How do you calculate the estimated turnover of a new business?

[Jwan]

Hello everyone

How does one calculate an estimate of the annual turnover of a new business? New as in you have no historical data to go upon.

For my set outgoings, I am fairly certain I have the majority covered, there might be some other set outgoings, but I won't know until we're actually operating the business.

The business is a restaurant (if you didn't know already from my other threads).

Thanks

 

[Mark T Jones]

Your first cashflow forecast will be nonsense. And that's fine because it's the ongoing process that makes it real

The advice I always give start ups is just to start putting figures on boxes - you could start with the profit you want to achieve and work that back to how many customers / spend etc, or start with a guess at turnover and see how that translates to profit

The real value comes from the many, many hours you spend dissecting those figures and making them real. It will still be a bit of a guess, but a far more educated guess than your first attempt.

 

[LiveNetworks Ltd]

Couple of things, you need to have a good idea of your fixed costs before you go anywhere. Everything else, such as staff costs and cost of sales will vary reasonably with how busy you are so your target is to figure out your sales for breaking even. That will give you a reasonable starting point.

The other is, have a quick look at some of the businesses for sale web sites. You'll be able to get a vague idea as to what established businesses turn over with similar numbers of covers.

 

[deanpunchard]

Surely you simply estimate the average customer spend, then multiply it by the number of covers you'd realistically expect over the year?

 

[Jwan]

But how optimistic or pessimistic should one be? For example, we have 64 seats. Is it optimistic to say that we'll fill 13 seats a day?

 

[deanpunchard]

If you didn't want to estimate you could do some market research. Find similar restaurants, in similar areas, and count how many people they serve.

Or think about it another way, at 13 covers, would you survive? How many covers do you need to break even? How many to make a profit? How many covers before you need extra staff?

Until you've crunched the numbers, and made assumptions on research you'll just be best guessing.

 

[Jwan]

Thank you, I'll do that.

 

[ethical PR]

I don't agree with those who say you can't estimate your turnover for something like a restaurant.

How many days a week are you open?
How many sittings for each service?
How many covers for each service - during the week? at weekends?
What is the average project spend per customer for lunch/dinner

What are you fixed costs - rent, rates, staff, insurance, marketing, advertising, uniforms, equipment, glasses, crockery etc

Estimate variables food, drink, breakages, wastage etc

What does the profit look like gross and after you have taken a salary/dividends.

If you can't pay yourself a wage and make a decent profit you don't have a business.

 

[Toby Willows]

I don't agree with those who say you can't estimate your turnover for something like a restaurant.

How many days a week are you open?
How many sittings for each service?
How many covers for each service - during the week? at weekends?
What is the average project spend per customer for lunch/dinner

What are you fixed costs - rent, rates, staff, insurance, marketing, advertising, uniforms, equipment, glasses, crockery etc

Estimate variables food, drink, breakages, wastage etc

What does the profit look like gross and after you have taken a salary/dividends.

If you can't pay yourself a wage and make a decent profit you don't have a business.

You can’t realistically estimate your turnover. Your food might be rubbish, your service might be abysmal, your ambience may well be nightmarish, your staff might be stealing more of your turnover than you are getting etc etc but you just can’t see it. You can have all your costs and hopeful number of covers sorted but until you start to operate it’s all a finger in the air and wishful thinking.

Just because you have “X” covers over “Y” hours less costs is absolutely meaningless and gives you zero idea of any aspect fir the financials of the possible business.

 

[ethical PR]

Of course things can go wrong in business @Toby but to say you can't try and put a business budget together is rather silly. Figures will only be meaningless if you don't do your research properly and you are not experienced and expert in the business you are setting up when it comes to something like a restaurant business where you know your covers etc.

 

[Toby Willows]

like a restaurant business where you know your covers etc.

A new business has no idea what covers they may achieve, like the OP. McDonalds etc on the other hand have a fair idea.

You’ve missed where the OP is at and what their experience is.

 

[Jwan]

Hi Guys

Yes we are fairly inexperienced, we haven't owned restaurants before. Mum only helped uncle initially when he set up his restaurant.

We're a big family, so initially, we won't have other staff and we've all put money into the business, so we won't be paying ourselves any wages when times are tough.

But to answer your questions:

• We'll be open 6 days a week
• I'm not sure if we're being optimistic or pessimistic, but we have 64 seats in total, and we have put down that we're expecting 13 covers a day.
• The area is affluent, so we've put average spend at £20 (I think the norm/average is £15 in other areas)

Our set monthly outgoings are £4,400

 

[DavidWH]

Fixed overheads of £4400 a month.

To even turnover £4400 a month, you will need to have 220 covers @ £20 each.

6 days a week, so say 24 days (Mon-Sat) through Feb (short month), you need 10 covers a day.

That's turnover, not profit & not accounting for the cost of the ingredients.

If you know what margin you make on typical cover, you could work out how many covers you need to pay your fixed overheads.

Then you can decide if it's viable.

 

[STDFR33]

A new business has no idea what covers they may achieve, like the OP. McDonalds etc on the other hand have a fair idea.

You’ve missed where the OP is at and what their experience is.

Then you would forecast turnover on the worst case scenario. If that makes the business unviable, at least you know now rather than throwing hard earned cash at it.

 

[Jwan]

worst case scenario meaning 0 covers a day? Seems unrealistic, but again, we're new and inexperienced, so maybe that might happen!

 

[STDFR33]

worst case scenario meaning 0 covers a day? Seems unrealistic, but again, we're new and inexperienced, so maybe that might happen!

0 covers in a day for a new restaurant is a real possibility, particularly Mon - Thurs.

 

[STDFR33]

You'll also need to consider how VAT will effect your cashflow. It is a killer for restaurants.

 

[Toby Willows]

Then you would forecast turnover on the worst case scenario. If that makes the business unviable, at least you know now rather than throwing hard earned cash at it.

No, what you do is work out your costs (as has been done here) and then make sure you can personally cover those until your first break in the lease. As said worst case is zero customers, unlikely as a new establishment will usually draw initial interest for a few weeks. But you can’t just say worst case is xyz if it’s not based on anything solid.

 

[STDFR33]

No, what you do is work out your costs (as has been done here) and then make sure you can personally cover those until your first break in the lease. As said worst case is zero customers, unlikely as a new establishment will usually draw initial interest for a few weeks. But you can’t just say worst case is xyz if it’s not based on anything solid.

You're thinking of a cashflow forecast, not a budget.

 

[Chris Ashdown]

The only way you will get reasonable numbers to calculate your business plan is research, research, research, Go to similar local restaurants on different days and see what they do, don't go to the top ones who have made a good name but the others, Talk to staff and ask general questions a simple quite tonight may bring out "we are normally better than today" or "its the same on Tuesdays"

Don't forget the big pub chains are making massive inroads into the small restaurant business and in many cases far more family friendly

A spreadsheet is a great tool once you have estimated your costs, you can then try many scenario's on customer numbers to see if its a chance of being successful or no chance. There is no certainty in estimates but they sure help to see the pitfalls in your planning

Ask your bank for a business start up package which should include a template for budget and cashflow forecast, Most businesses go bust through cashflow than anything else

Your uncle should be the expert to advise as he is already in the trade

 

[Jwan]

My uncle made it through the first year or so by borrowing a lot of money from family and friends. When he first started, he was asking left and right for people to partner with him, no one did, but now the restaurant is very successful and he needs no partners.

When you say go to local restaurants, you mean I book a table and go sit inside whilst ordering food and then just observe how many others are there? What should I be on the look out for?

 

[Toby Willows]

You're thinking of a cashflow forecast, not a budget.

Nope, absolutely thinking budget and not even considering cashflow, it’s the only way to guarantee if it fails you come out the other side intact. Poorer yes, but not in search of Spongebob.

 

[Scalloway]

When you say go to local restaurants, you mean I book a table and go sit inside whilst ordering food and then just observe how many others are there? What should I be on the look out for?

That's what I would do. Chat with the staff. "You're busy/quiet tonight. Is Monday/Tuesday/Wednesday/Thursday always like this round here?"

 

[ethical PR]

My uncle made it through the first year or so by borrowing a lot of money from family and friends. When he first started, he was asking left and right for people to partner with him, no one did, but now the restaurant is very successful and he needs no partners.

When you say go to local restaurants, you mean I book a table and go sit inside whilst ordering food and then just observe how many others are there? What should I be on the look out for?

How are you defining successful. Has he paid back in full the 'lot of money' he borrowed from family and friends? is he paying himself a decent wage and still making a large profit?

 

[Jwan]

Yep and yep.

 

[ethical PR]

Yep and yep.

Then he will be much better placed to guide you then strangers on a forum.

 

[Jwan]

I did ask him for guidance, he said if it wasn't for all the money he borrowed he wouldn't have made it. Nothing more than that.

He did no research, no turnover estimations ...etc and he pulled through the tough times, that doesn't mean the same will happen for others.

 

[Mark T Jones]

Work I n his restaurant. Watch closely what happens. Customer behaviour, spending patterns, peaks and troughs etc

Also take the opportunity to watch closely how the kitchen operates, including outside service times - that’s where money is made and lost

 

[Chris Ashdown]

I did ask him for guidance, he said if it wasn't for all the money he borrowed he wouldn't have made it. Nothing more than that.

He did no research, no turnover estimations ...etc and he pulled through the tough times, that doesn't mean the same will happen for others.

Does this mean his approach to the business was wrong and it took outside help in money to enable him to learn and overcome his first failings?

Would better planning and knowledge have helped him make better choices?

Understanding the local market is a big help in starting a business

 

[Daugela]

You can always check accounts of restaurant businesses available on Companies House as a general guide.