If you are going to be running a successful bar, then you will need a good budget. A good budget does several things:
Sets up a long-term plan that lets you see how much money the bar will be earning and when. This lets you plan ahead financially.
Tells you what your operating costs actually are and lets you control these costs.
Lets you solve cost and financing problems before they occur by letting you spot potential problems on paper.
Lets you notice any discrepancies or mistakes before your next audit—
so that you have time to fix them.
Allows you to control costs.
Allows you to account for sales.
Lets you see how effectively your bar is working and lets you pinpoint areas that need improvement.
Lets you maximize profits by letting you see where you are making your profits and where your money is going.
Can help you get financial support if you need a loan or if you need to expand. It will also make your business easier to sell if you decide to move on in a few years.
Will protect you from the more unpleasant aspects of audits.
It is important that you develop a working budget now—before you open your business. That way, you will be able to keep accurate records from the start.
Plus, you will be able to get comfortable with your budget plans so that by the time your business opens, you will be able to take care of the financial side of things in only a few hours a month.
It is best to use a monthly budget system because the very nature of the bar business ensures that your finances will change rapidly. A monthly budget may seem like a daunting idea, but once you develop a good working plan for keeping track of your finances, there will be no problem of keeping track of your expenses and profits. Think of a budget as a tool that will allow your bar be more successful.
One of the first things that you will have to determine for your budget is the operational costs. This part of the budget is sometimes called the Operational Budget. It not only lets you know what you are spending initially, but it lets you forecast what you will be spending in the near future so that you can budget
accordingly. To follow are a number of items you will need to account for in this part of the budget:
Total Sales. Trying to predict total sales is very important, but it can also be one of the trickiest parts of budgeting. Your bar will take in different amounts each day and each week, and at first it may be very hard to tell how much you will be making in any particular stretch.
Within a few months, however, you will be amazed at how easy it is to predict how much money you can expect to earn in a month as patterns will develop as you establish a client base. In the first 4 or 12 weeks, it is normal to have very high overall costs and low profits. No matter how carefully you have done your homework and no matter how hard you try, it takes some time to get a business going and to start recouping the money that was used to start the bar. You should not panic and start making cutbacks. Just move forward and work on establishing a client base. Profit will follow.
To estimate total sales, follow a few simple steps. If you have been open for a while, figure out how many customers you had last year or last month. If you do not have these figures available due to only being open a short time, make an estimated guess (remember, your initial budget will not be accurate; it will get more precise with time). Next, note how many days are in the calendar month that you are budgeting for and calculate the number of customers you expect on each day. Be sure to note any holidays or special events; adjust the customer expectations for these days. Next, multiply the number of days by the number of customers. To this number, add the number of holidays multiplied by the expected number of customers for those days. The idea is to get a total number for the month.
Again, if you have been in business for a while, you are working with actual customer numbers and can use these numbers to note any
changes or customer trends that you need to be aware of. If you are not yet opened, then you are trying to get the hang of budgeting and trying to make an educated guess how many customers your bar needs to plan for.
If you can work with actual customer numbers, compare similar months (that is, months with the same number of holidays and weekends) to see whether you are gaining business or losing customers.
Next, calculate the food and beverage sales. To do this, divide the total sales by the food type of last month’s sales. For example, if your bar has budgeted for $10,000 in sales, and your bar sells 70 percent liquor and wine, 20 percent beer, and 10 percent food, then you would have a breakdown of $7,000 for liquor and wine, $2,000 for beer, and $1,000 for food sales.
Finally, use the total expected customer and sales amounts to determine daily sales budget amounts. To do this, divide the total expected sales by the number of business days in the month. You will be able to use this to see which days you are under budget. You may want to indicate these days in red or use some other marker.
Material costs. Material costs are those costs that you need to spend in order to make sales. In fact, sales and material costs are so closely linked together that they should not only be side by side in your budget, they should always be reviewed together. It is often best to see material costs as a percentage of costs, rather than just as a large number standing on its own. You can get this percentage by dividing the cost of a specific category (beer, wine, mixed drinks, liquor) by the total sales of the category.
Salaries. The manager’s salary is generally fixed while staff salaries
are usually at least somewhat variable. To calculate the costs of the managing staff’s category on any given day, total all the managerial salaries for a year and divide by the number of days in the year.
Employee salaries are more tied to total sales. There is also a point at which employee salaries are covered by profits. This is a break-even point. When this point is reached, net profit will go up because the percentage of employee salaries will go down. In other words, the longer your bar runs with a profit, the less expensive employee salaries will be to you and the more carefully you need to choose your employees (as the more sales that employees manage to get, the more efficient and, thus, less expensive these salaries will be in the total budget). Even the cost of training will eventually pay for itself.
Overtime. Overtime is costly and should be avoided where possible. A well-run bar should have little overtime. To avoid overtime, make sure that schedules for staff are well planned and that any employees wanting to switch shifts have managerial approval before actually switching work times.
Operating costs that are fixed include expenses such as rent. These costs must also be calculated in your budget:
Rent. The rent or lease of the bar needs to be tabulated each month.
Taxes. Taxes may be calculated in your lease or rent. If this is the case, you do not need to tally taxes separately. However, if your rent or lease agreement makes you responsible for taxes, simply divide property taxes by twelve to see how much you are paying in taxes per month. If you have not yet opened, you can find out how much the previous owners of the building paid in taxes the previous year and estimate based on this amount.
Insurance. To budget monthly insurance, tally all the insurance
premiums for all your insurance policies and divide by twelve. The result is the amount you pay for insurance each month.
Entertainment. You must estimate how much you can or want to spend on bands, disc jockeys, and other performers each month.
Equipment rental. Whether you plan to rent equipment for specific events or for long-term purchases, you need to add this expense to your budget.
Marketing and advertising. Each bar manager needs to decide how much to spend on marketing and advertising each month. This amount includes newspaper ads, advertorials, and radio ads, as well as free giveaways and promotions.
In your budget, you will also need to account for costs that are considered
“controllable.” These costs give you a chance for savings because these costs can be altered a bit:
Supplies. China and flatware, kitchen supplies, glassware, bar supplies, and dining room supplies should all be a specific amount and percentage of sales during each month. In general, you should seek to spend a small amount on these products without compromising on quality—buying on discount, researching suppliers, and comparing prices before you shop are your best bets for finding a good price on these items.
Because office supplies (pens, paper, computer supplies, etc.) are important but a comparatively small amount of money spent in a bar business, you will want to have a fixed amount each month to spend on these supplies.
Uniforms. Some localities allow employers to charge their employees for their uniforms. If this is the case in your own state, uniforms will
not figure in your budget. If you live in a state in which this is not allowed, though, you will need to factor in this expense as well.
Linens. It is most cost effective to buy tablecloths, napkins, and other linens in bulk twice a year (or once a year, for a smaller business) for best savings. For this reason, linens are generally one fixed expense on your monthly budget.
In addition to fixed and variable costs, you will need to factor in the services that your bar will need to pay for in order to stay in operation:
Security. Security should be the same fixed cost each month in your budget.
Laundry. To tabulate laundry costs, multiply last month’s budgeted sales by the percentage of cost for last month. Laundry is directly related to total sales and, as such, fluctuates. You will also need to factor in price increases, as laundry services tend to increase in cost over time.
Legal. Legal fees vary and are not linked to any variable such as percentage of cost. Of course, you do not want to face a large legal bill (and the hassle it brings), but you need to budget for this possible event. In general, many bars find that once in a while they are faced with a large legal bill. Savvy bar managers will budget a small fixed amount each month to cover the occasional large legal bill.
Shipping/Freight. Not all bars need to worry about freight or shipping expenses; your suppliers may simply calculate this along with your purchase and arrange for shipping. In general, you will only need to worry about this expense for specialized deliveries. If your bar is located in a remote place, though, this expense may amount for a large percentage of costs each month, as suppliers will not always deliver to
out-of-the-way areas.
Accounting services. Depending on the accounting services or personnel you use, accounting fees may or may not be fixed. With time, the operation of your bar should be running so smoothly that these expenses will remain quite fixed. You will still need to budget for larger costs twice a year for tax time, however.
Payroll. Payroll will change depending on the hours you are open each month and depending on the number of staff.
Maintenance. Maintenance of your machines and equipment is a must, but it can become very difficult to budget for if you use an on-call service, which charges high fees for each visit. Having one maintenance person on staff can make maintenance a fixed amount but will generally cause the bar to spend more on maintenance than necessary. Many bar managers have found that contracting a reputable maintenance service company helps keeps costs fixed each month and easier to budget for.
In addition, you will need to budget for the utilities that will keep your bar running:
Water. Water will change slightly as an expense from month to month, but over time you should have a general range of what to expect from your water bill.
Gas. Gas can be variable or semi-variable. If you are using gas to heat the bar, then you will spend more for this utility in the winter than the summer.
Telephone. This should be relatively fixed. The one thing you will want to watch is personal phone calls made from the bar. In general, you will want everyone using the phone to jot down any long-distance
calls, and then you will want to compare this record against the bill.
Some bar managers have cut down on possible conflict by having only local lines at the bar and a pay phone at the bar for any private calls that patrons or employees need to make.
Heat. In your budget, you will want to account for any heat not covered by the electric or gas bills. For example, if your bar uses firewood, oil heat, or some other source, list the budgeted amount under “Heat.” Otherwise, heat will be part of your other utility bills.
Electricity. Electricity is somewhat variable, and bar managers can expect larger bills in the summer, when fans or other cooling systems are in place. Electric bills will also depend on the types of equipment that relies on this power source.
Finally, you may want to add certain miscellaneous expenses to your bar budget, depending on the needs of your establishment. For example, costs such as postage, trade fees, contributions to charities, licenses, travel expenses, and credit card expenses can all be added to the budget (and should be, if you incur these costs in your operation).