Opening a Restaurant – Getting Started

Another new year is almost upon us. You’ve made it through the tough parts of the pandemic and you’re looking for a new business venture…one that’s challenging but fun…something you can show off and grow. Real estate has historically been a great place to park your money but it’s not much of a buyer’s market these days. The stock market is a little goofy and crypto (which may or may not be the next internet in its infancy) is a little intangible. What’s not intangible? Food and drink!

The humans that make real estate, stocks, and crypto possible all need to eat. So do the people that work for those humans and everyone else for that matter. No matter how rich or poor one is, there is no way to digitize or outsource or otherwise skirt the fact that humans must (or choose to) eat several times a day. Talk about a recession proof business. Yes, the pandemic wiped out a double-digit percent of restaurants around the globe but that didn’t stop people from eating. Sure, folks learned to bake sourdough using a starter, dusted off their Williams Sonoma pasta makers, and re-discovered their kitchens, but demand for “dining out” has never been greater, according to Forbes. Why not take this opportunity – or excuse – to finally get that restaurant open? You may be a real estate developer sitting on a vacant space or an investor who has always wanted a restaurant in their portfolio. Or you may just be looking for a new challenge. There are many good reasons to open a restaurant but, aside from conventional wisdom, the best one is that they can be cash cows. Yep. I’m not joking.

Restaurants that are developed methodically and with intent, that are adequately funded, organized, and positioned, can generate 12% to 20% Net Income. On a 3,500 square foot site, that’s $250k to $500k per year into your bank account…and that’s for a restaurant where the owner (you) is NOT part of the operating team. In other words, you will not have gotten yourself a new job but, instead, will have enough management and staff to run it for you. But you gotta get the concept right. Systems, operating philosophy, staff benefits, company culture, menu tuned to your neighborhood, location, size, aesthetic, and throughput must all converge to resonate with your audience. Going slowly in the very early stages – to make sure your plan is sharp and smart – makes it easy to launch methodically and per the plan. The #1 reason restaurants fail is due to lack of funding…which is French for “first timers who don’t know what they’re doing often get burned.” That’s why so many restaurants fail. Not because they’re a bad idea but because they’re launched irresponsibly and recklessly.

Step 1 is the financial model. Anyone can cook up a budget and proforma that says what they want it to say, but banks and investors can spot a pencil whipped plan a mile away. You’re looking into the future, so you’ll need help…and your CPA doesn’t know how to open restaurants either. Neither does an architect or your neighbor who is a chef or GM at a restaurant. You need someone with reps in restaurant openings. When you and your consultant are done creating the model, the first think you’ll get is a stomachache when you see how much more money, you’ll need than you thought you needed. However, it’s better to get this pain over with on the front end because the rest of the opening is a hoot. Don’t stick your head in the sand when it comes to funding. If the model says you need $1.2M (and not the $150k you thought you could yank from your 401k), then that’s what you need…so your next step is “go get it.” And don’t sign leases or start swinging hammers until you DO get it. After that, you can fly as every cost component has been budgeted for and your model can open with discipline…on time and on budget. When the machine turns on and your costs initially outpace sales, you won’t panic because you budgeted a line of credit for operating reserve while your new business “comes out of the sandbox.” It’s far more rewarding to open a concept that you are confident will work and that will not suck all your time because you’re properly staffed, and the concept is accurately conceived. Every investor needs to see a business plan…but the pages they flip to first are the financials. Why not give yourself a gift this year by signing up for the first smart step toward launching your own restaurant concept?

Blue Orbit Restaurant Consulting can work with you to create your dream concept through financial modeling, a business plan, and a concept book. From there we can help you with everything from training manuals and menus to craft cocktail programs and layout.

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