Restaurant Expansion Pitfalls
I’ve talked to a lot of restaurant owners who are looking at restaurant expansion. With deals on real estate and low interest rates, it could be the right time for you, too. Before you make any moves, make sure your systems, concept and numbers work before you expand.
Many independent restaurants are successfully built on the premise that you — the owner — are on the floor, in the kitchen, managing the books, greeting guests, etc. The problem with this situation is that the business is dependent on YOU!
If you do a restaurant expansion under this scenario, your original location will ultimately suffer. When you remove yourself from the floor, a void will be felt in direction and leadership. And your customers will notice you are not there to touch tables. But with operational systems in place you have the ability to work on your business, not in it. With systems you empower your management. Not only do they know what to do, they know how to do it and how to get it done. In addition, your guests have married the idea that your managers are the people to know, not just the owner.
And on top of that, systems create a paper trail, allowing you to monitor your managers and ensure they are doing their jobs, making it easier for you to monitor multiple locations.
Assuming you know who your customers are (you’ve been collecting their email and mailing addresses for marketing and customer loyalty purposes), you can contact a list broker such as InfoUSA.com and ask them to tell you about your customers by giving them your list. They will be able to tell you an incredible amount of demographic information. With this data in hand you can start to look for other markets where the population matches your current customer demographics.
Other things to look for when picking a new location for your restaurant expansion:
- Traffic patterns – are you on the going-to-work side or the going-home side of the rush hour?
- Traffic drivers – are there other businesses nearby or next door that cater to your demographic?
- Other restaurants – while many operators feel like having a lot of other restaurants around you is a bad thing, I think they are a benefit because they make your block a destination for dining out.
When it comes to the numbers, I want to bring to your attention the the things that are probably the most important:
- Design costs: Designing your new restaurant can be exciting because it’s finally the chance to fix everything that doesn’t work in your current location. While fixing these current issues can be critical to making your new location work, many restaurant owners fall victim to what I like to call “The Taj Mahal Syndrome” or TTMS for short. It’s when you see all those people waiting every weekend to dine in your restaurant and you think that if you build bigger, they will come… you build your Taj Mahal! But building bigger means higher debt service, which can kill a restaurant faster than anything else. And building bigger can give the impression of a less popular restaurant if there are more seats to fill and fewer butts to put in them. This will cost you, too. The key to designing your next location is to not forget about what made your customers fall in love with your concept in the first place and then modify for efficiencies after that.
- Debt service: With a second restaurant you have greater corporate or overhead costs. While you think you can do all of this on your own, I’m here to tell you that you’re underestimating how much time two locations are going to require from you. As you put together your business plan, make a 5 percent to 10 percent allowance from both restaurant budgets to take care of expenses.
- Cash flow: Profits don’t pay your bills, cash does! I can’t tell you how many great restaurants I’ve seen go out of business because of the cash flow demands of the second restaurant. Managing the flow of cash in and out of one restaurant is often the key to its success. Imagine that times two.
When you look at your business and determine that it’s time for a restaurant expansion, it can be extremely exciting. With that type of exuberance you need to tackle your business plan to make sure this is the right move for you. Make sure your restaurant’s success is not dependent on you alone, that your concept has legs and the numbers work. Most importantly, also remember that while all these are really important, nothing can replace being a good operator.
If you would like to learn more about systems and how they can help you with restaurant expansion, read our free special report, Breaking Away from the Insanity: How to easily take control of your restaurant and make more money. Download it here.