How to Create Realistic Financial Projections for Your New Restaurant

Some would argue that the financial projection is the business plan. Why bother building a restaurant if it's not going to make any money? For potential investors and lenders, the financials are often viewed as the heart of the business plan and this section will get a lot of attention and even scrutiny from them.

An experienced operator recounted his career in the early 1990s when he was recruited to be the general manager and eventually managing partner for a beautiful, upper-casual steak-and-seafood concept. He joined the venture in the midst of construction, about three months before opening.

"Having had success in several nightclub ventures, the general partners spared no expense when it came to design and construction," he recalls. "Thick red leather booths encased in rich mahogany trim set the tone for the dining room ambience that our $1.8 million budget mandated. A constant flow of change orders and delays, including more Italian marble and a $41,000 brass and polished stainless steel revolving door entrance, contributed to ballooning cost overruns. Although the enhancements served to entrench the restaurant as a must-visit destination, the added expenses resulted in a final cost of $2.4 million to get the restaurant open.

Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. ~ Ayn Rand

"Overshooting the budget by nearly 33 percent meant that additional financing would be needed to pay for the excessive expenditures. Not only was the ROI (return on investment) projection shot, the partners were only able to raise an additional $200,000, leaving $400,000 in payables for which they expected to settle from cash flow.

"A quick rework of our break-even point revealed that we now needed to do $75,000 in sales per week just to break even. Needless to say, this restaurant concept, regardless of how good the food was, how great the service, and how magnificent the ambience, was now a prime candidate for failure due to underfunding."