How do I write a business proposal?

Advice here, or links to suitable sites are appreciated.

Long story short:

Local diner, downtown, somewhat historic. FOR SALE.

Downtown would be best served by this place remaining open and successful.

I cooked there when it was successful.

I cooked there under the current ownership, but left (2002) before the place started a slow decline.

The current owner is trying to sell the place, and has recently lowered her asking price.

The current owner’s parents were amongst my customers at my last job (cooking in a retirement home), and her mother kept telling me I should buy the diner.

I have no money, and no assets. But I’m acquainted with a local millionaire, who has been very successful in business in this town. He’s a decent guy. He loves this town, and respects (and has done what he can to preserve) this town’s history. He and I also have a personal connection, in that he graduated from high school with my parents (and even dated my mom, briefly).

I want to ask this guy to help me buy this diner. But I need something better than, “Hey, remember when you dated my mom?”

I will try and find you some good samples. In the meantime, start by Googling “restaurant business plans” online and see what you find. You should also look for books with a similar theme on Amazon.

I am not in the restaurant business, but I have written business plans that have gotten funding from venture capitalists. I also have family that used to be in the restaurant business.

Do you think the former owners would be willing to share any numbers with you? It might be helpful.

If you Google “how to write a business plan” you’ll get quite a few hits, like this one: https://www.sba.gov/writing-business-plan

Also, you should call your local community college and ask if they have a “Business Development Center” which gives free advice to people who want to start their own business. I got help that way several years ago.

One caveat about the business plan: Some sources will tell you that it should be 20-40 pages long. I say that’s too long for most situations. Aim for 5-10 pages. Remember, this plan serves two purposes. #1 It forces you to put into words what your strategy is going to be so you can see it for your own benefit. #2 It allows you to demonstrate to a potential investor that you’re serious and this isn’t just a daydream.

But, honestly, if you walk into a bank to apply for a business loan and hand them your business plan, they won’t even bother to read it. They’ll toss it in a drawer and hand you back a blank application form which will ask you about cash flow and collateral.

One thing to consider–Why is it in decline? Was it a quality issue (bad food or service) or a quantity issue (downtown is in decline or the character of downtown doesn’t fit the character of the restaurant so clientele is low). If I were an investor, I would want this addressed. What makes you think you can turn it around and how? This might also help you reflect on if you want to put your time and energy into a place that will be an uphill struggle from day one. Just because you think an area might be “well served” by this type of place doesn’t mean it will be well served by THIS place or that others agree with you.

I used to work for a non-profit economic development agency. We would refer people who needed to write business plans to the local Small Business Development Center. I would recommend you try that; the link is wsbdc.org

I would suggest talking to a commercial realtor in your area. They usually have a good idea of how restaurants are doing, and they may have the numbers you need for projections on the business after you fix it up. They will also know about any incentive programs available, these are very common in downtown areas to revive retail businesses. Another approach is to talk to the local politicians. They’ll be interested in your plans and help you find information and investors.

Your plan shouldn’t be complicated for a restaurant, you need to know their weekly gross now, how much money you’ll put into the place, any new costs such as increased advertising or more staff, and what the weekly gross will be once you take over and fix it up. For a restaurant the rest of it is all about you personally, the investors have to believe you’ll work hard and make it a success.

And I gotta say, “Hey, remember when you dated my mom?” is a pretty good opening line for a discussion once you have some more information.

Advice? You want IAMHO, no General Questions. Let me move this for you.

samclem, moderator

I have NO suggestions, but I do wish you much luck. If the food is good (which I’m sure it will be) and the service is good, the only problem you might have is all of the disgruntled customers who left due to complaints from the lack of good food or service.

Under new owner places don’t seem to do very well in my neck of the woods. We remember the bad experience we had last time we went there and don’t think too much about how it might have changed.

…I know you know the industry and don’t shy away from hard work.

But running your own business is an entirely different kettle of fish altogether. You need to be doing it for the right reasons and you need your own cash and you need a solid vision.

I’ve run my own catering business and I was very smart setting it up, had a comprehensive business plan in place and I watched that business crash and burn three years later.

I’m going to be blunt: you are in a bad position right now to look at opening a restaurant. You’ve just been fired. You’ve got no cash and would have no stake in the business.

Do you actually want to be a business owner? Or do you want to just have the freedom to work without the pressure of a “boss” and to run your own kitchen? Don’t get these two things confused. Running a business is a lifestyle choice. After my first business failed I spent a few years recovering then I started another business. That one has been going for four years and is doing very well. I can’t work for someone else. If this business were to fall over in a couple of years I’d just pull my socks up and start again.

Is that how you feel? If it is then I would suggest you steer clear of the restaurant. Look at becoming a personal chef, or a small-scale on location catering company. Substantially lower overheads, relatively predictable food costs, you would have more control and the amount of start-up capital you would need would be a fraction of what opening a restaurant would be.

If it isn’t how you feel: then I could suggest asking your millionaire friend to buy the restaurant and hire you to run the kitchen. That is a much easier “sell” than trying to convince him to lend you hundreds of thousands of dollars to start a business that statistically has a small chance of success.

But if you really really want to buy the diner, and if the millionaire friend is your only option, then you need to know what you are proposing back to front. He will know the numbers and you will not be able to fool him. So you are going to have to pull out the spreadsheets and start crunching the numbers. You need a clear vision of who the customers will be for this diner and how you intend to get your target customers through the door in sufficient volumes to be profitable. He won’t want to hear wishy-washy stuff like “downtown would be best served by this place remaining open and successful.” If he wants to donate to a charity he will give to the red cross. It wouldn’t matter if you had saved his life in Vietnam and was his best-est buddy in the whole world: if the business opportunity sucks then he won’t invest in it.

You need to both prove that you are worth investing in and that the diner is worth investing in. That he will get a return.

You need to dig deep and think: “is this really what I want?” If it is: then you need to start with doing some research. Do a SWOT (Strengths, weaknesses, opportunities, threats) analysis. Get some ballpark numbers. Then get specific numbers. Don’t start the business plan just yet. Be prepared to walk away at any stage. Trust the numbers: if the numbers say this is not going to work, then it isn’t going to work.

The o.p. appears to have a substantial amount of experience in the food service industry so I apologize in advance if any of the observations are trivial or not applicable to this specific opportunity. I’m writing this from the viewpoint of a hypothetical investor (in reality I would never invest in a restaurant, for reasons explained below) and what I would expect to see to sway me to invest significant capital.

The o.p. mentions needing to write a business proposal, which is correct in this case. The business or operating plan, which describes the basic product of the business, the anticipated expenses and revenues, opeating margins, depriciation and amortization, return on investment, et cetera, are one part of a proposal. Given the current business in failing, you are also going to address the failings of the current business and how your proposed enterprise will improve upon those issues. You also need to detail out how you plan to initially attract new or lost clinetele and how you will retain them after initial enthusiasm, as well as personnel recruitment, training, and retention. This needs to go down to a fairly detailed level; how much, how many, and when to every question above. It may be a series of educated guesses but you at least need to be able to answer those questions.

I’m sure you are already aware of the slim margins a restaurant can see, and the necessity of controlling costs. You need to factor waste, theft, and fraud into that, and also minimize those as much as possible both by selecting comptent, honest people and keeping careful tabs on money, food, and equipment losses. I once worked at a restaurant where certain employees were known to be carrying off hundreds if not thousands of dollars a week in food and booze. They were also the top cooks so the owners probably felt like they couldn’t have called them out without compromising their ability to conduct business, but that is exactly the kind of stranglehold you don’t want to be in. You need every cook on the line to be able to work any position so if your top grill man is sick at home (having shot a little too much whiskey or heroin, probably) or your sous chef turns out to be walking out with boxes of steaks you can take the appropriate steps and keep going without a beat. This may mean that you work the job until you find a replacement on top of doing every other damned thing in the joint.

You say “diner” so I assume no beer & wine or liquor license; if not, reconsider and figure out what it would take. Liquor is a double-edged sword–it can bring a lot of trouble–but will also be by far the highest margin product you will sell. Food costs have been increasing but the prices that people will pay have been kept artificially depressed by chain restaurants like Denny’s and Waffle House which make money by selling a crap product at bargin basement price and hiring the people who can’t get hired anywhere else. You can only charge a few dollars more a plate for the nominally same food, regardless of how good it is, unless you are branding yourself as gourmet (more on this in a second). That means your margins are going to be tiny unless you can sell a beer along side the meal.

On the topic of gourmet “comfort” food: people seem to think they can offer basic staples with a little flair for twice the price. And, surprisingly, it works…for a while. But if you can’t actually offer a plate of chicken and waffles that is actually better than what can be had at Roscoe’s (and they make some damn fine chicken and waffles) you’re not going to fool many people for very long. Offering “fine” food is more than just food quality; it is presentation, service, and a certain quirky charm that nobody else in the area has that makes you special. If you don’t think you can do this, don’t try. There is a taco place down the road from me that thinks they can charge $8 for a taco because it is run by hipsters with cool hats, but I can get better food from the non-gourmet food truck down at the campus construction sites, so guess what; I don’t eat there and nor does anyone else.

All that being said, don’t try to do everything yourself unless you are literally prepared to live in the restaurant. Either find a partner, or a manager that you trust who is skilled at the things that you are not. Someone needs to manage the kitchen and all the bullshit that goes on in there, and someone else needs to ride herd over the waitstaff and the fucked up, kinky shit they get into on a daily basis. And don’t just train but drill your waitstaff on how to handle every conceivable problem, and then be there to back them up (or have a senior server who can) when they have the inevitable conflict with a difficult customer. You don’t want to alienate customers unduly, but don’t be afraid to tell a customer they are being unreasonable if they are actually making unreasonable demands. You cannot be tied up with one customer that is just looking to make drama or drive off a good server over a conflict that is actually meaningless to your busines.

Back to the business proposal (which I fear I’ve strayed far afield from) you need to be able to tell a story to an investor why you are going to be successful when three quarters of independent food establishments go out of business within a few years and without ever showing a profit. “You used to date my mom,” or “This town needs a diner,” aren’t enough; as an investor, I need to know that you are going to look after, protect, and grow my investment. Tell the story, with facts, figures, and a little panache, and include a healthy dose of how your particular experience is going to beat the odds.

Stranger

Rik,

Do you believe this diner is undervalued in terms of investment risk/expected ROI?

If so, for what reasons?

Please read Stranger’s and Bear’s posts repeatedly. Everything that stressed you out and that you hated about the job you were just fired from is part of what you’re planning on doing, and it’s WAY more stressful when you’ve borrowed money on good faith and the only person everyone is looking to is you. It’s a great dream, but you want to walk into it with something other than great cooking skills- you want to really break down where you failed in your last job (don’t lay all of it on the feet of the facility- take your portion of the responsibility) and figure out why/how things will be different. If you thought it was tough working days on end with no sign of a break, being an owner is even worse.

The better half owned his own diner for a while- it went under because people prefer the immediate-gratification, known quality of the chain places. That the place you’re looking at is starting to go under (and that it’s been for sale long enough that the price has been reduced) is a red flag. Pay attention to it.

Writing a complete business plan crystallises everything - inc. stuff you would never thing of but have to. Absolutely essential.

Microsoft Office has free templates, they’ll get you some way.

This is a huge threat to every small restaurant and most of the big independent restaurants these days. Every one who does it now is doing it as a labor of love, not because it’s a good investment. Doing well in an independent restaurant in the 21st century means not losing your shirt. You need a strong investor who is interested in preserving a classic diner, not one that is looking for a profit. As I mentioned before, look for incentive programs for funding in a downtown area, you’ll have a difficult time making this enterprise stand on it’s own legs.

It’s a wonderful idea, I wish you great luck if you can do this, but I wouldn’t suggest that you will have great financial success.

Speaking as the owner of a small business (in its sixth year) with 4 employees…

It’s a tough job being the owner. In a good month, you’ll have lots of customers, work your ass off, make a profit, pay off some debt, and pay yourself a decent paycheck. In a bad month, you’ll have fewer customers, work your ass off, barely have enough to pay the bills, and pay yourself a paycheck which works out to less than minimum wage for all the hours you put in.* In a really bad month, you’ll have hardly any customers at all, you’ll send half your employees home and work your ass off, not have enough to pay the bills, go deeper into debt, max out your personal credit cards trying to keep the place running, and not be able to pay yourself a salary at all.

If you’re lucky, the good months will outnumber the bad ones. But there’s no guarantee they will. You need to have some deep pockets to get you through to bad ones. If you’re married, do everything you can to make sure your spouse’s name is NOT on any of the company debt, so that if the business goes under and you have to declare bankruptcy it won’t ruin your spouse’s credit rating, just yours.

Actuallty, the business should be owned by an “S” corporation or limited liability company (LLC) in order to shield your personal assets and liability in the case that the business goes bankrupt.

If you do enter into a partnership with investors, make sure to delineate your “sweat equity” part of the investment. This is especially true if the partner(s) are all non-participants in the business; your interests in the business should be identified so as to minimize any differing interpretations, hard feelings, or outright swindles, and it is frankly valuable to the investors to assure that you have a vested interest in success. If an investor just wants to own a restaurant and hire you as the cook but not run it themselves or recruit an experienced restaurant manager, walk away, because that is not going to go well.

Running a business is hard, and an independent restaurant is one of the hardest of all businesses to run successfully. The plus side to that is that there is always cheap, barely used restaurant equipment available, and often experienced cooks and waitstaff looking for work damn near anywhere you go. But make no bones about it; your chances of beating the long odds depend heavily on your dedication, skill with being diplomatic but firm with people, good logistics and a head for detail, and either being really good at marketing and all of the fine details of attracting customers or else hiring someone who is.

If what you really want is just to be your own boss and cook, don’t buy a diner or full restaurant; run a sandwich counter or food truck somewhere. The odds on those aren’t great, either but you aren’t nearly as reliant on other people and the initial and continuing investment is much smaller. The best restaurant concept I’ve ever seen (and the only one I would consider running) was a soup shop that was open on weekday mornings and lunch (through ~2pm or whenever they ran out of soup), and ran out of a small storefront near several major businesses just large enough for a counter in front and galley kitchen in back. It was cheap, quick, easy to prepare and clean up, and the owners had their nights and weekends to themselves.

Stranger

Yes, that works in theory but in practice it’s not as easy as it sounds. Even if your business is an LLC, when you go to sign up for a line of credit with a supplier they will insist that you PERSONALLY promise to pay the amount owed. The paperwork says that both the corporation and you as the owner of the corporation are on the hook. Yeah, you can refuse. Just insist that you only do business with suppliers and banks which will NOT hold you personally responsible for the business debts, but then you will have a hard time finding anyone willing to give you any credit and you’ll pay higher interest rates for it.

Higher rates are small potatoes compared to being personally liable for company debts. It just means you’ll need a little more startup working capital until you can establish earning streams and qualify for lower borrowing costs and higher credit card limits for the business.

S Corp or LLC will be the #1 recommendation of any attorney you talk to. Restaurants have extremely high failure rates and it’s certainly not worth taking the risk of personal liability for a few percentage points on your line of credit or avoiding asking your backer for an extra month of payables working capital.

The easiest approach - provided you’re in the USA - is to find a local Small Business Administration office. They’ll have some info for you on such and will know of local set asides and similar advantages.

But the biggest thing they bring to the table is the local SCORE team. SCORE maintains a group of experienced business mentors who can help you prepare your plan and yourself to run a small business. There’s always more than you think.

Get a mentor and see what sort of direct advice you can get. You might even find one with significant experience running a restaurant of the type and size you’re considering.

Yes I said higher interest rates don’t forget the other part where I said you’ll have fewer options of who is willing to do business with you. It’s great to be able to shop around, pick and choose. But you don’t always have that luxury. There are times when your back is against the wall and your only choices are to put your personal finances on the line or stand back and watch the business crash and burn.

It’s great to be able to go to five different banks and choose which one gives you the best interest rate and be able to say to yourself “I don’t care that they’re charging me higher rates than what they’d charge if I were willing to put this loan in my personal name instead of the LLC”. But it’s another thing altogether when four of those five banks turn you down flat and the fifth one insists that you put your personal name on the loan application or they’ll turn you down too.

Also, I talked to a lawyer who told me that, yes, in theory, owning an LLC means that if the company gets sued that you personally are off the hook but in reality if you screwed up on a job the customer is likely to sue both the LLC and you personally so you aren’t as protected as you think you are.

I’m not saying S-corps and LLCs are a waste of time. I’m just saying the reality is a little different from the theory.