking orders and processing payments, advanced POS solutions collect crucial data on sales trends, inventory levels, and even customer preferences. By linking your POS system with inventory management, you can track exactly how much product is being sold versus what’s on hand, helping you avoid costly waste and over-ordering. For example, a restaurant that sees high weekend traffic can use POS insights to forecast weekend trade, ensuring stock levels meet demand but don’t exceed what’s needed.

Accounting software 

Restaurant accounting software tailored for restaurants is brilliant for managing everything from payroll taxes and employee benefits to monthly expenses and significant costs like maintenance and repairs. Restaurant-focused accounting tools, like Sage or QuickBooks, offer specific features that cater to restaurant needs, such as tracking food and labor costs, calculating cost of goods sold (COGS), and generating profit and loss reports by day, week, or month. Plus, they integrate seamlessly into Epos Now POS software.

Budgeting apps for small businesses

Many of these apps offer features that track income, expenses, and even help with cost-cutting suggestions. Apps like PocketGuard, YNAB (You Need A Budget), or Mint are affordable options that sync with your bank accounts to provide a real-time view of spending.

These tools are especially useful for keeping an eye on variable costs, such as utility bills and food expenses, which fluctuate with sales volume. You can set goals, allocate funds, and get insights on where you can trim down. Budgeting apps can also help you identify patterns in spending, like seasonal changes in utility costs or shifts in ingredient prices, helping you make adjustments to your budget that reflect actual demand.