Scale WithRestaurant Forecasting Systems

Posted by Chris Hameetman on Dec 10, 2018

Whether you like it or not, forecasting is a necessary part of any restaurateur's job. 

If you ignore committing the time required to create quality projections, you will find yourself with a myriad of problems from over purchasing fresh produce to being short-staffed during peak hours.

But not to worry! You do not need to be a fortune teller. Your annual forecast should instead comprise of a detailed outline of your desired future that incorporates your well-reasoned strategy to get there.

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What Is Forecasting?

The best way to explain forecasting is to think of it as a profit-and-loss statement for the future. While you do use past data, you primarily use it as your foundation for future planning.

Doing an annual forecast is essential to your restaurant's viability. It allows you to look beyond your day-to-day operations and quantify your long-term goals. When you take the time to construct your projections properly, they're an excellent way to check your restaurant's financial health throughout the fiscal year. Comparing these projections against the actual reality at any given time will help you make better decisions that allow you to keep on track with your plan. Your goal with any annual forecast is to provide yourself with the optics to identify issues as they arise, course correct as needed, cut unnecessary losses, compound profits, and sustain growth.

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Steps to Create an Annual Forecast

The more information you have, the less your business will be a guessing game. Instead of hoping your year is going to go well, chart a path to make it an excellent year with an actual game plan and proper forecasting. Below are four steps to get started forecasting for an optimal year.

 

1. Gather Necessary Information

In a data-driven world, it is good to hold on to your business' financial information for as long as reasonably possible. You will at a minimum need your profit-and-loss statements from last year to get started. If you have two or three years of data available, that is even better.

Established businesses will quickly be able to identify seasonal trends and other variables that take place throughout the year and can plan accordingly. If your business is new, you should plan for consistent spending to give yourself a baseline from which to operate.

 

2. Break Down Spending and Revenue Into Categories

While estimating your spending and revenue totals as two large numbers may be the quickest way to complete your spreadsheets, you will be limiting your understanding of your operation's finances. To get the most benefit out of organizing your data, you should sort spending and revenue into the smallest category groupings possible. As Peter Drucker, one of the world's most respected managers once stated, "you can't manage what you can't measure."

If you notice a great deal of variance in your business, it may be useful to sort data by the month. Keep in mind, however, that some months have one more weekend than others, and some months have holidays.

Breaking your information down so that you can see how the outliers affect your business is integral. You might think May is a good month, for example, but perhaps you only experienced a surge of activity on Mother's Day and the rest of the month was underperforming.

One word of caution, however. Do not go overboard when creating categories, or you will end up with a mass of confusing data. While you do not need to reply on a robot bartender to handle your operational forecasting, the historical context from accounting systems can prove to be vital for accurate forecasting.  is Your goal is to hit the sweet spot by creating enough grouping of revenue and expense line items for the insight but not at the expense of your sanity.

 

3. Calculate Year-Over-Year (YoY) Change

When calculating YoY, you need to be realistic. No matter what your dream number is instead of creating a wish list, work with real numbers that will allow you to calculate what you can honestly expect to occur in your business.

When you are calculating your YoY for both revenue and spending, remember that a positive result shows an increase, and a negative result shows a decrease.

After you have your numbers, look at where they spike or drop. See what events (or lack of events) took place during that time period. Understanding why the numbers you want are or are not happening is vital.

 

4. Plan for Future Growth

Now that you have the numbers for your YoY, it's time to create your targets. Because you have real data to back up these targets, they are no longer wish-list items. Now your objectives are achievable numbers that you can hit, or at least always be aware if you are pointed in the right direction. 

As you plan, think about your earning potential. Take into account any changes that occur during the year. Do you have more customers during the summer or winter? Do not ignore seasonal sales either, as they will skew your calculations if you do not account for them. 

Also, remember that while you are increasing your revenue, you will almost always be increasing spending. You will need to put money into marketing, equipment, and other capital upgrades. While you may be bringing in more revenue, this does not always immediately result in higher net profits due to your increased spending. Your return on these investments are often spread out over the future years of your business. 

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Other Helpful Tips to Note

Now that you have all your information in place for your forecast, it is time to double-check your work. There is great wisdom in the proverb "measure twice and cut once." Never guesstimate anything. Without proper data to back up your projections, you are setting yourself up for disappointment.

Also, do not forget to account for forces and events outside of your business. External factors often cause significant challenges for even the most responsible operators. If the cost of goods rises or another restaurant opens up next door, there could be a profound difference between your plan and reality. Hope for the best but plan for the worst. To be sure that all of your bases are covered, make at least two sets of projections—one that is more optimistic and one that is far more conservative.

  

Conclusion

Putting together your annual projections is not an option. Without investing the time to properly forecast your business' finances, you are not doing the work necessary to strategically increase your bottom line. If you put in the extra time,  you will see how much more effective your business strategies are in the years that follow.

 

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