Answer:

An opening budget without a contingency amount and working

capital reserve is not complete, and can lead to significant financial problems.

I recommend having 10 percent of hard costs (construction, equipment, furniture and decorative fixtures) included in the opening budget as a contingency because those item costs can vary from the time you have prepared your budget to the time you actually place the orders for the items. I think a safe working capital reserve is one that allows for a reserve of fixed costs for 90 days of operation. When figuring your fixed costs it is important to remember labor cost at a minimum staff level, as well as utilities, contract services and insurance in addition to rent. It is best if this amount is held separately from your opening budget so it doesn't get used toward other items before opening. I think having this amount as a line of credit that can be used upon opening is a good way to handle working capital. I like to recommend the complete opening budget and break-even analysis forms offered at www.restaurantowner.com.

Additional Resources

How to Manage Your Restaurant's Opening Budget at:

www.restaurantowner.com/members/1161.cfm