How to Open a Restaurant

If you Google “how to open a restaurant”, you’ll find a ton of information… much/most of it relevant and correct while STILL falling short of telling you what you need to know.  I’m going to come at it from the angle of a restaurant consultant who sees concepts at all stages of their life cycle.  If you think this article (or any article) is going share magic step-by-step instructions to actually help you get a restaurant open, then you also probably do your own electrical work in your house and you cut your own hair. Some things are better left to professionals… electricity, haircuts, and restaurant concept development are some of these things. That’s not to say that there is anything wrong with your idea, but your idea needs to be articulated as a business before you declare it the next Chipotle or Cheesecake Factory.  Here are the 5 simple steps.

  1. Become an expert …or find one. If you have never worked in a restaurant at the Exec Chef or GM level, you will struggle to appreciate the depth of knowledge required to operate a successful restaurant…until you’re on the ledge of a 6+ story building (people can survive 5). Sure there are plenty of success stories of folks who maxed out a few credit cards to open a pizza shop or burger joint or dive bar and their kids are all in private schools now…but for every one of those, there are plenty of not-so-happy stories …replete with chapters on divorce, spouse abuse, bankruptcy, foreclosure, alcohol/drug addiction, and sometimes recovery.  Go manage someone else’s restaurant first. If you can’t, you should hire someone who knows what they’re doing and can help you evolve your plan.  Do neither and you’re rolling the dice…and the odds are in favor of the house.
  2. Develop the concept (really develop it!). Evolve your financials first. You’ll need an accurate restaurant-style financial model that estimates how much it will cost to open and how it will perform once it is open.  If you have never written a budget for operating a restaurant, then you’ll need help.  If you wing it, you’ll be tempted to force the numbers and a savvy investor can spot false optimism a mile away.  Did you remember to account for menu development inventory?  How about printing costs for applications or new-hire paperwork?  Do you know how to budget for pre-opening labor…salaried and hourly? What about a temporary site in which to conduct interviews while your contractors occupy the site? At the end of the day you’re building a money making machine.  If you don’t plan for it to make money, then it won’t.
  3. Go find the money. Your financial model is the starting point but you will likely need a business plan and/or a pitch book (with pretty glossy pictures, a layout rendering, and some engaging snippets that communicate your brand) in order to compel potential investors and/or banks to write checks.  Unless you have the money in your personal bank account, your sources for funds are investors (including friends/family) and banks. Your financial model, if done correctly, will calculate specific money to have access to (via line of credit) to cover any projected losses during the first six months + construction contingency for “surprises” that arise during construction (likely 5% to 10%) +  some operating reserve for your first six months of operation (plan to lose money during your first four to six months). A bank is only going to give you money if you have some money (call it 10% of the loan)… and then they will only loan money for things they can take from you if you fail.  They won’t lend you money to cover soft costs like menu development, pre-opening training, salaries/wages during pre-opening, mock parties, graphic design, architects/designers, etc.  You’re going to need investors or personal wealth to make up what a bank can’t give you.  Don’t pass this point until you have your funding… ie- stop driving around town looking at spaces because you’re wasting time you could use to do your current job better in order to earn more money to fund your dream.
  4. Find “THE RIGHT” place. Choose a spot that works for the financial model you’ve built and that makes sense for your target audience.  The process is not linear…you cannot simply create financials then move forward.  When you find a location you like, you‘ll likely need to rejigger your financials a bit to reflect the new realities.  If your concept doesn’t make money based on your financials, then you’ll need to alter the concept…which may require you to change your location if the concept alters to a degree that doesn’t marry with your location.  It’s a bit of a “chicken and egg” process to massage the concept into a location….but it’s important to make sure the numbers work before signing any lease.  Picking the right location can be very complex but generally it is a matter of market saturation (is the market radius over or under served by competitors?), day-part focus (does your concept target the right audience), access (visibility, ingress/egress, or phychographic appeal), and direct competition (is your offering unique to the market?).  Choosing a location is critical…but is also a source of excitement and fun that can tempt you to start this process too soon.  Don’t be tempted to seriously search for a location before you have funding… the location search is like the Sirens’ song calling Ulysses to the rocks.  Strap yourself to the mast and focus on developing a financially viable concept, then get the money for it….THEN find a location.  Sometimes you can choose a location first and then build a financial model around it, but don’t sign a lease until you have funding…and you won’t likely get funding until you have a fully articulated plan.  I’m certainly glossing over the importance of finding the right location and all of the thought/research that should go into it, but my focus is on planning…don’t bother if you don’t have a working concept
  5. Have fun. The rest takes care of itself.  I’m not kidding.  The post-development process of opening a restaurant, while very physically and mentally exhausting, is a rush. It also tricks people into believing that they’ve really created something …but in reality, the most important and difficult part is creating a smart/profitable model that is bulletproof.  It’s easy to skip the concept development process and jump right into a lease.   With some money and a lot of effort, anyone can drop a shrimp boat into a fresh water lake…it doesn’t mean you’re going to catch any shrimp.  This part of the process can be very exciting, rewarding, and socially gratifying as you interact with your new team and tell your friends/family/neighbors what you’re doing.  Fail to plan for it and you’re going to need to keep a pouch of nitroglycerin handy.

Restaurant Opening Checklist [PDF]
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If you already know what you’re doing, hire a consultant so you’re not saddled with expensive labor after you open (the skills required to open a restaurant cost more than the skills you need to maintain your restaurant).  If you don’t know what you’re doing, hire a consultant to help you evolve your dream with operational expertise.  Either way, you’re bringing on talent where and when you need it and then disengaging when you don’t.

Ray Camillo – Founder & CEO, Blue Orbit Restaurant Consulting

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