How to Start a F&B Business in Singapore (Part 2)

We have covered in Part 1 what are the first steps you need to take when you decided to start a food and beverages (F&B) business in Singapore. If you haven't seen it do check that out as there are good and important information in that guide.

Guide Contents

This guide will be covered in 3 parts. It aims to take you through how to set up a food and beverages (F&B) business in Singapore and shares with you some high level numbers and pointers to get you started in this business. It is by no means a sufficient or complete guide to success, but we sincerely believe our guide is a very practical read and we hope you can benefit from.


First Steps (Covered In Part 1)


Before Opening (Part 2)


Getting Ready (Coming in Part 3)

  • Manpower and Setting Up

  • Vendors Selection


Grand Opening and beyond (Coming in Part 3)

  • Social Media and PR Campaign

  • Metrics

  • Going forward




Budgeting

After your written planning and zooming in of your ideal premise, it is time to pluck the numbers. You need to do up some form of projection or budgeting to work out the numbers. If it doesn't make sense, it probably is not feasible..


So what goes into a projection and how to do this budgeting exercise? The short answer is:


Revenue - Food Costs - Labour Costs - Rental - Overheads


Now how exactly we do the above you may ask. We will share with you the science behind:



Revenue Projection

To crystal-ball your sales number you will need to put a number to each of the considerations below:

  1. Seating capacity of the premise

  2. How many customers you can take order, cook, and serve during each peak period of the day

  3. Average check per customer

We crafted a simple illustration in the below:


Your premise is about 700sqf and can seat total 70 customers on a full house. You serve lunch from 11am to 3pm and dinner from 5.30pm to 9.30pm.


You have to put in some best estimates to the lunch crowd and dinner crowd. For example:

11am to 12pm: 15 orders

12pm to 1pm: 50 orders

1pm to 2pm: 30 orders

2pm to 3pm: 5 orders

Total lunch orders = 100 orders, which is about 1.5 turn (100 orders/ 70 seats) for each lunch setting.


In this illustration, we assume each order is 1 customer and 1 product sold and the average ticket per product is S$8. Henceforth, average check per customer will be S$8, ie. S$8 per order.


Assuming the dinner period is the same as lunch and that everyday of the week has the same number, your daily sales will be 100 (customer) x S$8 (average check) x 2 (lunch + Dinner) = S$1,600 revenue a day. The projected monthly revenue will be S$48,000!



Food Costs and Labour Costs

For a sustainable F&B business, we believe the food costs generally cannot be greater than 30% of the revenue. You should aim to achieve 25% or lower food costs (20%) to revenue.


Labour is expensive in Singapore.. Even so, this is not the main problem. The reality is it is very challenging to find local staff to work in F&B sector and even harder to find those who will work for you for long. The below are some broad market rate for front of the house and kitchen staff:

  • Part-time staff: S$7 to $10 per hour

  • Full-time staff: $1,800 to $2,600 per month, inclusive of over-time pay, allowances, foreign workers levies

  • Chefs and line cooks: $3,000 to $5,000 per month, inclusive of over-time pay, allowances, foreign workers levies

  • Outlet and Restaurant Managers: $3,000 to $4,500 per month, inclusive of over-time pay, allowances, foreign workers levies


Again based on our understanding of the business, we strongly believe Food Costs + Direct Labour should not be higher than 50% to 60% of revenue. Anything higher than 50%-60% is highly probably that the business is loss making.



CAPEX and serious consideration

Coming back to our illustration, let's assume that

  • food costs is 30% of revenue;

  • monthly labour costs is S$12,000 per month for 4 staff;

  • monthly rental approximate S$12,000 ($16/psf x 700sqf x 7%)

  • month operating costs is 10% of revenue, (utilities, consumables, charges, etc..)

The monthly cash profit will be:


48,000 - 14,400 - 12,000 - 12,000 - 4,800 = S$4,800


10% cash profit sounds good - doesn't it? Every month you get back close to $5,000 cash. But there is one important factor we have not put into the budgeting, that is the CAPEX costs to set up the restaurant.


The costs to "spec-up" a bare unit is not cheap (an understated statement). For a bare unit, you need do up electrical, kitchen gas and exhaust, floor waterproofing, air-con and ducting to make the premise usable. Including the renovation (carpentry, steel works, design, etc..) to a theme or concept of your dream, the total bill may come up to S$80,000 for a 700sqf area excluding furnishing, electrical appliances and kitchen equipment.


Let's just say the total CAPEX is S$100,000 for our illustration, at S$4,800 cash profit per month it will take you 2 years to recover the initial costs sunk in. This is something you need to take note.


We will cover more on numbers in the Part 2 of this guide. Until then, this budgeting exercise is meant for a sanity check on the premise you shortlisted, whether or not the numbers make sense for you to take up the shop; to go with your concept; and how you want to manage the food and staff costs.



Signing on Tenancy Agreement

Ok, you have done the maths and you are ready to go on to commit on a lease for your dream shop. What are some of the usual clauses within a tenancy agreement what should you look out for?


Lease period

Is the lease period for 24 months, 36 months? Generally, we prefer a 36 months lease term as 24 months may be just enough to break-even the costs of investment (CAPEX). You would not want a situation when you recover your costs at the end of 2 years and the landlord raise 20% on rent on renewal, if you do not accept you wasted 2 years building up your brand at that venue, if you accept you may find it challenging to operate down the road without passing the hike to your customer. Please also remember to look out for the renewal clause to be included in the tenancy agreement, without this the landlord may simply not lease to you after the lease period ends.



Lease rate or rent amount

How is the lease rate charged? - Is it (1) a flat rate throughout the lease period; or (2) Step-up of rent rate over the period, or (3) Base rate + a % of Gross Turnover (GTO).


There is no best approach to this. It all depends on the negotiation to which pricing model works for you and the landlord. For example, in COVID-19 situation we saw many prospective tenants want to lock in an ultra-low flat rate for 3 years with the landlord, but this may not work for the landlord as there is no upside when the economy recovers. The landlord in this situation may suggest either a step-up pricing or a base rent + % of GTO.


In most retail mall, Base Rate + % of GTO is the norm and you may not have much bargaining power unless you are a big organisation leasing over 10,000sqf of their lettable space.



Fitting out period

There should be a fitting out period when you sign on any lease, even if you take over an existing lease. This clause allows a number of days that you do not need to pay rent on for occupying the premise to do renovation or "spec-up" to a usable condition. Such period may be as short as 1-2 week to 2-3months. It all depends on what is needed. For a bare unit, full renovation can take 6 weeks or more. One thing to note is that during this fitting out period, you are not allowed to make sales as it is purely for the tenant to put the premise into a useable condition.



Termination and covenant clauses

One of the important clause. As a tenant if things do not work well for you, is there a clause for you to terminate the tenancy and if so, what are penalties and how can this be activated. Also there will be many covenants that the tenant need to follow and adhere to, breaching any of these covenants will give the landlord certain rights to penalise, fine, or terminate the agreement. Be sure to read and understand what you as tenant need to look out to with regards to these covenants.


Termination clause for tenant is not a must in all tenancy agreement, in fact it is likely to be uncommon in the tenancy agreement. So be sure to look for one and if there isn't, you may bring this up and see if such clause can be inserted and define the terms and conditions when such termination arise.



Permitted purpose or food cuisine

Sometimes the unit is only allowed to for certain concept or model, e.g. cafe or that the unit is only allowed to serve or sell western cuisine. Do remember to check with the agent or the operator/ management whether if there are any of such restriction.




Applying Licenses

There are many licenses that a F&B business need to look at, although you are unlikely to need to apply to all that is stated in the below.



Food Shop Licence (must have)

Food shop licence is required to operate any food establishments in Singapore. You may apply this licence at Singapore Food Agency (SFA) website and will cost about S$195 a year. This licence is required to be renewed on a yearly basis. Be sure you check the website early and before signing the tenancy agreement to understand the requirements.



WSQ Food Hygiene Course (must have)

All your staff who is handling food will need to undergo this course and be certified. This means any kitchen staff, including food preparer, line cook, and chef needs to attend this course. You may check out at this SFA website for more information. Each person will costs about $21.40 and S$107 for local employees and foreign employees respectively. The staff will in subsequent years go for refresher course to renew their certification.



Liquor Licence

If you intend to sell alcoholic beverages at your shop, you will need to apply for Liquor Licence. There are 5 classes of Liquor Licence but for F&B shop, the relevant ones are probably Class 1 and Class 2. Class 1 permits the supply (sale) of liquor at the shop while Class 2 permits the supply (sale) of beer only at the shop. Class 1A is if you want to sell liquor from 6am to midnight and Class 1B is if you want to sell liquor between 6am to 10pm. Class 1A and Class 1B will cost S$880 and S$660 a year respectively. You may refer to the Singapore police website for more information and application.



MUIS Halal Certification

If you are selling food that caters to Muslim, it is a must that you obtain Halal certification for the F&B shop. To obtain Halal certification and be a Halal certified food establishment, there are several requirements you need to fulfill including: (1) All raw materials used must be Halal and substantiated with supporting documents; (2) There must be a minimum of 2 or 3 Muslim staff employed in each premises applied for Halal certification (3 for Catering or Central Kitchen); and (3) the applicant must comply with the 10 principles of the Singapore Muis Halal Quality Management System (HalMQ). You may refer to MUIS website for more information and application. The cost of the licence ranges from S$760 to S$1,220 a year depending on the type of F&B establishment and the size of the premise.



Public Entertainment Licence

If your F&B shop is providing some form of entertainment, e.g. TVs, bands, live performance, etc.. you will need to apply a Public Entertainment Licence. The licensing conditions differ depending on the type of entertainment provided. You may refer to the Singapore police website for more information and application.






Be sure to stay tuned for Part 3 of this guide "How to Start a Food and Beverages Business in Singapore", where we will talk on the next two phrase of your exciting journey:

Getting Ready (Coming in Part 3)

Manpower and Setting Up

Vendors Selection


Grand Opening and beyond (Coming in Part 3)

Social Media and PR Campaign

Metrics

Going forward





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