Chapter 4 — Quiz

Twenty-four self-check questions. Answer from memory first; the key is collapsed at the bottom.

Multiple choice

1. The primary function of a restaurant business plan is: - (a) to predict the first three years of trading as accurately as possible - (b) to satisfy a lender's paperwork requirement - (c) to present an argument a skeptical reader can trace, check, and disagree with - (d) to describe the concept and the menu in persuasive detail

2. A bottom-up sales forecast is built from: - (a) the market's total restaurant spending and an assumed share of it - (b) seats, turns, average check, and services per week - (c) the previous year's results, adjusted for inflation - (d) comparable restaurants' published revenue

3. Bellwether's base-case bottom-up forecast — four physical variables, nothing else — produces: - (a) $1,200,000 - (b) $1,410,760 - (c) $1,548,760 - (d) $1,550,000

4. The gap between that base case and the plan's headline year-one revenue is: - (a) $69,954 - (b) $95,200 - (c) $139,240 - (d) $261,020

5. One percentage point of Bellwether's food cost is worth approximately: - (a) $4,340 - (b) $11,160 - (c) $15,500 - (d) $22,320

6. One percentage point of Bellwether's pour cost is worth approximately: - (a) $4,340 - (b) $11,160 - (c) $15,500 - (d) $27,760

7. Occupancy expressed as a percentage of sales in a plan is best understood as: - (a) a target the operator sets and manages toward - (b) a fixed industry benchmark - (c) an output of the revenue assumption, since the rent itself does not move - (d) a variable cost that flexes with volume

8. The executive summary should be written: - (a) first, so that the rest of the plan stays on message - (b) after the concept section but before the financials - (c) at the same time as the market analysis - (d) last, after the forecast, the register, and the sensitivity analysis exist

9. Naming the three risks you cannot resolve, in the executive summary itself: - (a) weakens the ask and should be avoided - (b) strengthens the document, because a risk the reader finds unnamed discounts everything else - (c) is required by the SBA - (d) is appropriate only for equity investors, not lenders

10. Bellwether's year-one plan shows a prime cost of: - (a) 27.8% - (b) 32.3% - (c) 60.0% - (d) 63.1%

11. Bellwether's year-one operating profit before debt service is: - (a) $191,520 - (b) $261,020 - (c) $313,128 - (d) $430,280

12. In the sensitivity ranking (Figure 4.6), the single largest exposure in the plan is: - (a) a two-point miss on food cost - (b) a three-point miss on pour cost - (c) a three-point miss on labor - (d) the $139,240 of revenue that sits above the base case

13. A top-down forecast — "the metro spends $400 million on restaurants; we will capture four-tenths of one percent" — is: - (a) the standard and preferred method for a startup - (b) acceptable as a cross-check but not as the build - (c) more defensible than a bottom-up build because it uses real market data - (d) required by most lenders

14. A plan projecting 110 brunch covers on 68 seats is implicitly assuming a turn rate of about: - (a) 1.24 - (b) 1.40 - (c) 1.62 - (d) 2.10

15. If revenue comes in below plan and the rent is fixed: - (a) occupancy cost falls proportionally - (b) occupancy as a percentage of sales rises, with no decision made by anyone - (c) occupancy percentage is unaffected - (d) the landlord shares the shortfall under a percentage-rent clause

16. A use-of-funds schedule must: - (a) be roughly consistent with the amount requested - (b) total exactly the project cost being funded - (c) exclude working capital, which is not a use of funds - (d) be omitted until a contractor bid exists

Short answer

17. Write the bottom-up revenue formula in its four variables.

18. Bellwether has 68 seats and forecasts 1.4 dinner turns at a $46 average check across five dinner services. Compute covers per service, revenue per service, and revenue per week.

19. A restaurant's fixed cost base is $517,700 a year, and every marginal dollar of sales leaves 50.24¢ behind after variable costs. What is its operating profit at $1,410,760 of annual sales?

20. Why does an assumptions register express exposure in dollars per unit of movement rather than in percentages or in words like "high risk"?

21. Bellwether's plan carries labor at $500,000 on $1,550,000 of sales. If labor instead lands at 35.3% of sales, what is the dollar increase, and what does prime cost become?

22. Name two top-down cross-checks you would run against a bottom-up forecast, and explain what makes a cross-check genuinely independent of the build.

23. Give three structural reasons why year one is the hardest of the three years in a restaurant pro forma.

24. A three-year pro forma shows operating profit improving mostly through operating leverage rather than through cost savings. Explain why an experienced reader finds that more credible, not less.

Answer key — try all twenty-four first **1.** (c) — A plan is an argument submitted to a skeptical reader. Nobody believes a first-year restaurant forecast is accurate; the reader is testing whether you know which assumptions carry the weight. **2.** (b) — Seats × turns × average check × services. Each variable is physically bounded and separately arguable, which is the method's whole virtue. **3.** (b) — $1,410,760. Dinner: 68 × 1.4 = 95 covers × $46 = $4,370 × 5 = $21,850/week. Brunch: 110 × $24 = $2,640 × 2 = $5,280/week. Total $27,130 × 52. **4.** (c) — $139,240, or about $2,678 a week, or 9.0% of the plan. **5.** (b) — $11,160. Food cost applies to *food sales* of $1,116,000, not to total sales. **6.** (a) — $4,340. Pour cost applies to *beverage sales* of $434,000. Note that a point of food cost is worth about 2.6 times a point of pour cost, purely because the base is larger. **7.** (c) — The rent is $95,200 whatever the sales are. Every "percentage" in a plan that divides a fixed dollar cost by revenue is a restatement of the revenue assumption. **8.** (d) — Last. Written first, it becomes a target the forecast gets reverse-engineered to hit. **9.** (b) — A lender who finds an unnamed risk concludes you either missed it or hid it. Both readings discount every other number in the document. **10.** (c) — 60.0%: COGS of $430,280 (27.8%) plus labor of $500,000 (32.3%) on $1,550,000. The rounded components sum to 60.1; the exact figure is 60.0%. **11.** (b) — $261,020, or 16.8% of sales, before $69,500 of debt service. **12.** (d) — The bridge revenue, at $69,954 of operating profit — more than a quarter of the plan's total, and more than the food cost, pour cost, and G&A exposures combined. **13.** (b) — Useful as a sanity check, never as the build. A share-of-market number cannot be traced to a physical constraint, which is precisely what a reader wants to check. **14.** (c) — 110 ÷ 68 = 1.62. Plausible for brunch, which turns faster than dinner — but you should always convert a cover count back into a turn rate and ask whether the room can physically do it. **15.** (b) — This is why occupancy percentage is a cushion in a good year and a weight in a bad one, with nobody having decided anything. **16.** (b) — It must foot to the ask exactly. A use-of-funds table that doesn't sum is one of the most common reasons a package is returned, and the reader who finds it stops trusting every other table. **17.** $\text{Revenue} = \text{seats} \times \text{turns} \times \text{average check} \times \text{services}$ **18.** 68 × 1.4 = **95 covers** per service. 95 × $46 = **$4,370** per service. $4,370 × 5 = **$21,850** per week. **19.** $1{,}410{,}760 \times 0.5024 = \$708{,}766$ of contribution; $\$708{,}766 - \$517{,}700 = \mathbf{\$191{,}066}$ — about 13.5% of sales. **20.** Because dollars are comparable and adjectives are not. A point of food cost ($11,160), a point of labor ($15,500), and a point of pour cost ($4,340) are three different sizes; an operator who treats "a point is a point" will spend a month on the cheapest one. You can sort a column of dollars by consequence. You cannot sort a column of the word "significant." **21.** $0.353 \times \$1{,}550{,}000 = \$547{,}150$, an increase of **$47,150**. Prime cost becomes $(\$430{,}280 + \$547{,}150) \div \$1{,}550{,}000 = \mathbf{63.1\%}$ — three points above the full-service benchmark, and operating profit falls to $213,870, or 13.8%. **22.** Sales per seat per year and sales per square foot are the two standard ones; occupancy cost as a percentage of sales is a third. A cross-check is independent when it does *not* reuse the variables you built the forecast from — comparing your revenue to your own turns assumption tells you nothing, while comparing your sales per seat to observed comparable operations does. **23.** (i) The ramp — an opening spike followed by a normalization and a slow build, none of which an annual column shows. (ii) The cost lines are *trained* numbers: a 30% food cost assumes cooks who portion correctly and a walk-in that gets counted, and in month two you have neither. (iii) Cash and profit diverge hardest in year one, because opening inventory, deposits, and pre-opening payroll all precede revenue. **24.** Because operating leverage is arithmetic rather than aspiration. Fixed costs spread over a larger revenue number improve the percentage without anyone having to become better at their job — a claim a reader can verify from the plan's own figures. A plan whose profit doubles on cost savings is claiming that the operator will suddenly buy, portion, and schedule dramatically better than they did in year one, which nothing in the document supports. Leverage also runs violently in reverse, and a reader who understands that will look immediately at the sensitivity section, which is where it should be waiting for them.