How to create a financial forecast for an Ethiopian restaurant?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your Ethiopian restaurant.
Putting together an Ethiopian restaurant financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your Ethiopian restaurant.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for an Ethiopian restaurant?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your Ethiopian restaurant and ensure that it can be financially viable in the years to come.
A financial plan for an Ethiopian restaurant enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date Ethiopian restaurant forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your Ethiopian restaurant's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is used as input to build an Ethiopian restaurant financial forecast?
A Ethiopian restaurant's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing Ethiopian restaurant.
If you are creating (or updating) the forecast of an existing Ethiopian restaurant, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new Ethiopian restaurant startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the Ethiopian restaurant to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your Ethiopian restaurant's financial forecast.
The sales forecast for an Ethiopian restaurant
From experience, it usually makes sense to start your Ethiopian restaurant's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your Ethiopian restaurant (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your Ethiopian restaurant's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- Your restaurant's menu prices may be affected by the cost of importing traditional Ethiopian spices and ingredients from Ethiopia, which can fluctuate due to changes in trade policies or supply and demand.
- The monthly weather conditions in your area can impact the number of customers dining in your restaurant, as customers may be less likely to venture out in severe weather or may have seasonal preferences for certain dishes.
- The demographics of your local community can also play a role in your average price and number of transactions. For example, if your restaurant is located in an area with a high percentage of vegetarians, you may need to offer more vegetarian options at a lower price point to attract customers.
- The competition in your area can also affect your sales forecast. If there are other Ethiopian restaurants nearby, you may need to adjust your prices or marketing strategies to differentiate your business and attract more customers.
- The tourism industry in your city or state can have a significant impact on your business. If your restaurant is located in a popular tourist destination, you may experience higher sales during peak travel seasons and may need to adjust prices accordingly to meet demand.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for an Ethiopian restaurant
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your Ethiopian restaurant on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for an Ethiopian restaurant will include some of the following items:
- Staff Costs: As an Ethiopian restaurant, your staff costs will include wages for your chefs, servers, and other kitchen and dining room staff. You may also need to budget for training and development to ensure high-quality service and maintain traditional Ethiopian cooking techniques.
- Food and Beverage Costs: This expense will cover the cost of ingredients for your dishes and beverages, including spices and other specialty items that are essential to Ethiopian cuisine.
- Rent and Utilities: Your rent and utility costs will depend on the location and size of your restaurant. You may also need to budget for additional utilities such as specialized cooking equipment for Ethiopian dishes.
- Marketing and Advertising: In order to attract customers to your restaurant, you may need to invest in marketing and advertising efforts, such as creating a website, social media presence, and traditional advertising methods.
- Accountancy Fees: It is important to keep track of your finances and ensure compliance with tax laws. You may need to budget for accountancy fees to help manage your restaurant's financial records.
- Insurance Costs: Protecting your restaurant from potential risks, such as liability and property damage, is essential. Consider budgeting for insurance costs to cover any unforeseen events.
- Software Licenses: In today's digital age, you may need to invest in software licenses for point-of-sale systems, inventory management, and other restaurant management software.
- Banking Fees: As a business owner, you will need to manage your restaurant's finances and may incur fees for transactions, wire transfers, and other banking services.
- Cleaning and Maintenance: Keeping your restaurant clean and well-maintained is crucial for creating a welcoming atmosphere for your customers. Budget for cleaning supplies and potential repairs or maintenance for equipment.
- Professional Fees: You may need to consult with legal or business professionals for advice on various aspects of your restaurant, such as obtaining necessary permits and licenses.
- Waste Disposal: Running a restaurant generates a lot of waste, and proper disposal is necessary for maintaining cleanliness and complying with regulations.
- Kitchen Supplies: Stocking up on essential kitchen supplies, such as utensils, cookware, and small appliances, is crucial for day-to-day operations.
- Equipment Leasing: If purchasing equipment is not feasible, consider leasing equipment such as ovens, refrigerators, and other specialized equipment needed for Ethiopian cooking.
- Training and Development: Ongoing training and development for your staff can help maintain consistency and high-quality service, as well as keep up with industry trends and customer preferences.
- Permits and Licenses: In order to operate your Ethiopian restaurant, you may need to obtain various permits and licenses, such as a food service permit and liquor license.
This list will need to be tailored to the specificities of your Ethiopian restaurant, but should offer a good starting point for your budget.
What investments are needed to start or grow an Ethiopian restaurant?
Once you have an idea of how much sales you could achieve and what it will cost to run your Ethiopian restaurant, it is time to look into the equipment required to launch or expand the activity.
For an Ethiopian restaurant, capital expenditures and initial working capital items could include:
- Restaurant Equipment: This includes items such as an industrial stove, refrigerators, freezers, and other kitchen appliances specifically used for Ethiopian cuisine. These items are necessary for food preparation and storage, and can be a significant expense for an Ethiopian restaurant.
- Furniture and Decor: Ethiopian restaurants often have a unique and traditional aesthetic, and therefore may require specialized furniture and decor. This can include items such as traditional woven chairs, colorful tablecloths, and Ethiopian-inspired artwork. These items not only add to the ambiance of the restaurant, but also contribute to the overall dining experience for customers.
- Leasehold Improvements: As an Ethiopian restaurant owner, you may need to make improvements to the physical space in which your restaurant is located. This could include renovating the kitchen, adding a bar or lounge area, or creating a separate dining space for private events. These improvements can be costly, but can also greatly enhance the functionality and appeal of your restaurant.
- Point of Sale System: A reliable and efficient point of sale (POS) system is crucial for any restaurant, including Ethiopian restaurants. This system includes hardware such as cash registers, credit card processing machines, and software for tracking sales and inventory. Investing in a quality POS system can greatly improve the efficiency and accuracy of your restaurant's operations.
Again, this list will need to be adjusted according to the specificities of your Ethiopian restaurant.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your Ethiopian restaurant
The next step in the creation of your financial forecast for your Ethiopian restaurant is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for an Ethiopian restaurant?
Now let's have a look at the main output tables of your Ethiopian restaurant's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your Ethiopian restaurant's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an Ethiopian restaurant should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
Your Ethiopian restaurant's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow forecast
Your Ethiopian restaurant's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the Ethiopian restaurant:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your Ethiopian restaurant's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your Ethiopian restaurant's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your Ethiopian restaurant's financial forecast?
Creating your Ethiopian restaurant's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your Ethiopian restaurant's projections
The modern and easiest way is to use professional online financial forecasting software such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional Ethiopian restaurant financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your Ethiopian restaurant's financial forecast?
Creating an accurate and error-free Ethiopian restaurant financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
Takeaways
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your Ethiopian restaurant future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for an Ethiopian restaurant, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or have any questions.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Example of financial forecast
- How to create a turnover forecast for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
