Sound Advice for Opening a Restaurant
I get a lot of inquiries from people interested in opening a restaurant, kicking the tires so to speak. For a lot of restaurant owners, opening a restaurant is a lifelong dream. They can imagine every detail, and it’s filled with happy customers who return again and again. A lot of these independent restaurant owners, they had a certain idea of what it was going to be like to own their own restaurant. But oftentimes, when the preparation isn’t there, the reality is nothing like the dream.
Running a restaurant is one of the hardest businesses to operate successfully. Many fail because of a lack of preparation and business knowledge. The average restaurant only makes about a nickel on every dollar it brings in, making restaurants unattractive business ventures for lenders.
To convince the banks and yourself that you can make it in the restaurant business, first do your homework.
Start with a business plan, including in-depth research on the market. The statistics prove it, but you still might be shocked at the number of restaurant owners who never created a business plan.
To ensure your success when opening a restaurant, a business plan is essential. Include details such as what makes your concept unique, your planned menu and type of service, your price points, a detailed evaluation of the market and your target demographics, your marketing plan, your financial plan, your operational plan, including your key players from industry experts and management to key suppliers and your CPA and attorney.
The financial plan, the most important part, must show on paper that you can make the concept work. Lenders of all types look for these key financial indicators to predict your success:
- For every dollar you borrow, you plan on bringing in $1.25 in first-year revenue
- Your overall debt service and total occupancy costs stay between 8–12 percent
- You show at least $150–$250 in sales per square foot for a full service restaurant or $200– $300 in sales per square foot for a quick service restaurant
- Your biggest expense, prime cost (total labor cost plus total cost of goods sold), stays under 65 percent of sales for full service and 60 percent for quick service. And these days, I’m recommending everyone aim for 55 percent to be safe.
- You’ve got a real shot of not only getting the funds to open, but a real shot at success if you do your research and create a strong business plan with smart financials for opening a restaurant
If you’re reading this and you’re a restaurant owner without a business plan, remember that it’s never too late to plan. You can still develop a business plan that will guide your business into the future. You might be surprised by what you find and what your restaurant’s potential is.
If you would like to learn more about how systems help opening a restaurant more successful, 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. Be sure to visit our YouTube channel for our series of restaurant management video tips.