Cost Benefit Analysis for a Restaurant

Will revenues exceed expenses?
Will revenues exceed expenses? (Image: Siri Stafford/Lifesize/Getty Images)

So you are interested in opening up a restaurant? It is possible to project the revenues and expenses of the restaurant to determine whether you can expect to make a profit. A cost benefit analysis will provide an estimate of the viability of your business.

Estimate Revenues

Estimate revenues by determining the number of patrons that the restaurant will accommodate, and more important, the number of customers whom you believe you will draw for each meal period. Develop an average check per customer, per meal period--each is called a day part, and the average check is usually different for each day part. Now, multiply the number of customers you will have for each day part times the average check to obtain total revenues.

Cost of Food and Beverages

The actual cost of the food or beverage (what you pay) divided by the sales price of the item (what you charge the customer) equals the cost of goods percentage. For example, say a hamburger with all the trimmings costs $1 and you sell it for $5. Then the cost of goods is 20 percent. Price out your menu items and obtain a cost of goods for each item. To get a true cost of goods you need to estimate how many of each item you will sell, multiplied by the cost of goods.

Revenue minus cost of goods equals profit for each menu item.
Revenue minus cost of goods equals profit for each menu item. (Image: Thinkstock/Comstock/Getty Images)

Cost of Labor

Now you come to the cost of your waitstaff, cooks, hosts and other people who run the restaurant. Add all of this together and you will obtain your cost of labor. Figure all of your shifts and add on for payroll taxes, workers compensation, and Social Security.

Add all costs of manpower needed to run the restaurant.
Add all costs of manpower needed to run the restaurant. (Image: Images)

Cost of Occupancy

What does it cost you to rent your building or to occupy the space for the restaurant? If you own the building, you may wish to use the cost of your mortgage. If you are leasing, you will use your lease expense. Other costs include taxes, utilities, and expenses associated with the operation of your restaurant space. Add these all together to obtain your cost of occupancy.

Finalize the Analysis

Now you are prepared to evaluate the cost benefit of your restaurant. Add all of your expenses together and subtract them from your estimated revenues. The key is profitability, so you want to be certain that the benefits are greater than the costs. Make certain that you have covered all of your costs by reviewing a profit and loss statement as a checklist. For a sample statement, see the Reference section.

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