Create a better 2025 budget for profitability and stability

Financially planning your year with a solid budget separates a professional from the rest. You’re not just running a restaurant; you’re a professional restaurateur, and part of that title means owning your numbers. Sure, your CPA gets everything squared away for the taxman, but it’s on you to develop a rock-solid strategy for the upcoming fiscal year. If numbers and Excel aren’t your thing—or even if they are—follow these guidelines to get a grip on your finances and set your business up for success.

Step 1: Look Back to Move Forward

When planning your budget for the next year, the first step is to look back. Start by examining last year’s numbers and assume that most variables will stay the same unless you know of upcoming changes, like opening a new store. If last year didn’t go as planned, take those “oh crap” moments and turn them into lessons for 2025. We find it easier to plan on a 13-month calendar, broken into 13 four-week periods. This approach helps avoid the pitfalls of varying month lengths and weekends, giving you a consistent framework for comparison.

Start by evaluating:

• What was our run rate last year?
• Where did we stand on sales, labor and food costs?
• What was our total revenue percentage in each period?

Identify what worked (e.g., solid labor numbers) and what didn’t (e.g., high food costs). Then, figure out how to replicate your successes and prevent the issues that tripped you up.

Areas to Laser-Focus On

1. Labor Costs

Labor is one of the biggest and most controllable expenses in your restaurant. For 2025, aim to keep labor costs between 20-30% of total revenue. The exact percentage will vary depending on your restaurant type, but balancing adequate staffing with financial efficiency is key. Regularly review your scheduling practices to avoid overstaffing during slow periods or understaffing when you’re busy. Investing in labor management tools can help optimize shifts and reduce unnecessary labor costs.

2. Cost of Goods Sold (COGS)

COGS, which includes the cost of raw ingredients, is another critical area that demands your attention. The target for COGS is typically 20-30% of revenue. To avoid eroding profit margins, regularly analyze your menu pricing and portion control. Engaging in regular vendor negotiations and exploring alternative suppliers can also help keep COGS in check.

3. Fixed and Variable Expenses

Fixed expenses—like rent, insurance and loan payments—need careful monitoring because they don’t fluctuate with sales volume. Your target here is usually around 12-18% of revenue. Variable expenses—like utilities and marketing—will change based on your business activity level. Managing these effectively requires a proactive approach, like adopting energy-efficient practices to reduce utility costs or being strategic about marketing spend.

Common Budgeting Pitfalls and How to Fix Them

1. Underestimating Expenses

One of the most common mistakes operators make is underestimating their expenses. This usually happens due to overly optimistic projections or failing to account for all potential costs. The solution? Adopt a conservative approach when estimating expenses. Make sure you factor in all seasonal or cyclical costs as well.

2. Ignoring Cash Flow Management

Even if your budget looks great on paper, your operation can be easily wrecked by poor cash flow management. Pay attention to when revenues are received and the due dates for major expenses, like payroll, vendor payments and taxes. Maintaining a cash buffer can help you manage unexpected expenses or revenue dips. A payment calendar is a great tool for tracking when large payments are due and preventing cash flow surprises.

3. Overlooking the Impact of Seasonality

You will experience fluctuations in revenue due to seasonality, so don’t overlook it. Failing to account for these can result in cash shortages during slow periods. Use historical data to anticipate seasonal changes in revenue and adjust your budget accordingly. This might mean setting aside reserves during peak seasons to cover leaner months or ramping up marketing efforts to drive traffic during slower times.

The Value of the Budgeting Cycle

The budgeting cycle is more than just an annual exercise; it’s a strategic process that provides valuable insights into your restaurant’s financial health. By going through this cycle, you can:

1. Gain Financial Clarity

The budgeting process forces you to confront the financial realities of your business. It highlights where money is being spent, where it’s being wasted, and where there are opportunities to save or invest more effectively. This clarity is crucial for making informed decisions throughout the year.

2. Enhance Accountability

A well-structured budget assigns accountability across different areas of your business. For example, if labor costs consistently exceed the budget, it may indicate a need for better scheduling practices or a review of staffing levels. Regularly reviewing your budget performance allows you to hold managers accountable and make necessary adjustments before small issues become big problems.

3. Prepare for the Unexpected

The budgeting process is also about preparing for the unexpected. By identifying potential risks and setting aside contingencies, you can better navigate challenges like sudden increases in ingredient prices, equipment breakdowns or economic downturns. This proactive approach ensures you’re not caught off guard by unforeseen events.

BECAUSE…….

Creating a better budget for 2025 isn’t just about managing your money; it’s about strategically positioning your restaurant for success. Focus on key areas like labor costs, COGS and cash flow management, and avoid common budgeting mistakes. Embrace the budgeting cycle as a critical tool for achieving your business goals — it’s not a chore, it’s your roadmap to profitability and stability.

Mike Bausch is the owner of Andolini’s Pizzeria in Tulsa, Oklahoma. Instagram: @mikeybausch