How to Create a Financial Model for Your Restaurant or Coffee Shop

Creating a financial model for a restaurant or coffee shop is essential for forecasting future performance, managing cash flow, and making informed decisions about growth. A solid financial model not only gives you a clear view of your business’s financial health but also helps you plan for potential scenarios, secure financing, and measure profitability.

Here’s a step-by-step guide on how to build a financial model tailored specifically for restaurants or coffee shops:

As a bonus by the end of an article you will get a free Excel template to plan your financies

Step 1: Define Your Revenue Streams🔗

Restaurants and coffee shops typically have multiple revenue streams. To accurately forecast your income, identify all the ways your business generates revenue, including:

• In-store sales: Revenue from food, beverages, and merchandise sold directly to customers.

• Online orders: Revenue from deliveries or pickups via your website, mobile app, or third-party platforms.

• Catering services: If you offer catering for events, it should be a separate revenue stream.

• Special events: Hosting events like coffee-tasting sessions or private dinners can bring in extra income.

For each stream, calculate the average transaction value (i.e., the average check size) and the estimated number of transactions per day, week, or month.

Step 2: Estimate Variable Costs (Cost of Goods Sold)🔗

Variable costs, also known as Cost of Goods Sold (COGS), vary directly with sales. For a restaurant or coffee shop, COGS includes:

• Food costs: The cost of ingredients used to prepare each dish or beverage.

• Beverage costs: Includes the cost of coffee beans, milk, and other drink ingredients.

• Packaging: For takeout or delivery orders, consider the cost of packaging materials.

To calculate COGS:🔗

1. Determine the cost of each ingredient.

2. Multiply the cost by the portion size used in each dish or drink.

3. Sum up these costs for each item on your menu.

Tracking your COGS will help you understand the profitability of each menu item and optimize pricing.

Step 3: Calculate Fixed Costs🔗

Fixed costs don’t change regardless of your sales volume. These typically include:

• Rent: Monthly lease payments for your restaurant or café space.

• Utilities: Electricity, water, gas, and internet expenses.

• Salaries and wages: Payroll for full-time staff, including kitchen and front-of-house employees.

• Insurance: General liability, property, and worker’s compensation insurance.

• Licenses and permits: Regular fees for business licenses, health permits, etc.

To create an accurate financial model, list out all your fixed costs and determine how much you’ll need to cover these expenses each month.

Step 4: Forecast Revenue and Expenses🔗

Now that you’ve defined your revenue streams and calculated both variable and fixed costs, the next step is to forecast revenue and expenses.

Revenue Forecast:🔗

• Estimate sales based on your expected number of customers and average transaction value. You can break this down by time (daily, weekly, or monthly) and adjust for seasonality (e.g., higher sales in summer months for an ice cream shop).

Expense Forecast:🔗

• Use your COGS percentage to estimate how much of your revenue will go toward food and beverage costs.

• Add fixed costs like rent, utilities, and salaries.

For example, if you expect to generate $10,000 in revenue per month, and your COGS is 35%, you’ll spend $3,500 on ingredients. If your fixed costs total $5,000, you’ll have $1,500 left to cover other expenses or profits.

Step 5: Build a Profit and Loss Statement (P&L)🔗

A Profit and Loss Statement (P&L) is a key component of your financial model. It summarizes your revenues, costs, and profits over a specific period (usually monthly or yearly). Here’s how to structure it:

Revenue🔗

• In-store sales

• Online orders

• Catering

• Total revenue

Cost of Goods Sold (COGS)🔗

• Food costs

• Beverage costs

• Packaging

• Total COGS

Gross Profit (Revenue – COGS)
🔗

Operating Expenses🔗

• Rent

• Utilities

• Salaries

• Insurance

• Marketing

• Other fixed costs

Net Profit (Gross Profit – Operating Expenses)🔗

This P&L will show you whether your restaurant or coffee shop is profitable and help identify areas where you can cut costs or boost revenue.

Step 6: Cash Flow Forecast🔗

Cash flow is the lifeblood of any restaurant. Even if you’re profitable on paper, poor cash flow management can lead to liquidity issues. A cash flow forecast estimates how much cash will flow in and out of your business each month.

To build a cash flow forecast:

1. List cash inflows: Include revenue from sales and any loans or investments.

2. List cash outflows: Include expenses like COGS, rent, payroll, and loan repayments.

3. Calculate net cash flow: Subtract outflows from inflows to determine whether you’ll have a positive or negative cash flow for the month.

Make sure to factor in seasonal fluctuations and other variables, like unexpected repairs or equipment upgrades.

Step 7: Break-Even Analysis🔗

A break-even analysis tells you how much revenue you need to cover your costs. To calculate your break-even point:

1. Add up your fixed costs.

2. Divide by your gross profit margin (Revenue – COGS / Revenue).

For example, if your fixed costs are $10,000 per month and your gross profit margin is 50%, you’d need to generate $20,000 in sales each month to break even.

Step 8: Sensitivity and Scenario Analysis🔗

The restaurant industry can be unpredictable, so it’s crucial to model different scenarios. A sensitivity analysis helps you understand how changes in key variables—like customer traffic, food costs, or menu prices—will impact your profitability.

For example:

• What happens if your food costs increase by 10%?

• How will a 15% drop in customer traffic affect your cash flow?

Running these scenarios will help you prepare for different outcomes and adjust your strategy accordingly.

Step 9: Free editable financial model:🔗

Go to the link below and copy the template and edit for your own restaurant or cafe

financial model

Conclusion🔗

Building a financial model for a restaurant or coffee shop may seem complex, but it’s an essential tool for managing your business effectively. By defining your revenue streams, calculating your costs, forecasting your cash flow, and running different scenarios, you’ll have a clear roadmap for financial success.

Use your financial model not only for day-to-day decision-making but also to secure funding, track performance, and ensure long-term growth.