The Importance of Writing Realistic Budgets in Hospitality

The Importance of Writing Realistic Budgets in Hospitality

Last week, I met with the CEO of a casual dining restaurant. Our conversation touched on many aspects of today’s hospitality landscape—from industry changes and economic challenges to navigating crowded markets like Baker St, home to fast-casual giants such as Nando’s, Bill’s, Chiplote, Rosa’s Thai, Bao, and more.

Entering the Fast-Casual Space

I'm now stepping into the fast-casual arena and expanding my knowledge on delivery impacts and operational tweaks. During our one-hour discussion, we also delved into dynamic pricing and managing low-demand periods. We agreed that smaller restaurants adapt better during downturns than larger venues, which risk empty seats and limited table turnover.

The Budget Dilemma

As our talk wound down, budgets naturally became a hot topic. For as long as I can remember—from my early days in hotels—budgets have been astronomical and unrealistic. Imagine being told to drive at 100km/h on a bicycle; no matter how hard you pedal, you’ll never reach that speed. Many restaurant budgets are built this way: inflated yearly, irrespective of economic cycles when nothing fundamental changes in the business, rising costs and inflation don’t justify a significant leap in performance year over year.

This is especially relevant when setting sales budgets. If a restaurant isn’t planning to implement major changes—no price increases, no marketing push, no new menu items, no expansion—then expecting significant year-over-year sales growth is simply unrealistic. In a crowded market with high prices and no innovation, the most reasonable expectation is flat or very minimal growth (0-2%).

Understanding Market Realities in Sales Budgeting

A restaurant’s ability to grow its sales is not unlimited—it depends on key market conditions and business strategies. Yet, many budgets assume growth as a given, without questioning whether it is feasible. Consider the following:

• Market Saturation – If competition is fierce and market share remains stable, expecting higher revenue without a strategic push is wishful thinking.
• Inflation Doesn’t Equal Revenue Growth – While costs rise, revenue only increases if prices are adjusted or more customers are attracted. If no price changes are planned, sales will likely remain flat.
• Customer Behavior Trends – If there are no major shifts in demand, sales won't naturally increase beyond organic fluctuations.
• Capacity Constraints – A small, 60-seat restaurant that is already full most of the time cannot increase covers without expanding or extending operating hours. On the other hand, a large restaurant struggling to fill its seats in a saturated market won’t magically see higher sales just because the budget says so.

If a company insists on setting higher sales targets without changing its strategy, it sets itself up for failure, creating a cycle of frustration for teams that are expected to hit unrealistic numbers.

Challenge the Budget – Where is the Strategy?

It’s time to stop treating budgets as random numbers that always increase for the sake of it. Every sales increase must come with a solid strategy explaining how it will be achieved. A budget should not be an arbitrary financial goal but a tactical plan backed by realistic growth opportunities.

If the business is struggling, what has changed to justify an increase? If there has been a downturn due to a lack of staff, yet you were turning away clients, then yes—there is a justifiable reason to expect growth if staffing issues are fixed. If you’re launching a targeted brunch campaign, investing in marketing, and expect to capture more customers, then yes—an increase is reasonable. If your reservation system wasn’t optimised, leading to lost weekend bookings, and you are now fixing it, then yes—you can expect growth. If your spend per head has room to grow, and you have a clear plan to drive upsells and higher-margin sales, then yes—budget for higher revenue.

But if none of these things are happening, then where is the growth coming from? If the answer is "because we have to," the budget is meaningless.

Collaborative Budgeting: Involving the Right Teams

Building budgets should be a collaborative effort. It’s crucial to involve the teams in charge of reservations, commercial strategies, and day-to-day operations. These people understand the business's practical side—like how full a restaurant typically is and its real growth potential.

For instance, if a 60-seat restaurant is nearly full all the time, increasing the sales budget beyond realistic capacity makes no sense. Conversely, if a larger restaurant is already struggling to fill its seats in a competitive area, raising sales targets without a plan to capture more market share is equally misguided.

Budgeting should be based on real data, not arbitrary growth expectations. A collaborative approach ensures the budget reflects operational realities and sets achievable, motivating targets.

Moving Toward Realistic Budgeting

Realistic budgets provide a financial roadmap, enabling informed decision-making and effective resource allocation. When teams have clear, achievable targets, they’re more likely to tackle challenges creatively and drive meaningful results.

In the competitive world of hospitality, where margins are thin and market dynamics shift rapidly, realistic budgeting isn’t just a financial exercise—it’s a strategic imperative. A well-crafted budget unlocks true potential, recognises the efforts of those running the business, and ensures long-term success without setting up teams for failure.

 

Thanks for reading.

Carmen Mallo