Restaurant Financial Rules of Thumb

The first and most fundamental restaurant rule of thumb is "every independent restaurant is unique." However, rules of thumb regarding the financial and operational aspects of restaurants can provide a valuable starting point for evaluating and understanding the financial feasibility and performance of proposed and existing restaurants.

Hammer rule of thumb: If your only tool is a hammer, every problem looks like a nail. ~Abraham H. Maslow

Restaurants generate a lot of numbers so particularly for those new to the industry, deciding what numbers to focus on first and knowing what they mean can be more than a little perplexing. Rules of thumb can help operators determine where to look first and what to expect.

We'll discuss several of the restaurant industry's basic rules of thumb. While there will always be exceptions, they have proven to be surprisingly reliable over the years that I have worked with operators who collectively manage thousands of diverse restaurant operations. Keep these numbers handy when planning your restaurant and assessing your performance after you open.

Investment Rules of Thumb

One of the primary indicators chain operators use for evaluating the feasibility of a new location is the sales-to-investment ratio. This ratio compares the projected annual sales of a proposed site with its estimated startup cost. The ratio looks like this:

Startup cost includes all the costs necessary to open the restaurant including leasehold improvements (or land and building), furniture and equipment, deposits, architectural and design, accounting and legal, preopening expenses, contingency and working capital reserve.