Budgeting is an essential part of running any business, and it’s a critical step in starting up or running a foodservice operation. All too often budgeting becomes a matter of throwing a bunch of numbers down on paper and hoping that everything gets covered. There are some ways, however, to make the whole process more accurate.
The Menu as Driver
While it may sound like an elementary concept, before determining anything else, it’s essential to have a solid menu in place to start determining budget figures. “Even though it may evolve, you can’t do anything until you have a menu,” says Beth Kuczera, president of Chicago-based consulting firm Equipment Dynamics Inc. “One of the hardest things we do every day is to get our clients to start with a good menu.”
Kristin Sedej, president/principal of S2O Consultants Inc. in Chicago, says that she all too often sees the process working backward. At the beginning of the planning process, she says, “I’ve had people say to me, ‘I got a used hood.’ How do you even know what size hood to get if you don’t what your menu is?”
Knowing the volume the kitchen will produce and the speed with which the operation anticipates producing that food are two key factors that will impact a budget. It’s essential to “really define those factors,” says Steve Starr, principal of StarrDesign, an architectural and design firm based in Charlotte, N.C. That’s because these factors can often lead the operation to choose one piece of equipment over another. “For the most part, if you’re looking at a gas range, all gas ranges do the same thing,” he says. “The difference [between ranges] is how much capacity they can handle, how much volume and how quickly they can handle that capacity.”
Looking at the menu items and delineating their production in terms of equipment and labor needs represents another critical component of any budgeting process. For example, how much of the menu will be grilled? How much will be sautéed? Effectively estimating the production process for food items can help determine the size and type of equipment necessary. “We go down the menu and say, ‘That’s a fried item, that’s a rotisserie, that’s sautéed, that’s charbroiled.’ So we know these are the pieces of equipment that we need,” Kuczera says. “We then put together a lineup and continue to refine it to the amount of people who are standing in these positions.” Naturally, those estimates have to be adjusted depending on the dayparts the operation is serving and their corresponding menus.
Projecting what a foodservice operation’s menu will be like two, three or even five years down the road is an even more difficult part of the evaluation process. Will wood-fired pizza still anchor the menu in a few years? Changes in consumer tastes can affect long-term equipment needs, notes Richard Young, director of education for the Food Service Technology Center in San Ramon, Calif. “It’s difficult because menus are a moving target and tastes are a moving target,” he notes. “So as we talk to people about what kitchen design should look like and what they should think about equipment-wise, we’re stressing as much flexibility as possible.”
While it can be difficult, if not downright impossible, to determine exactly how much to budget for equipment, the process can be made more precise. FE&S’ 2016 Operator Purchasing Study found that 64 percent of the operators surveyed always consider the total cost of ownership when purchasing new equipment. That total cost includes (but is not limited to) the cost of maintenance, labor costs to operate and utility consumption. It is also important to consider the myriad incidentals that accompany any purchase, such as tax, freight and setup, when budgeting. Young suggests doing a “life cycle analysis, which takes into account the capital and install costs of the new equipment, the cost of utilities, the cost of consumables like fryer oil or combi cleaner and the cost of maintenance for old equipment.”
The correlation between the menu and the equipment necessary to execute it becomes even more critical when putting numbers to paper. Sometimes, budgeting to cover all worst-case scenarios can lead to overspending.
Starr uses the example of a burger restaurant to show how “redundancy budgeting” can lead to problems. “If all the burgers you do are done on a charbroiler, and you have a little flat grill that you use for the bacon to put on top of the burgers, the charbroiler becomes an essential piece of equipment,” he says. “If the burger is your number-one seller and it makes up 80 percent of your sales, that charbroiler cannot go down. If all you’re doing on the flat grill is the bacon, and it represents 9 percent of your total sales, do you really need redundancy on that? Or if it breaks, do you put the bacon in the oven and cook it off that day until someone comes out to fix the flat grill? It’s that kind of thinking that really makes the difference in the budgeting process because if you don’t do that, then everything becomes your top priority.”
It’s sometimes difficult to be realistic about the level of quality needed in equipment. Sedej says that sometimes buying on the low end of the price range is an acceptable strategy. “In a concession stand in a football stadium, you’ve got eight home games per year,” she says. “I’m not going to put an all-stainless steel box in there.”
Another helpful step may be to involve the end user, normally the chef, in the purchasing process. FE&S’ Operator Purchasing Study found that an average of three people were involved in the purchase decision when replacing equipment. Kuczera believes that getting more people involved in the budgeting decisions is a good thing. However, she notes that a chef is often going to advocate for the highest-quality tools to do his or her job, sort of like a kid in a candy store. By working with the financiers and operator and having realistic expectations, she says, the chef’s desire for better equipment can often be accommodated in the budget.
No piece of equipment works forever, so at some point foodservice operators will need to budget for new equipment. Having some funds budgeted for replacement equipment is especially important for those times when a piece of equipment goes down unexpectedly. Operators who don’t plan for replacements, Sedej says, “end up buying the cheapest or fastest thing available so they ‘plug the hole,’ creating a vicious circle. The next thing you know, if you have equipment that’s not performing the way it’s supposed to, it starts affecting your speed of service.”
When replacing a piece of equipment, conducting a life cycle analysis can be useful. By predicting the estimated lifespan of a piece equipment — and by keeping an eye on the frequency of repairs — new equipment can be budgeted for, making the eventual hit less painful.
Starr advocates using extended warranties to increase the life of a piece of equipment, but only to a certain point. “About the time that warranty is ending,” he says, “you should be thinking about and budgeting for replacing that piece of equipment.” Starr also says that changes in cooking technologies can often make equipment outdated before it actually hits the end of its lifespan.
Obviously, research is essential in finding the right piece of equipment at the right price. If you’re working with a designer, they’ll more than likely have access to specific online resources that can provide quotes on specific items. But what if you’re trying to line-item things out on your own?
Start by researching company websites to get product specs and prices. Sedej notes that websites can provide facts on specific models, but comparing different items can get tricky.
In the FE&S study, 50 percent of the commercial operators surveyed named trade shows as their preferred source for product information, with foodservice or trade publications coming in second at 31 percent. Peer recommendations can also be a useful source for real-world equipment evaluation.
Starr is a strong advocate for working with dealers to check out equipment before purchasing. “Test it and test it hard,” he says. Many equipment dealers and manufacturers or local utilities will allow test-drives, either at their facilities or yours. “There are almost always opportunities to test equipment even if you don’t have the facility to do it yourself,” he says.
When it comes to budgeting for foodservice equipment, many factors come into play, making this far from an exact science. But by prioritizing a few simple factors, including the menu, volume and life cycle costs, operators can get a better handle on their expenditures.
Doing It Right
Developing a budget can be equal parts art and science, and everyone makes a mistake from time to time when crunching the numbers. Our experts share a few pitfalls to avoid when budgeting for foodservice equipment.
Steve Starr: "What they often forget is the sinks. Health codes have changed so much over the years. You may have been able to get away with one prep sink 10 years ago; now you need at least 3 because you've got to separate meat from vegetables and often, depending on the jurisdiction you're in, separate poultry from vegetables."
Beth Kuczera: "I think the biggest mistake is the timing. People wait for the end of the drawings to put together a budget. There should be different budget checks along the way in the process to keep you on track."
Kristin Sedej: "A lot of times, people will sign a lease without doing other steps first, like not knowing the amount of electric that needs to happen. Or it doesn't have gas. What does it cost to bring the gas in? What are the infrastructure costs to get the footprint equipment ready? I can't stress enough: plan first and the numbers will start to show themselves."
Life Cycle Analysis Made Easy
One of the easiest ways to do a life cycle analysis for major foodservice equipment is with the online calculators provided by the Food Service Technology Center (available at www.fishnick.com). Covering a variety of equipment from ovens to refrigerators to ice machines, the calculator allows you to input your own energy consumption and daily usage figures. It then automatically calculates the annual and lifetime energy costs for that piece of equipment.
Sometimes the price for energy-efficient equipment can cause sticker shock, which makes planners back away from it. Richard Young of the Food Service Technology Center says that, while there is often a price premium for more energy-efficient equipment, some careful searching can yield surprises. With the more expensive equipment, he says, "many times you are probably getting a better piece of equipment. But in some cases, there is no cost premium, and an efficient piece will cost the same or less than the energy guzzler."
The real payoff for energy-saving equipment, however, is in the "utility savings, reduced consumables and increased performance," he says. Those consumables, such as combi cleaners or chemicals for dishmachines, can be a major cost factor, which is often overlooked at budget development time. Young points to fryer oil as a classic example of how consumables can have a major effect on budgeting. "The first cost of the fryer is a drop in the bucket," he says. "The second cost is the energy cost. The oil is the biggest cost."