Cash Matters

‘It’s what you learn after you know it all that counts.’ John Wooden

During the process of planning your hospitality business, you’ll come to the point where

you need to think about the money you’ll need to get this business started, sustain it in the early days and stay in business in the long term.

You need to figure out how much things will cost. Leasing the premises, the equipment, crockery – all the physical things, but also items like wages, insurances and your suppliers. Once you’ve determined what your budget will be, you need to decide where that money is going to come from.

Will it come from your own personal savings? Will you need to get a bank loan? Do you have someone who’s interested in investing in the business and becoming a partner? And that might be a partner who is involved in the business with you, or a silent partner who will invest money but will have no active part in the running of the business?

Money and finance tend to scare people a little; when embarking on a project of this kind, there’s always going to be some fear that things won’t go according to plan and you’re going to lose your money. But by going through this process and researching what you need, the statistics are way more in your favour.

The most important thing is to work out your budget.

This might sound a little bit silly, but the most basic reason for having a budget is to ensure you’ll make more money than what you’re spending. I’ve talked to a lot of people and sometimes when I asked them what their budget was, what their incomings and outgoings

were, they didn’t really know – and that’s a bit scary. You need to have a bit of an understanding of what your incoming and outgoing is, so you know how much you can spend. The best way to do this is to predict what you’ll do in sales and what you think your

expenses will be, then see how far out you are.

You also need to work out your Breakeven Point. What is the point in your sales that you need to reach to actually break even? Breaking even is when your sales equal your expenses. When your sales exceed your expenses you start to make a profit. This is not a precise science at all; what you’re really doing is making your best guess at what your future sales and future expenses are going to be.

What I usually do is three spreadsheets. The first one is a fairly low estimate of what I think I’m going to do, ten customers per day; then I do another spreadsheet, which is a high expectation of what I think may happen – for example, eighty customers per day. The third spreadsheet is what I realistically think that I’m going to do – I think I’m going to do about forty people a day. You can also plan for quiet times, busy times and holidays when it’s going to be busy. You factor in that over these two months, your sales are going to be a bit higher and then at this other period it’s going to be a little bit quieter (it’ll be winter, for example).

Once you’ve worked out the budget, you can then understand your need to either borrow some money or lease/rent some equipment. Unless you have unlimited funds, most businesses will borrow money from some source at some stage. This may be from the bank or from your family, but you need to understand what your budget is before you can look at what might be needed to be borrowed.

Knowing what type of premises you are moving into can also help with estimating costs. An existing premise with kitchen already installed may save you money on equipment, however, you may spend more money on getting old electrics updated. A new space, an empty shell can be enticing – you can let your creative side go wild and have everything exactly where you want it – remember that you will be spending a lot on the fit out. For a new shop think about whether the landlord will contribute to the fit out.

Remember that hidden costs will suck up all your money:

1. hydraulic engineers’ drawings

2. mechanical exhaust drawings

3. fire exit setups

4. electrical

5. plumbing

6. walls

7. flooring

8. floor coverings.

You haven’t even looked at equipment or furniture, whether that glass panel on the door needs to be changed to double glazing, any painting to be done and so on. There will be things that you didn’t think of, or that need to be changed, which comes at an extra cost. For things like liquor licenses and food licenses, usually there’s a yearly cost to those so you need to factor that in. Also consider maintenance on existing equipment, furniture and

things for your employees, like uniforms and superannuation.

Calculating your start-up costs will give you a sense of how much money you will need to outlay before you even open the doors.

These can be different for existing businesses, compared to new businesses, but will include:

1. cost for your registrations (business name, domain names, licences, etc.)

2. cost of website

3. cost of any vehicles for the business and their registrations

4. solicitors’ and accountants’ fees

5. phones and phone plans – this includes land lines and mobiles for the business and connection fees

6. internet connections

7. computer equipment, software and training

8. insurance (vehicle, buildings, etc.)

9. public liability

10. professional indemnity

11. worker’s compensation

12. design and printing of logos, business cards, menus

13. kitchen design

14. equipment (kitchen equipment, refrigeration, coffee machines, specialty equipment, etc.)

15. security systems

16. furniture

17. shop fit out (painting, carpentry, stainless steel benches, etc.).

So, let’s get some of that information in your head on paper and work out what you need to research.

1. At this stage, start preparing a budget. Remember this will be a work in progress.

2. Look at your location – is it already set up? Visit your local equipment suppliers and get an idea of what it might cost.

3. Research the local area with regards to services – for example, electricity costs.

4. You need to sit down and imagine that your food business is already open. Think about what days of the week you’re going to be open; are you going to close on Mondays, or are you going to open seven days a week? How many people do you see coming in the door? And what are they spending their money on? How much are they spending? Are you going to work in the business or will you take a wage? Who else will work with you?

6. Start asking yourself these questions and when you have the answers, put them into the budget. If you can, sit down with someone who has experience in making budgets; even if it’s not a hospitality business, they’ll give you loads of tips and hints in general as to what’s important and what you need to include, talking you through how to get that process started.

7. Look at your projected sales and expenses and play around with some figures. Open an Excel spreadsheet, put in Monday to Friday and start punching in some numbers – ‘I’m going to have twenty people come in and they’re going to spend $20 each, how much is that?’ Start playing around with figures. What would happen if a hundred people come in? How many people are going to have to come in the door to make the sales that you need? What are your expenses going to be and would you still be making a profit?

If you need more information or would like to purchase my book, head to my website.

If you would like to speak to me about budgets please feel free to contact me.

Written by: Jodie Terzis