Before You Sign the Lease: Run These Numbers First

Most restaurant operators choose a site the same way. You drive by. You like the traffic. The rent feels about right. Your broker tells you it’s a great deal. You sign.

None of that is financial analysis. And the restaurant industry is littered with good operators in bad sites — not because they didn’t work hard, but because they never ran the numbers before they committed.

Here’s the framework that should happen before you sign anything.

Start With Break-Even, Not Revenue

Most operators think about a new site in terms of upside: “We’ll do a million in year one.” The right starting point is the opposite: what does this site have to do just to break even?

Break-even isn’t complicated to calculate. You total your fixed costs — rent, salaried management, insurance, technology, and interest on any debt. Then you figure out what percentage of every dollar in sales is left after variable costs (food, packaging, hourly labor, payroll taxes, royalties, delivery fees, credit card fees). That remaining percentage is your contribution margin. Divide fixed costs by contribution margin and you have break-even.

The number that comes out isn’t an annual figure to file away. Convert it to monthly. Convert it to daily. Stand on the sidewalk in front of the space you’re considering and ask honestly: can this location produce that number every single day? That’s the question your broker isn’t asking.

Three Scenarios, Not One

Once you know your break-even, you model revenue in three scenarios: below average, average, and above average for your concept and market. Not optimistic, base case, and pessimistic — those labels let you avoid the bad outcome. Name it plainly.

What you’ll find is that the cost structure barely changes across scenarios. COGS is a percentage of revenue. Most operating expenses are relatively fixed. Labor scales modestly. The only real variable is how much revenue the site generates.

That means the difference between a profitable location and a grinding one — same concept, same team, same systems — is almost entirely the site decision. A good site compounds everything you do right. A bad site punishes you for it.

Run the P&L for all three scenarios. Calculate NOI margin for each. Then ask: if this location performs at the low end, can we survive that? If the answer is no, the site is too risky regardless of how it looks at average.

The Line Items Operators Consistently Miss

There are three costs that show up in every proforma but don’t get the attention they deserve in early site conversations.

Third-party delivery fees. If you’re using DoorDash, Uber Eats, or Grubhub, the platform takes around 22% of that order’s revenue. If delivery represents a meaningful percentage of your channel mix, that fee is quietly taking several points off your total margin. Model it at actual volume, not as a footnote.

Royalty fees. If you’re operating under a franchise or licensing agreement, royalties typically run in the 6-8% range off the top of revenue. That’s before you pay a single hourly employee. Know the number and put it in the model.

Credit card fees. At 2.5-3% of revenue, they’re easy to underestimate. On meaningful sales volume, they become a real line item. Don’t round them down.

These aren’t surprises if you model them before you sign. The problem is most operators are still running on back-of-napkin math when they’re sitting across from a landlord.

What the Proforma Does

We built a site financial model in Excel specifically to make this process fast and repeatable. You enter your square footage, your space type, your expected rent, and your revenue assumptions. The model builds out estimated build-out costs, a full P&L across three scenarios, a break-even analysis down to the daily number, cash-on-cash ROI, investment payback period, and a month-by-month Year 1 cash flow.

Every number is yours. You change the inputs, the model recalculates. You can run a new site in 20 minutes and have a clear picture of whether the economics work before you spend a dollar on attorneys or architects.

It’s not a replacement for your accountant or your CFO. It’s a starting point — a way to pressure-test a site on your own terms, before you’re in a room where everyone else’s incentives point toward closing the deal.

If the model doesn’t work, the site won’t either. Download it below and run your next site before you run to the lease.

Ready to run the numbers on your next site?

Download the free New Restaurant Site Financial Proforma. Enter your square footage, space type, and rent — everything else calculates automatically. Three revenue scenarios, full P&L, break-even to the daily number, ROI, and a month-by-month Year 1 cash flow.

Download the Free New Restaurant Site Financial Proforma