I’m thinking of opening a restaurant. Or rather, sounding out the idea, hence this thread.
I welcome any and all advice or opinions on the subject. For instance, the estimated opening capital for a mid-size, high-rent, mid-scale restaurant? Where to go for financial backing? A business loan from a bank or look for private investors?
Pretty vague, but I’m at square one so I’m fishing for opinions so I can ask more questions.
Thanks.
Small businesses are pretty risky in general, but restaurants fail at a much higher rate than the average small business. The usual reasons:
Ifyou are contemplating opening a restaurant, do your homework! My grandfather operated a restaurant for 36 yeras-he worked like a dog-6 days a week, 12-14 hour days-if he calculated his hourly pay, it was probably pretty low.
There are two types of restaurants:
One, family-run, with many people working for nothing. This restaurant caters to blue-collar and lower middle class people. Long hors, low pay. You can make a living doing this, but it is damn hard!
Second type: an upscale location, catering to the wealthy types. Usually open only for dinner, with two seatings, and average check per person >$100.00. THIS IS THE KIND of restaurant you want…but requires a massive upfront investment. Usually these ones are financed by wealthy investors. This type of operation will enable you to live normal hours and make a decnt living. BUT-you must pay a good salary for a good chef, and have very professional waiters, and an excellent wince collection. DOE EVRYTHING TO PLEASE YOUR CUSTMERS-if they have a bad experience, they won’t come back.
Restaurants have one of the HIGHEST failure rates of any business-I think you know why!
The last sommelier I spoke to had a tremendous wince collection.
“The '83, sir? With the lamb?!” <wince>
AskNott, may I ask how you came by this information? Was it through personal experience or something else?
I’m just curious, not wishing to cast aspersions or anything.
My wife and I have owned our own (very successful) restaurant sincer 1983. If I knew then what I know now I wouldn’t even consider doing it again. We put in more hours in a month than some work in 3 months.
Have you any experience in restaurants?
Yeah restaurants are hard. They do fail more often than succeed in my opinion. My brother has a very successful restaurant and he worked darn long hours for the 1st 6 years but it is very profitable now and he makes a ton of money. His formula was to make a meal with fresh ingredients for between 6-7 dollars. There is no waiter service and he has one heck of a salad bar which is very popular.
He had landlords that financed the remodeling of the building and in addition to the rent they made a percentage of the profits. He started somewhat on a meek budget at first and as the business took off he built more space. He has upgraded the building 2 times in the last 15 years. If ever in Santa Cruz check out Carpo’s.
No, none. But, like most people starting out, I think the idea for the restaurant is a winner. Its under-represented in my area by a large amount. Its ethnic food and there are only 4 other up-scale restaurants (same food) in the city (Toronto) and they aren’t in ideal locations.
What were some things you had to overcome CBEscapee?
In our city, 50% of all new restaurants fail within the first year. More take a dive within three years.
If you have a good reputation in the community, meaning you know a lot of people, then I would say go for it. If you don’t, then find another business.
I can’t imagine that many banks will lend you money based on the fact that most restaurants fail. I would look to others that have money to be silent partners in the business.
Write out a solid business plan. Look at what makes the other restaurants successful in your community. Be sure to find a niche that needs to be filled, a gimick that makes your place stand out.
I would LOVE to own an restaurant. This is one of my life goals but it probably will never happen because of the competitive nature of the business. In addition, the idea that you sunk hundreds of thousands of dollars into something that becomes a bomb really scares me off.
If I were to do a restaurant it would be of a family nature. Comfort foods that people grew up with with specials every day. A nice place that offers a wide variety of food that satisfies the youngest to the oldest. The business person to the family out before a movie. I like those kinds of places. Homey while being a place to get away from the humdrum of the kitchen.
I recommend using a key, then.
Mr. Nemo, I’d advise getting some experience working in a restaurant–what others have said here is true, it’s a lot of work, more than people realize if they haven’t done it. In order to stay afloat the first few years (and likely afterwards) you’ll have to be doing a lot of work yourself. And it’s long, long hours. You don’t just walk in to the place at ten and open at eleven for lunch–there’s hours of prep beforehand, and prep and cleaning after. Of course, it takes less time if you hire more people, but that costs more money.
The other drawback is, you never get to be off when everyone else is. The times when most people would like to be going out and having fun is when you have to be working to provide some of that.
Don’t get me wrong, it can be pretty cool. I met some very interesting people while I was waiting tables, and had some good times. But I really think you should get some more practical experience before you open your own place, so you have an understanding of what it’s like.
Do you know how to make a small fortune in the restaurant business? Start with a large fortune . . .
Actually, some restaurants can be quite profitable it you’re not interested in paying taxes. Way back when I was in grad school getting that MBA I don’t really use, we did pro bono consulting work for area small businesses.
I remember one case where two waitresses at a little greasy-spoon diner wanted us to help them see if they could buy the business from the owner who was looking to retire. At our first meeting they brought along his books (he let them have them or they borrowed them from his office) and it showed that he consistently made about $800-$1,000 profit each month and he owned the building. They also told us he drove a new Cadilac, had a winter home in Florida, etc. I think he wanted about $250K for the business and that didn’t include the building - they’d have to rent the space from him.
They didn’t see how they could make it on $1,000 a month or how they could buy it from him. You can probably tell they didn’t have his “real” books - he was all cash in from his customers and cash out to his suppliers and reported just enough to not get caught. Our best estimate had him taking out about 10 times more money than what he reported. I would think the IRS has some better ratios in place by now to track this kind of thing, but who knows?
If you have no experience with the food business, DON’T DO IT! Go work in a restaurant that is similar to the one you would like to own. Work there for a couple of years and learn as much as you can, and then decide if you want to spend all that money.
At school (Art Institute of Colorado; The Culinary School) and from the various chefs that I’ve worked for I’ve learned that the number one reason that restaurants go under is under not enough initial capitalization. Make sure that you have enough funding to get through the first couple of years, that includes paying yourself.
Be prepared to work HARD. All of the non-corporate restaurants that I’ve worked for, the owners are there from the unlocking of the doors in the morning to the locking of the doors at night. They do everything from hostessing to waiting tables to expediting to line cooking and preping as well as the accounting and general PR. I’ve met owners that have worked hard and the restaurant was successful and they STILL WENT UNDER! The money was mismanaged.
Read up on it too. I looked up “restaurant” on Amazon and there are too many books to list that deal with starting a restaurant.
Definately write a business plan. There are instructions at the SBA website. This is good for enticing investors, getting a loan, and keeping yourself on track once you’re open and running.
Oh, and don’t buy brand new equipment except for refrigeration. It’s not worth the money. Most restaurant equipment store also sell used.
If you want to open a restaurant but you have no restaurant experience, boy are you going to be in for a big surprise.
You will definitely need to hire a highly experienced and talented general manager and essentially apprentice under him/her until you know what the heck you are doing. This will probably take several years, at least. You really should think about working in a restaurant first before you open one. Frankly, I don’t think anyone who has never worked in a restaurant has a realistic idea of just how hard it is. YMMV.
Are those places beating back customers? There may be a reason that there aren’t that many of a particular ethnic food and it may be that there is not very much demand for it.
When you start a small business you don’t own it. It owns you. You will work very long hours, seven days a week. Even if your place is closed one day a week guess what day you will have to repair stuff? It is very hard work. Customers can be real assholes.
But, it is so very satisfying to have a customer say ‘This is great!’ and you know that all of the ‘this’ came from you. It’s also great when someone says “Who runs this place? I want to speak to the owner!” and you get to say. “That would be me.”
Before you even start to consider opening a restaurant you should read “Kitchen Confidential” by Anthony Bourdin…it will make you seriously doubt the sanity of anyone who would want to open one.
Keith
The profit margin of any restaurant is thin. Unless it is an upscale trendy food as art type of place, your markup is limited.
You have to be very good at estimating your food usage. Buy enough so you don’t run out, but not too much. This is probably the hardest tightrope to walk, besides your intial capitalization.
In a retail area about a mile from me, 3 restaurants have gone under and were open less than a year. One only made it 2 months.
Work in a restaurant, and research your area. Find a niche that you can fill. We need a nice breakfast place in my area. I think if done properly, with limited hours and menu, it could work. There are only so many ways to cook eggs after all!
Good luck!
I’ve worked in restraurants since I was 16 (I’m soo much older now!) and you really have no idea what you’re getting into. The points raised by the previous posters are very valid- ie, low profit margin and insane hours. Since you wouldn’t have any experience going into this you would be totally dependent on the advice and work ethics of your management. All it takes is one or two bad employees to break you- either by running off customers with bad service or less than stellar kitchen work or theft. I’m not talking about large scale embezzelment or anything, just a couple meals here, some supplies there and your profit margin is gone.
Now, if you’ve got millions of bucks to spare for a couple years and don’t plan on doing all the hard stuff yourself- by all means go for it and good luck!