Many restaurant entrepreneurs, especially new ones who don't have much experience, may start a restaurant out of passion and hope to generate income and profit from what they do. But if you don't start with a good idea, it may be difficult and take a long time to get your investment back. It's possible that you feel your way around and may find out later that it's not worth opening a restaurant.
For the question of “When will I get my investment back?”, what is necessary is to analyze financial data and assess the ‘break-even point’ before opening a restaurant. The investment amount for each restaurant will vary depending on the size and nature of the business. Makro HoReCa Academy has summarized lessons learned by ‘Ajarn Seth-Setthapong Phadungphisut’, Managing Director of Genosis Co., Ltd., an expert in consulting on business financial management, business valuation, strategic planning, and franchise systems, to serve as a preparation guide as follows:
What is the 'break-even point' and what is its benefit?
Break-Even Point means the point where income is equal to costs or income is equal to expenses. It is the point where sales are not at a loss but there is no profit. The benefit of breaking-even point analysis is that it helps restaurant owners know how much cost and sales are required to make a profit, including knowing the return on investment period. This helps them see and confirm whether this business should invest or how to adjust the business plan in order to make more profit and get a return on investment in the desired period.
Determining the investment amount and estimating the initial investment
As for the various expenses or capital required to open a restaurant, there are many different costs that need to be calculated in great detail. You may need to:
It is in the assumption or find information and set it as a capital budget for each item , which includes Fixed Cost which is rent, investment in building the store, operating expenses before opening the store, working capital, etc. To make it easier, we have a checklist that we recommend that entrepreneurs must set assumptions and find information to set as an initial capital budget as follows:
Rent, design, construction, decoration costs, materials and equipment, business model of the shop, number of employee salaries, etc. all play a part in determining the investment amount.
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Rent and Deposit Many people may think about the monthly rent, but may forget that in the case of renting a place to operate a business, the owner usually requires a deposit in advance, which should be included in the capital for opening a shop.
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Design and other printing costs For the design and printing costs, we can provide a minimum and a maximum estimate for comparison, so that there is room to adjust the budget as appropriate. In addition, there are other printing costs used in the shop, such as food menus or other printing.
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The cost of construction and interior decoration depends on the style and design of the shop, such as what materials are used, how much, and the labor costs for construction and decoration.
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The cost of kitchen equipment will vary depending on the type of restaurant that will be providing the service.
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The cost of equipment used in the service section, such as tables, chairs, plates, bowls, spoons, forks, glasses, serving trays, various types of cloth, etc. If the nature of our business is not a Dine In shop but focuses on delivery, there may not be many costs in this section.
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Public relations media costs according to the marketing plan format, such as sign costs, sign tax costs, online public relations media costs, etc.
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Raw material funds are deposited into the treasury to prepare for opening both food and beverage shops.
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Fees for applying for various related licenses, such as Excise Department licenses for selling alcoholic beverages and tobacco, food sales licenses, etc.
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Human resource costs, such as employee salaries from the preparation period for opening a store, training costs
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Utility costs include water, electricity, telephone, internet, etc.
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The cost of consumables refers to the costs incurred for disposable items such as pens, paper, store supplies, etc.
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Working capital reserves are reserve funds that will be used to pay off various expenses to keep the business running. They may not be invested in assets or equipment, but are funds kept for emergencies, sufficient for operations for at least 3-6 months.
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Fees for company registration and establishment
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Operating expenses for at least the first month
Know your return on investment (ROI)
For restaurant investment, if we want to know the rate of return on investment or 'ROI', we must divide the net profit by the investment and multiply by 100, for example:
Suppose we have a monthly profit of 280,000 baht per month.
This means that the profit per year (x12) will be equal to 3,360,000 baht.
When divided by the total investment of 9,000,000 baht and multiplied by 100
This will result in an ROI of 37.33% per year, etc.
This means that after investing in this shop and deducting all expenses, the return on this business will be 37.33%. Many people may have another question: "What is the return rate?" For this issue, let's think about it. If we deposit the same amount of money in the bank or invest it in other forms, what percentage of interest will we get? If we compare it, if we see that the return on investment as calculated is okay, it is considered good. But if we invest and the number of customers is less than expected, the return rate will be lower than expected. This is a risk for entrepreneurs who invest in opening a restaurant.
How to know the break-even point and payback period?
As mentioned earlier, the break-even point means the point where income is equal to costs or income is equal to expenses. When we know all costs, both fixed costs in building and operating the shop and working capital from the set budget, we will know the cost of running a restaurant, which can be used to calculate the payback period.
By dividing the investment amount by the net profit per month.
For example, if the total investment is 9 million baht, when divided by the profit of 280,000 baht per month, the payback period will be 32.14 months or 2.68 years, etc.
'Net Cash Flow' and 'Net Present Value': Important Things to Know
From the accounting plan, the important thing that entrepreneurs should remember is that even though we plan finance and accounting to know the money and profits that will be received in the future, the value of money at different times may not be the same because as time passes, the value of money changes, which will gradually decrease. Therefore, we must find the 'net cash flow' to find the 'net present value' ( Net Present Value or NPV is the difference between the total present value of the net cash flows throughout the project's life and the present value of the investment, using any 'discount rate' to adjust the value of the cash flows that occur in each period to the same point, which is the present).
NPV > 0
Can invest, the return on investment is higher.
NPV = 0
It is worth the investment, but other factors besides money should be considered.
NPV < 0
Should be avoided, the return on investment is less.
Calculating net present value is useful in order to analyze how much money we receive in the future will be worth in the present compared to our current investment in the long run. To know the rate of return on our investment and what the future returns will be like.
To consider whether a restaurant business is suitable or worth investing in, as shown in the formula and examples below. This is considered quite a complicated matter, and beginners may need to spend some time understanding it.
Therefore, it is recommended that you try to study the online course taught by Ajarn Seth-Setthapong Phdungphisut on the subject of studying the feasibility of the restaurant business. The content in this section will be in Chapter 5: Financial Feasibility Analysis and Chapter 6: Investment Case Study, which is guaranteed to be beneficial for all entrepreneurs. Click to register for free! >> http://bit.ly/3a5tOUM
Benefits of financial data
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To help us make decisions more easily
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To be used as data for analysis on how we need to adjust our business plan in order to achieve a satisfactory profit and payback period.
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Data and assumptions can be adjusted if we see a need for better returns, such as reducing investment or expenses (but minimizing quality), or finding ways to acquire more customers, or charging more for products and services, etc.
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This information can be used for analysis and to create strategies for operations. This information will be very useful because it will allow us to know what needs to be changed in order to be ready to compete and achieve the profits or results as expected.
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