How to plan or ‘re’-create your budget for 2021
By Christian Salloum Published On November 24, 2020
2020 is unprecedented, and probably one of the most challenging years. Ever. COVID-19 descended upon us without warning and shrouded the world in a dark cape reshaping everything that we know. Its invasion caused havoc across every economy and affected each layer of human interaction.
The food industry has changed, probably forever, and many operators have closed their doors on their restaurant businesses. Larger companies with familiar household names that we know so well have also been negatively affected and had to adjust their budgets and development plans. As the end of 2020 draws near and restaurateurs, investors, and entrepreneurs are preparing for 2021 and their budgets.
How do we set about ‘re’-creating our budgets?
Good question!
Brandportunity F&B Consulting discusses the four known possible scenarios based on how the economy is going to recover:
V-shaped
This is the most optimistic scenario for 2021. The economic collapse, followed by steady growth, will bring us back to normalcy by mid-year. This, however, requires immediate back-to-normal business with healthy revenue streams from tourism, innovative business, and an increase in purchasing power.
U-shaped
This is a comprehensive economic collapse that is extended over a long period, followed by a gradual recovery in late 2021.
W-shaped
This shape represents various rounds of COVID-19 infections causing a yoyo of shutdowns and reopening across many sectors, as is currently happening in Europe, the USA, and several other countries around the world.
L-shaped
This represents an economic downfall that we quite simply never recover from. We will not be able to return to our previous prosperous years. Commerce, as we know it today, is changed fundamentally and forever.
However, each of these scenarios will be influenced by the effectiveness of vaccination and the virus’ presence.
The restaurant industry is resilient. We have already seen how quickly operators have reacted since the beginning of the pandemic and shifted in a way or another their business models. We will gradually start to regain consumers’ trust and boom again. Nevertheless, some food and beverage businesses performed very well during the COVID-19 period. These brands are sustainable and will continue to grow and evolve in future years. Some others got poorly hit and will fold post-pandemic.
Active budgeting for 2021?
Never give up on planning your budget for 2021!
Create, monitor, and analyze a rolling 18-month budget that you can review and update each month based on your experience and compare it to the previous 18-months. You need to predict your food and beverage sales for 2021 and then use means to re-adjust your expectations quickly and easily as time goes by. Most importantly, have a solid marketing plan and activities for 2021, taking into consideration the change in consumer’s behavior, their purchasing power as well as new trends.
Forecasting 2021 sales
It is essential to look at the figures for the last two years. If you lack confidence in your ability to forecast 2021 sales, then you are in good company with other professionals and entrepreneurs. Suppose you had a successful 2020 and you are feeling optimistic for 2021. In that case, you are lucky and are advised to consider an average sales increase of 10% to 15%, depending on the business model you operate. However, to be more on the cautious side, it is recommended to consider an average of 10% instead, based on monthly revenue seasonality, and consideration of any special occasions or events during the year. Some managers and entrepreneurs are opting to use 2019 results, as a base, and plan a budget of up to 15% to 20%, depending on the nature of their food retail business. Otherwise, if you had a challenging 2020, you are most likely to carefully predict your budget by assessing 2019 and 2020 and compare the results. Your budget for 2021 will be based on how you see your business evolving and how sustainable is your products’ offering with the changes in consumer’s behavior and trendiness of your menu varieties. In all cases, we hope that 2021 is going to perform better than in 2020. The unprecedented virus took every sector by surprise and challenged everyone and how they reacted to it.
What to consider in your budget for 2021?
This is an intelligent yet tricky question. You may include two important key factors:
- Flexible sales goals
- Realistic expenses
Flexible sales goals
As you set goals, be aware of your product mix and the margins that are driven by each menu item in your restaurant or business line. One of the most important factors to consider in the restaurant business for 2021 is the improvement of the gross margin. You will have already started this exercise in 2020 and will probably continue throughout the next year.
Realistic expense plans
Your expense plan should incorporate cutting unnecessary costs and significant expenses on your financial statement, reducing utility bills, negotiating the rent, and anticipating staffing changes. The question is: will the rent continue going down in 2021 comparing to 2020? will you reduce staff levels without jeopardizing the quality of food and service, add more because of the business improvement, or just replace the low performers? These are important questions to be considered when planning expenses and realizing your promises throughout the 2021 business year.
Many restaurant businesses need to change their marketing focus and activities, think, and invest differently, and possibly increase investments over previous years. The marketing plan should be aligned with the sales budget and consider continuous menu innovation, on-trend projects, social media activities, and importantly the technological evolution. To achieve the necessary top-line figures, you need to reflect on the bottom line too. Today, more than ever, it is essential to track your sales trends and learn to understand how changing buying habits can drive sales. It is time for innovation, creativity, and bold moves, diversification of the revenue stream of your branches, especially in the food business.
Some tips for better budgeting
Align your advertising on social media and digital platforms, and other marketing expenses with your marketing calendar, and be sure to have established a well-thought-out and aggressive marketing schedule for 2021. Hopefully, you have already saved some costs in 2020; therefore, you may be able to increase your marketing budget slightly, and know precisely how, when, and where to spend it. Our advice is to seek a professional consultant in the food industry to help you define your next year’s goals, advise you on financial projections, and help you plan your activities. After the pandemic, it is time to start recovering aggressively.
- Run a 12-month profit and loss statement from 2019 and be sure that the plan you are creating has some validity based on an average year
- Smartly estimate your fixed expenses based on your monthly spend
- Estimate your variable expenses as a percentage of sales
Operating without a budget puts you at an immense disadvantage to competitors who can access their previous year’s revenues, costs, monitor their results, menu products, and their profitability. Having this to hand and honing your disciplines and financial understanding will enable you to make business changes quickly if things do not go to plan.
Seven tips for 2021 budget planning:
Finally, incorporate these tips into your plans for a great year:
- Remember your previous numbers and results of previous years and know your forecasted results inside out
- Solid sales must drive profits while you build cash reserves
- Modify your products and services and your in-store customer experience that aligns with ‘new’ norms of your customer’s purchasing power
- Keep your accounts receivable clean, and don’t use a credit card to finance your business
- Stay current with suppliers, and monitor your flexible and dynamic budgeting throughout the year
- Monitor your financial statement and adjust when needed
- Keep your team informed about the results, and give them access to some number so they can back you up with the results
Be prepared and be aware of what is going on around you. Keep your mind focused and open to potential changes that require quick thinking and action to keep you ahead of your game. Seek advice from a food and beverage professional who can have a more objective and helicopter view of your business. Watch what your competitors do and be fluid with your ideas.
budgeting – entrepreneur – restaurant – COVID-19 – forecast – marketing
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