Opening a Restaurant: Developing Your Business Plan.

The financial section of your business plan defines your cash flow requirements for the execution of your project. It is central to securing funding and allows investors or banks to assess the robustness of your project.

Beyond your cash flow requirements, your business plan more broadly outlines your financial forecasts, including your startup capital, estimated turnover, profits, and overall results. It also helps define your commercial and marketing strategy, as well as your legal status.

Key Ratios for Your Business Plan

A range of ratios exists within the restaurant sector that aids in constructing a business plan. We have provided a benchmark for each. Naturally, every project is different, and these rates are not absolute rules. They will help you position yourself relative to market standards.

• Raw Material Purchases/Turnover (also known as food cost in the restaurant industry): maximum 30%
• Prime cost, which includes personnel costs, raw material costs, and packaging costs, should not exceed 60% of turnover. You must ensure your profitability given the substantial initial investment.
• Rent/Turnover: maximum 9% to 10%
• Personnel Costs/Turnover: maximum 30%. These are very significant for a restaurant, and many wish to start small with very few staff. This can be risky if, for instance, you target a lunchtime clientele who are in a hurry and require quick service.
• Labor Cost Percentage per Meal: Gross Wages + Charges / Net Turnover (Recommended Rate: between 35% and 45%)
• Shrinkage (Loss, Breakage, Theft)/Turnover: maximum 2%.
• Gross Margin/Turnover: 70%
• Promotional Budget/Turnover: 4% at launch, 1% to 2% thereafter.
• Net Profit/Turnover: 10%

Setting Prices: The Multiplier Coefficient Method

To set prices, several factors must be considered.

Market prices, and thus those set by your competitors, should certainly be analyzed, but this alone is not sufficient. The prices you list on your menu must also reflect the image you wish to project for your restaurant and the profit margin you aim to achieve.

Once all these elements are considered, you can use the multiplier method to set your prices. This method involves applying a multiplier coefficient to the cost of the raw material; therefore, the calculation only accounts for the price of the raw material, disregarding personnel costs or other additional expenses.

Several rules must be observed:

• The multiplier decreases as the raw material cost increases.
• The multiplier increases with the workload required to deliver the service.
• The coefficient you apply must enable you to generate a gross margin sufficient to cover all your restaurant's expenses and yield a satisfactory profit.

To determine the pricing of wines on your menu, Les Grappes advises:

Pricing wines on your menu involves applying a multiplier coefficient to the wine's purchase price.

This multiplier coefficient must obviously consider the wine's purchase price, but also external factors such as your establishment's rent, personnel costs, etc. This is why, for instance, the coefficients applied are generally higher in Paris than in regional areas.

It is advisable to apply a relatively slight progressive reduction to the coefficients.

For example:

• For a bottle purchased at €4 ex-tax, a coefficient of 5 can be applied → Calculation: €4 ex-tax x 5 = €20 inc-tax on the menu.
• For a bottle purchased at €8 ex-tax, a coefficient of 4 can be applied → Calculation: €8 ex-tax x 4 = €32 inc-tax on the menu.
• For a bottle purchased at €14 ex-tax, a coefficient of 3.5 can be applied → Calculation: €14 ex-tax x 3.5 = €49 inc-tax on the menu.

How to Calculate Your Margins

The margin on food items is calculated as follows: (Revenue ex-tax – Cost of food consumed) / Revenue ex-tax.

The margin on beverages is calculated as follows: (Revenue ex-tax – Cost of beverages consumed) / Revenue ex-tax.

Generally, the margin on food items is around 72%, and on beverages, it is 85%.

Building Your Financial Forecast

First, it is necessary to forecast all expenses related to purchasing the goods required for preparing your meals. You will also need to budget for beverage purchases. The amount of these expenses must align with the margin you anticipate generating.

The financial forecast must also account for the projected commercial lease rents, as well as the initial security deposit (which should be recorded as an investment).

Furthermore, general overheads typically include:

• Energy expenses
• Equipment maintenance
• Cleaning supplies
• Small kitchen equipment
• Professional insurance
• Equipment rentals
• Accountant's fees
• Advertising expenses
• Bank charges
• Telecommunication costs
• Loan repayment (if a loan has been taken out)

It is advisable to separate tangible investments (premises, equipment, kitchen, inventory, cleaning products, IT hardware) from intangible investments (lease, salaries, communication).

Key figures to know:

• A minimum 15% 'safety cushion' will enable you to handle unforeseen circumstances. – Rent or occupancy costs should not exceed 10% of your projected turnover.
• Keep in mind that banks may refuse financing. They consider the risks associated with opening a restaurant to be high (one in two restaurants closes before its third year of operation).
• You generally need to provide at least 30% of the financial contribution to be able to borrow money.

Develop a strong pitch to convince your investors. The more persuasive and determined you appear, the more investors will believe in your project and trust you. Don't hesitate to continuously refine your business plan until it is perfect.