Advice needed: Planning on starting a restaurant

[sahtt]

So, I've been thinking about having my own restaurant for years. Recently me and the wife have discussed it a lot and I've come up with a concept and seriously considering pulling the trigger.

I know there are quite a few of you that have owned restaurants or just have general knowledge of starting a new business. What advice can you give me?

My background is... I've cooked in various types of restaurants for 10 years. I've been in everything from fast food to upscale french cuisine and everything in between. I've held many supervisor positions but never have been a "manager" but I know the ins and outs of managing a restaurant. I am kind of like a manager now at my cafe (because I run the place alone). I do not have any culinary or management degrees.

My concept is... A small cafe that sells grilled and hot subs. Mostly focusing on philly cheesesteaks and homemade meatball subs and various other hot subs and sandwiches. This will be nothing like a quizno's or subway. In my area, there are very few sandwich shops like this.

What advice can you more experienced restaurant or business guys give me?

You didn't mention the risk part of the equation at all. If you haven't spent at least as much time focusing on that I'd take a step back and seriously re-think this. You need to internalize what failure would entail (emotionally, financially, stress between you and your wife, etc.), and upon acceptance of it as a possibility you could move forward. Having enough cash/credit to start a business alone is worth much more today than it was previously.

While most points mentioned here are right, depending on your location, rents and emloyee costs will be much lower than 3 years ago for instance. You can probably find qualified people and pay them as low as you could have ten years ago, maybe lower.

What many of the individuals here are getting at is that, in general, we are in a strong contraction. We have WAY more retail shops than we need and their number will decrease far more than the average person understands. We will have 50-60% of the restaurants we had at the peak, 20-30% of the car dealerships, etc. In this environment, you are not just swimming up stream, you are swimming up a tsunami wave. It can be done, it's just very difficult.

 

[Old Bird]

You've gotten some great advice so far. I'm in real estate and I've seen virtually every business there is over the past 20+ years. There are two that I wouldn't go into: restaurant and small hotel. The main reason is long hours and little pay.

Since you've worked in restaurants I'm sure you've seen the insanely long hours that owners of small places need to work, other than the intelligent poster above that says he lets others do it for him. The problem with that plan is that you need to find a reliable employee to run it that won't just run out on you to start his own restaurant.

The money issue is much bigger. It's easy to watch all the receipts come into the register and think that the owner is making tons of money. But I can tell you that restaurants have one of the lowest profit margins of any small business. There are so many expenses that most of your cash goes right back out. I work out of my house and have an extremely low overhead business, but my business expenses still average more than $5,000 per month. A restaurant is exponentially higher than that.

My advice, other than having a rich uncle forward you a couple mil, is to find the right location, preferably the third time a restaurant tried it. One of the largest expenses in starting a restaurant is equipment. From my experience the third user of the equipment finally has low enough expense to cover the costs. Yeah, rule of thumb, but it's panned out a number of times.

You got some great advice above about how to start searching for a location, my other advice is to sit down with SCORE or some other group that can help you truly assess the expenses so you can see what it will really take to make any money at all, let alone enough to live on. Have at least two years expenses in reserve before you start, because you won't make money for that long.

SCORE is a group of volunteer retired executives that give advice to folks trying to start new business and they are an invaluable resource. Look for a local chapter, even small towns frequently have one.

 

[steveny]

Ok I'll chime in having 6 yrs of ownership experience in a Seafood restaurant. I own it, I don't work in it. If I had to actually work in it I wouldn't do it. Hiring other people to do the work makes my life simple. I'm not going to tell you not to do it as I have had the BEST year in 2009 in 6 years with double digit growth almost every month this year.

Ok....Here's my 2 cents:

1. Location is HUGE! I am on the central roadway in the Florida Panhandle, so anyone passing through has to pass by my restaurant. This is like free advertising.
2. Having worked at American Express many years back they beat us silly with "BRAND RECOGNITION". One of my first tasks was to hire a graphics designer to design a really cool Crab logo and a bunch of sea characters. We use them on everything from marketing materials, menus, shirts, mugs, hats and a great big sign on the roadway. I want everyone who sees my Happy Crab to remember my restaurant. I sell a TON of merchandise because it looks cool and tourists gouble it up, again FREE advertising walking around.
3. As stated above BUSINESS PLAN. If you've never done one this is key and unbelievably time consuming. Don't half ass it. Google restaurant business plans and for each section of the plan do your due diligence. Really research location, competition (including the hours your competition is open - you especially need this to help with figuring out staffing costs), staff requirement, financing, cash requirments, food costing, labor costing - Food and Labor costs are what will make you sink or swim. Having a solid business plan is the ONLY way to reduce risk and have a chance for success.
4. Be willing to adjust to the market. Follow what big chains do - last year big chains offered $25 gift certificates for $20, we followed and it was very successful. This year it's the 2 for $20, so we developed special items to market and follow their lead. They do millions of dollars in research on their advertising so pay attention to what they are doing.
5. If you are going to advertise, make it a measurable advertising. (IE - if you have an ad in a newspaper or other means, make it a coupon they have to cut out and bring in, that way you can measure the effectiveness. If you only get 10 coupons back then it ain't working and you need to try something else.) The best advertising we did was free, we are in the local school's coupon books that they sell each year. At first I wasn't going to do it but I figured it wasn't costig me anything, I get tons of these coupons each month redeemed.
6. Understand CLEARLY ALL EXPENSES on your P&L so that you can have a solid pro forma, this should be included in your business plan above.

The world needs restaurants to survive, so if you think you have what it takes and your willing to do the due diligence I say go for it. The type of restaurant you are describing should work well even in a bad economy as it's not on the "high end" side of things. If your idea takes off than I would look for ways to hire people to run it for you to free more of your time off so you can look at franchising it and making your idea bigger. Start small but think big....don't go into it with the thought that 10yrs from now you'll be standing behind the counter, go in with the idea you'll be in an office with 10-100 locations running themselves for you - think like a Papa Johns :biggrin:

Best of luck
Danny

For SIX YEARS Danny has had crabs. Sorry, had to do it man.:biggrin:

 

[Vic Cardenas]

1. What crowd you catering too.
2. Hours "goes along with crowd, maybe business lunch, maybe general public, maybe after hours".
3. Alcohol license?
4. Sit down service with tables, chairs? What about a waitstaff?
5. Price point. Depending on the crowd I guess and where you're located.
6. Decor, big thing. Again depending on where, and whom you're catering too.
7. Other things I'm forgetting

Here's something I thought interesting and that I thought was a great idea. I just came back from Indy. They had this restaurant called "Taste"...........

1. I would focus on the younger crowd teenager - late 30's mostly would be my market. Like others have said, I should have it by an office complex.
2. Lunch rush would be my best time, I'll stay open until about 8 pm for dinner.
3. No alcohol licence. The DABC here in Utah are a bunch of damn nazi's. I don't want to deal with them. If people are drinking they tend to stay longer and occupy valuable seats anyway.
4. Counter service with many tables. No waitstaff.
5. Prices should be between $5-8 dollars for a decent sized meal. I don't want to hit anywhere around $10 because most seem to just want a sit-down meal at that price.
6. Decor would be clean and functional, nothing too fancy. I still have work on this but understand the importance of this aspect.
7.A lot of other things but we will touch on that.

Good questions, thanks.

Write up a Business Plan.

This will determine if you can pull it all off.

Absolutely. If I were to need financing (I hope to not need it) then this is a must. Either way, a business plan is a must. Thanks.

If I were going to do it, I would buy someone elses business. That way you can see the books, you can have an accountant help you, and verify how much money he clears every year, etc. I would take it a step further and ONLY look at businesses that have been open for over 10 years. And then I would look at the area and see if I think it's changed, or changing. I also wouldn't be tied to one idea. If everyone in the business told me it wasn't good, I would take their advise. Basically, if it were me, I would put in more hours researching before I started than most people spend running their first shop from open to OOB.

Yes, the ideal situation for me is to find someone who has an established restaurant that makes good money and is in a decent location. This person is just burned out or wants to retire. This way, I could get alot of equipment included. This situation is very hard to come by. Most people who sell restaurants here are in the red.

Research is key... I still need to do a lot more and have much more time before I do this. Thanks for your advice.

One last thing, just because you are going to build it, doesn't mean that they (customers) will come. Make sure you have a marketing plan and advertise in a good local newspaper. Offer a coupon for a free fountian soda or something that has little overhead. Do your research by purchasing every newspaper in the area that you are interested in for a week. Look through the papers for where other businesses like yours advertise and what they offer. There is a reason why businesses advertise in the sections that they do. Trust me, I advertise heavily in my market and my business has been going strong in this recession/depression.

Those of us who are saying be cautious are only trying to help. Your friends and family will ultimately tell you what you want to hear because they are emotionally invested in you. Small business owners like us on Prime will tell you the truth. It's not easy and you will not take home an income for the first year. Make sure you can get a line of credit and start building a good relationship with a local small bank.

Good luck.

Yes, advertising is also key. I know of a good free paper called the City Weekly (I'm sure some of you are familiar with that) This paper proliferates my demographic very well. All the restaurants advertising in it seem to be doing very well. I would also look into other forms of advertising.

I have also seen advertising "backfire". So, my experience in this would also help me prevent it.

Also, I really appreciate the people who are telling me to be cautious or don't do it. It really does help me take all things into consideration. These people help me realize that if I go through with it, then it has to be very well planned.

 

[Vic Cardenas]

Ok I'll chime in having 6 yrs of ownership experience in a Seafood restaurant. I own it, I don't work in it. If I had to actually work in it I wouldn't do it. Hiring other people to do the work makes my life simple. I'm not going to tell you not to do it as I have had the BEST year in 2009 in 6 years with double digit growth almost every month this year.

Ok....Here's my 2 cents:

1. Location is HUGE! I am on the central roadway in the Florida Panhandle, so anyone passing through has to pass by my restaurant. This is like free advertising.
2. Having worked at American Express many years back they beat us silly with "BRAND RECOGNITION". One of my first tasks was to hire a graphics designer to design a really cool Crab logo and a bunch of sea characters. We use them on everything from marketing materials, menus, shirts, mugs, hats and a great big sign on the roadway. I want everyone who sees my Happy Crab to remember my restaurant. I sell a TON of merchandise because it looks cool and tourists gouble it up, again FREE advertising walking around.
3. As stated above BUSINESS PLAN. If you've never done one this is key and unbelievably time consuming. Don't half ass it. Google restaurant business plans and for each section of the plan do your due diligence. Really research location, competition (including the hours your competition is open - you especially need this to help with figuring out staffing costs), staff requirement, financing, cash requirments, food costing, labor costing - Food and Labor costs are what will make you sink or swim. Having a solid business plan is the ONLY way to reduce risk and have a chance for success.
4. Be willing to adjust to the market. Follow what big chains do - last year big chains offered $25 gift certificates for $20, we followed and it was very successful. This year it's the 2 for $20, so we developed special items to market and follow their lead. They do millions of dollars in research on their advertising so pay attention to what they are doing.
5. If you are going to advertise, make it a measurable advertising. (IE - if you have an ad in a newspaper or other means, make it a coupon they have to cut out and bring in, that way you can measure the effectiveness. If you only get 10 coupons back then it ain't working and you need to try something else.) The best advertising we did was free, we are in the local school's coupon books that they sell each year. At first I wasn't going to do it but I figured it wasn't costig me anything, I get tons of these coupons each month redeemed.
6. Understand CLEARLY ALL EXPENSES on your P&L so that you can have a solid pro forma, this should be included in your business plan above.

The world needs restaurants to survive, so if you think you have what it takes and your willing to do the due diligence I say go for it. The type of restaurant you are describing should work well even in a bad economy as it's not on the "high end" side of things. If your idea takes off than I would look for ways to hire people to run it for you to free more of your time off so you can look at franchising it and making your idea bigger. Start small but think big....don't go into it with the thought that 10yrs from now you'll be standing behind the counter, go in with the idea you'll be in an office with 10-100 locations running themselves for you - think like a Papa Johns :biggrin:

Best of luck
Danny

Very good advice, Danny! You seem to have done a great job with your restaurant and I hope to have success like yours. I'll take all your points with high regard.

You didn't mention the risk part of the equation at all. If you haven't spent at least as much time focusing on that I'd take a step back and seriously re-think this. You need to internalize what failure would entail (emotionally, financially, stress between you and your wife, etc.), and upon acceptance of it as a possibility you could move forward. Having enough cash/credit to start a business alone is worth much more today than it was previously.

While most points mentioned here are right, depending on your location, rents and emloyee costs will be much lower than 3 years ago for instance. You can probably find qualified people and pay them as low as you could have ten years ago, maybe lower.

What many of the individuals here are getting at is that, in general, we are in a strong contraction. We have WAY more retail shops than we need and their number will decrease far more than the average person understands. We will have 50-60% of the restaurants we had at the peak, 20-30% of the car dealerships, etc. In this environment, you are not just swimming up stream, you are swimming up a tsunami wave. It can be done, it's just very difficult.

You're right about all that. Failure is always on my mind and I will do the best I can not to.

Food and labor costs are also key. Alot of restaurant owners don't understand this and it's why they fail.
Thanks for all your advice.

You've gotten some great advice so far. I'm in real estate and I've seen virtually every business there is over the past 20+ years. There are two that I wouldn't go into: restaurant and small hotel. The main reason is long hours and little pay.

Since you've worked in restaurants I'm sure you've seen the insanely long hours that owners of small places need to work, other than the intelligent poster above that says he lets others do it for him. The problem with that plan is that you need to find a reliable employee to run it that won't just run out on you to start his own restaurant.

The money issue is much bigger. It's easy to watch all the receipts come into the register and think that the owner is making tons of money. But I can tell you that restaurants have one of the lowest profit margins of any small business. There are so many expenses that most of your cash goes right back out. I work out of my house and have an extremely low overhead business, but my business expenses still average more than $5,000 per month. A restaurant is exponentially higher than that.

My advice, other than having a rich uncle forward you a couple mil, is to find the right location, preferably the third time a restaurant tried it. One of the largest expenses in starting a restaurant is equipment. From my experience the third user of the equipment finally has low enough expense to cover the costs. Yeah, rule of thumb, but it's panned out a number of times.

You got some great advice above about how to start searching for a location, my other advice is to sit down with SCORE or some other group that can help you truly assess the expenses so you can see what it will really take to make any money at all, let alone enough to live on. Have at least two years expenses in reserve before you start, because you won't make money for that long.

SCORE is a group of volunteer retired executives that give advice to folks trying to start new business and they are an invaluable resource. Look for a local chapter, even small towns frequently have one.

Good advice. I wish a rich uncle but I don't. LOL
I have several strategies to keep overhead down. I hope to have very little overhead compared to the average restaurant.
I'll look into that SCORE group. Thanks for pointing that out.

For SIX YEARS Danny has had crabs. Sorry, had to do it man.:biggrin:

:biggrin:

 

[Danny]

Want some or are you just crabby today? :tongue:

p.s. I'll take crabs over your tenants anyday :wink:

For SIX YEARS Danny has had crabs. Sorry, had to do it man.:biggrin:

 

[queenlives]

Ok I'll chime in having 6 yrs of ownership experience in a Seafood restaurant. I own it, I don't work in it. If I had to actually work in it I wouldn't do it. Hiring other people to do the work makes my life simple. I'm not going to tell you not to do it as I have had the BEST year in 2009 in 6 years with double digit growth almost every month this year.

Ok....Here's my 2 cents:

1. Location is HUGE! I am on the central roadway in the Florida Panhandle, so anyone passing through has to pass by my restaurant. This is like free advertising.
2. Having worked at American Express many years back they beat us silly with "BRAND RECOGNITION". One of my first tasks was to hire a graphics designer to design a really cool Crab logo and a bunch of sea characters. We use them on everything from marketing materials, menus, shirts, mugs, hats and a great big sign on the roadway. I want everyone who sees my Happy Crab to remember my restaurant. I sell a TON of merchandise because it looks cool and tourists gouble it up, again FREE advertising walking around.
3. As stated above BUSINESS PLAN. If you've never done one this is key and unbelievably time consuming. Don't half ass it. Google restaurant business plans and for each section of the plan do your due diligence. Really research location, competition (including the hours your competition is open - you especially need this to help with figuring out staffing costs), staff requirement, financing, cash requirments, food costing, labor costing - Food and Labor costs are what will make you sink or swim. Having a solid business plan is the ONLY way to reduce risk and have a chance for success.
4. Be willing to adjust to the market. Follow what big chains do - last year big chains offered $25 gift certificates for $20, we followed and it was very successful. This year it's the 2 for $20, so we developed special items to market and follow their lead. They do millions of dollars in research on their advertising so pay attention to what they are doing.
5. If you are going to advertise, make it a measurable advertising. (IE - if you have an ad in a newspaper or other means, make it a coupon they have to cut out and bring in, that way you can measure the effectiveness. If you only get 10 coupons back then it ain't working and you need to try something else.) The best advertising we did was free, we are in the local school's coupon books that they sell each year. At first I wasn't going to do it but I figured it wasn't costig me anything, I get tons of these coupons each month redeemed.
6. Understand CLEARLY ALL EXPENSES on your P&L so that you can have a solid pro forma, this should be included in your business plan above.

The world needs restaurants to survive, so if you think you have what it takes and your willing to do the due diligence I say go for it. The type of restaurant you are describing should work well even in a bad economy as it's not on the "high end" side of things. If your idea takes off than I would look for ways to hire people to run it for you to free more of your time off so you can look at franchising it and making your idea bigger. Start small but think big....don't go into it with the thought that 10yrs from now you'll be standing behind the counter, go in with the idea you'll be in an office with 10-100 locations running themselves for you - think like a Papa Johns :biggrin:

Best of luck
Danny

great feedback / great post.

 

[spase]

Ok, here we go. I say DO IT. Its what you want, than you should do it. Every bussines its hard when you start and you never know how far it will go. But if you dont do it you will never know.I own a Italian-mediteranean restaurant 10 years now. Me and my brother started It when I was 22, and now 32. It was very hard, but learned with every mistake. We bought it from a guy that lost a lot of money on it, and before that it had changed into 4 diferent restaurants, and none of them survived more then 4 years. I tell you what tha first year was hell and none of me and my brother had any expirience, but we learned. there are few good advises from the other guys and I will tell you somethings very simple that I learned in this 10 years.
1.Be diferent. Be diferent then eny other cafe/restaurant. You have to ask your self, why should people come to me and not go somewhere else. What is so good about me,my food , my service.
2.You need outstanding service. You need to get to know people, coz people love to be recognised. People fill special when you remember them. Even when they bring their friends, they will mention your name 3 times in one sentence just to tell their friends that they know you.
3.Location is important like the other guys said, BUT for good food and good service people dont mind traveling extra few minutes.
4.Good food,good size.diferent, competable prizes,
5.give your costumers always something little extra, they love it and talk about it to other people.
6.Best advertising is word of mouth. Do your advertising at your place always by being good, and people will come back.
There is more but I got to go to sleep.:biggrin:
Good luck.