Project Budget for Cheryls Kitchen Cheryl Gregory San Francisco State University

Cheryls Kitchen will be a profitable commercial endeavor that includes conventional and readyprepared foodservice, kitchen demonstrations, and a small grocery. The business will strive to be a source of culinary inspiration for the local community through creative use of high quality, fresh,

seasonal ingredients and products, culinary skill demonstrations, and by making fresh ingredients available to surrounding neighborhoods. Despite the need for high cost produce to fulfill this mission, Cheryls Kitchen will lower business costs where possible and maximize efficiency in order to remain profitable. The grocery portion of the business will work in tandem with the restaurant as both overhead costs and some food costs will remain the same. For this reason, a simplified budget is used to calculate projected profits and losses. The small restaurant can accommodate 20-30 guests at one time. However, more guests are expected as the restaurant is quick-service and many guests will choose to take their food togo. The total number of patrons during a given lunch rush is expected to be 50. The number of dinner customers is also expected to be 50. Even though more people eat dinner out than lunch out, the adjacent grocery store will make dinner at Cheryls Kitchen less appealing than one of the many restaurants on Piedmont Avenue. The restaurant will make up for this loss with a popular Sunday Brunch where 75 customers are expected over the course of the morning and early afternoon. Meanwhile, the grocery store is projected to ring-up 150 customers per day on average. Some of these customers may also be restaurant customers who purchase their groceries and restaurant items together. However, restaurant and grocery purchases will be tallied separately in order to maintain accurate average meal sales and grocery-bill sales. Businesses surrounding Cheryls Kitchen have high meal prices. This allows dishes to be priced higher in order to cover more expensive food costs while still remaining competitive in the neighborhood. The average check at lunch and dinner will be $15.00 excluding beverages. The checks are expected to be similar due to the identical lunch and dinner offerings and due to

the aforementioned popularity of dinner. Brunch bills are projected to be $15 as well because of the popularity of brunch dishes and the caliber and quantity of food offered. Grocery bills are anticipated to be $50 on average, but for budget purposes, are calculated at $30. The lower average allows for error in the budget due to overestimation. Until historical data for the business is available, the popularity of profit-making items will be unknown. During the first year of business, Cheryls Kitchen will collect data to extract which items are the most popular with the biggest profit-margin. Then, these items will be highlighted along with a wider variety of similar items in order to increase the average grocery bill. Total non-alcoholic sales for the business are projected at $2,086,500. Daily lunch sales, calculated using number of customers multiplied by the average check, will be $750 per day. Dinner sales will also be $750 per day. Since the restaurant is open for lunch and dinner only Tuesday through Saturday, weekly sales will be $3,750 for lunch and $3,750 for dinner. Brunch is only offered on Sundays and with 75 customers and an average bill of $15 expected, weekly sales will be $1,125. The restaurant is open year-round or 52 weeks. Therefore, annual food sales will be $195,000 for lunch, $195,000 for dinner, and $58,500 for Sunday brunch. Grocery store sales, calculated by multiplying the number of customers per day and the average grocery bill excluding alcohol, are projected to be $4,500 per day. Unlike the restaurant, the grocery store will be open 7 days a week, 52 weeks a year, and sell $1,638,000 in non-alcoholic goods. Beverages, namely alcoholic beverages: beer and wine, are expected to produce $666,900 in sales. Lunchtime beverage sales will be equivalent to approximately 20% of the expected annual food sales and $39,000 in revenue is projected. Beverage sales at dinner will be higher as more people drink with dinner and equal 25% of annual dinner-time food sales or $48,750 per year. Mimosas are offered during Sunday brunch, so annual brunch sales are multiplied by 10%

thereby projecting $5,850 per year in brunch-time beverage sales. In the grocery store, a much larger portion of the revenue will come from alcohol, particularly the many high quality wine varieties. By multiplying annual grocery sales by 35%, sales are calculated at $573,300 per year. As mentioned previously, Cheryls Kitchen strives to include fresh and seasonal produce. This will increase food costs overall but in some areas money will actually be saved through bulk purchases, with excess sold in the grocery. Restaurant menu items are significantly marked up to cover the overhead cost of a conventional kitchen and so the food cost is projected to only be 33% of food sales or $148,005 per year. The grocery does not allow for such mark-ups and so food costs are expected to be 50% of grocery food sales or $819,000 per year. Beverages in the restaurant are marked up even higher and only 20% of beverage sales account for their cost. This means only $18,720 per year is spent on restaurant beverages. In the grocery, the percent cost of beverages is significantly higher at 60% and $343,980 per year is spent on beverages. The grand total for food and beverage costs comes to $1,329,705. Payroll expenses will include fixed, variable, and benefit expenses. Fixed payroll will accommodate for the hourly pay of supporting staff: cooks, cashiers, stockroom staff, foodrunners, and table-bussers. Kitchen demonstrators will not be on payroll but will be volunteers and students interested in community service or dietetics. Fixed payroll is calculated as 14% of total sales and will cost $385,476 per year. Variable payroll, which will accommodate for the income of the head chef, the head grocery manager, and the store owner, is calculated at 13% of total sales and will cost $357,942 per year. These two numbers are well below $287,563: the calculated national average spent on payroll per year using 2010 census data (United States Census Bureau, 2010). Full-time employees will receive benefits. As noted by the National Restaurant Association, operators in the limited-service segment said complying with health

care reform would be their top challenge this year (National Restaurant Association, 20122013). Expected employee benefits will need to be recalculated when more information regarding health care reform becomes available. Meanwhile, to calculate employee benefit expenses, the sum of fixed and variable payroll was multiplied by 20% providing an estimated $148,683.60 in employee benefit costs. Other expenses such as marketing, employee training, internet and telephone services, gas and electric, are included in other controllable expenses. These are calculated at 6% of sales and are expected to be $165,204 per year. The average leasing rate for retail space in Oakland is $24.32 according to LoopNet (LoopNet, Inc., 2013). Rent in the Piedmont Avenue neighborhood is slightly higher and rates were found to be roughly $27 per square foot. The combination restaurant and grocery will need up to 3000 square feet putting possible occupancy costs at $81,000 per year. Depreciation of the premises will be approximately 2% of income before occupancy costs, interest, and depreciation (m) and equal $7,327.79. Interest will be approximately 5% of m and equal a cost of $18,319.47 per year. This leaves the profitability of Cheryls Kitchen during the first year of business (m minus occupancy, interest, and depreciation) at $259,741.74 per year. Although this budget does not include income tax expenses, the profit margin will be able to cover this cost. This budget shows that even with sales and the number of customers slightly underestimated, Cheryls Kitchen will still be able to turn a profit, $259,741.74, in the first year. The budget will improve drastically as historical data and trends become available to management. The establishment will be able to maximize sales of profit making items so that quality, fresh produce and the unique recipe-kits offered by Cheryls Kitchen can be kept affordable for the surrounding community and neighborhood. This will fulfill the mission of inspiring the local neighborhood to explore their food and to value fresh, seasonal ingredients.

References National Restaurant Association. (2012-2013). 2013 Limited-service Outlook. Retrieved from http://www.restaurant.org/News-Research/Research/Forecast-2013/Limited-serviceoutlook LoopNet, Inc. (2013). Retail Property Asking Rent Lease Trends. Retrieved from http://www.loopnet.com/Oakland_California_Market-Trends United States Census Bureau. (2010). Number of Firms, Number of Establishments, Employment, and Annual Payroll by Small Enterprise Employment Sizes for the United States, NAICS Sectors: 2010 [Excel Spreadsheet]. Retrieved from http://www2.census.gov/econ/susb/data/2010/us_naicssector_small_emplsize_2010.xls