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Budgeting and Managing Cashflow

If you want to reign in your finances and grow your business (or just keep it afloat in the current economic climate), then working to a strict budget is absolutely necessary. Managing your business's cashflow can be a mammoth task, but it's much easier when you've got a budget to track your spending and performance against.

So, what's the best way to control the budget that you've set to ensure your business's future viability and growth? How do you know if opening a new location is manageable? How much will it cost to start a restaurant?

I'll use a fair few examples surrounding restaurants and hospitality, but the principles remain the same across any business.

Understand the costs of what you're trying to accomplish

Whether you're about to start on your business journey, or you're already looking at opening your next location, it's important to establish both what's currently in your 'war chest' as well as the base costs of what you're trying to do.

Starting on your journey without fully understanding the costs is a definite no. To keep on top of costs, overheads, staff costs and general spending you'll at least need a rough figure for it- being as precise as possible will benefit you in the long run. It's also important to be realistic and honest with yourself, if a project doesn't seem affordable, don't play down the figures and end up with a square peg, round hole type situation.

If you're starting a new business, split the costs that you expect into key areas e.g. front of house staff, back of house staff and their associated costs such as NI and Pensions fall under labour, booze and food will fall under stock. You might also need a significant amount of equipment- can you buy this outright, or will you need to lease it? These are all pretty obvious segments of the business, but it'll help keep your headspace clear if you can put all of your costs under separate headers. Tip: I use a mind map to start with when I'm creating a budget for a new client.

You'll also need a good estimation of the revenue that you expect to generate- take a look at similar businesses (both locally and nationally)- you can look at these businesses on Companies House to get an idea of how well they're doing. If they're not showing as dormant, there's no application to strike off, their accounts aren't late and they've been trading for a few years, then it's likely (but not certain) that they're doing ok.

Although you'll be using £ figures to work out your costs, you'll also need to work out what percentages of revenue each cost is. Most restaurants tend to aim for 25% of their revenue as spend on stock and 33% of their revenue on staff costs. These figures are only guidelines though and different types of restaurant will use different percentage figures e.g. a traditional pub will have a higher % stock cost as ale tends to have a lower profit margin than wine and spirits.

Make sure you add extra on top of each variable cost to account for increases in supplier prices.

Set your budget and track it over time

Once you've agreed on a budget, you should ensure that you've got it in a spreadsheet at the very least, but preferably entered into a finance system like Xero- this will make costs much easier to track as this is where you'll link up your EPOS system, bank accounts and also import all of your bills using something like Dext Prepare.