So, You Want To Open a Restaurant? Think About These Things First!

By the third year of operation, 50% of new restaurants have closed. Consider the following seven issues very carefully before you jump into the shark infested waters of restaurant ownership. Opening a restaurant is not an idea you want to enter into without thinking about these "real world" topics. I've created two original restaurant concepts from scratch. I can save you a lot of heartache by thinking about these things that are not talked about in a traditional business plan.

Why Do You Want To Open a Restaurant?

Are you sure about this?

I have been in the restaurant industry for 30 years. I researched and thought I knew what I was doing. Open the doors, and people would rush the place! I would be sold out every night and need an armored truck to take the cash to the bank. I was so wrong! My first restaurant struggled as most restaurants do.

Even when friends ask me to consult on new restaurant concepts, I talk to them about the very same things I am going to discuss with you.

Why do you want to open a restaurant?

Think it will be all fun and money? Think again. You can make great money in the restaurant business if you set it up correctly.

You have a great recipe for meatloaf that everyone asks you for the recipe? That's not enough to build a restaurant concept. Trust me; many have tried.

The restaurant industry can be brutal. Long hours and low returns are more common than the high-end lifestyle you see on the Food Network. Wolfgang Puck is a very talented chef. He is even better as a businessman. Done right you can make money and give back to your community in a variety of ways: charity events, supporting farm to table economy, a place for people to celebrate life events and create memories. You need to make sure you are going into this for the right reasons.

Know the Market & How Your Restaurant Fits

Does your market need another pizza place?

Please for the love of all that is holy.....do not open a restaurant just because you like "Greek" food and think it would be cool to open a restaurant so your friends can eat there.This tops my list of "The Stupidest Reasons To Open A Restaurant."

I help restaurant owners turn around operations that might have started on the rocky ground. The main reason people hire me to turn their concept around is that they did not understand the local market and now are drowning in their little nightmare. That means market research and for me to rebrand a concept based on what the market can use and support. Not because they came up with the idea for another general restaurant idea that never stood a chance.

Develop The Menu...First

This is more complicated than people think.

Okay you really, really, really want to be in the restaurant business. You have done market research and have a winning idea. Now comes the most critical part, designing a menu.

Your menu is your single biggest marketing and business development item you will have.

Your design is built around your menu. The number of staff you need is based on your menu. Your marketing and brand identity is all based on your list. Do you think this deserves some careful consideration? More than you realise.

I can write books on the menu brand identity matrix and menu engineering. There are so many variables to consider I strongly suggest you hire an experienced chef to help design a menu. Qualified means they understand these 14 key points to consider when planning a menu (there are about 75, these are the basics)

  1. Your brand.
  2. Your market.
  3. Your location.
  4. Your competition.
  5. Your staff (yes, this matters)
  6. Your vendors.
  7. Your payment cycle with those vendors. (Understanding this means positive cash flow).
  8. Seasonal menu availability. (heirloom tomatoes in February, not a good idea)
  9. Workflow of the kitchen and service.
  10. Menu psychology and structure.
  11. Pricing theory and food cost.
  12. Menu product mixes.
  13. Recipe development.
  14. Staff training.

Also, consider following points as well and put some time and effort here

  • Don't fall In Love With the location
  • You do not want to work for the landlord!
  • The location is critical, don't get me wrong. However, the right place on all levels is the best.

What do you look for?

  • high traffic
  • parking
  • zoning
  • construction issues (electrical, ability to install ventilation hoods and 50 other things)
  • a pleasant landlord
  • rent that is not over 6% of your estimated gross sales!

This is the NUMBER 1 thing that brings down new restaurants! They fell in love with the location so much; they just had to have it and signed a lease for gross rent and cannot make the numbers work. Six of-of ten restaurants that close are due to high rent that does not function within their budget.

Most new restaurants do not even have a budget, sad to say.

It is not a place for your family and friends to drink and eat for free. It is a business, and you are in business to make money.

Here is a fundamental concept you need to understand and plan for before starting a restaurant. All restaurants have a life cycle. Most restaurants are only six years! Very few make it to ten years, and even fewer make it past that....about 5%.

When I do new restaurant consulting, I tell clients to plan on an exit strategy around year 3. Two years to build the business and make it marketable, get a buyer at the peak and then get out before sales decline. Remember this is a business and investment! It is sad to see a restaurant go through the rise and fall of the life cycle, and then the owner tries and sells a restaurant on the decline. It will eat into any profits you had saved and slowly drain your life. I have seen it first hand. It is the worst. 

I was asked to help a family out who had a restaurant for 38 years. They should have sold it back in the 80's when they were at their peak. Now it is a slowly dying restaurant that has drained the family 's entire life saving and that of their daughter as well. I wish I would have known them ten years ago....maybe I could have saved them from the slow fate that is coming.

  • Plan your restaurant's life cycle. I beg you.
  • Hiring Right is Job Number One
  • Who you allow working for you is everything!
  • I hear it all the time, "there are no good employees out there." Really?

If you seriously think that you should go back and ask yourself if you want to open a restaurant. Good employees are drawn to good work atmospheres. That means you, my friend.

Culture flows down not up. You set the standards and mark of excellence for your business. You and you alone have this power; your team will grow that seed from the one you plant. Plant negativity, you'll get negative employees, unhappy customers, and a struggling business. This the second reason I get hired for consulting and coaching...team development.

Hiring in the restaurant business is a lot like mining for gold. You are going to have to dig through a bit of dirt to find the gold nuggets. However, once you find one treat it for what it is...GOLD.

I use behavioral based hiring system I created called The Hire Attitude. It ensures that you get only A & B players on your team. Most traditional interviewing and hiring systems methods get you mostly C & D players. Your restaurant will not survive the first three critical years with a team like that.

Buy Used catering equipment...If You Can?

Only fools buy everything new for a starting restaurant.

Of course, you can have that! Vendors and factory seconds catering equipment sales people are just that....sales people! Do you think they will talk you out of buying 200m plates when you only need 75? No way! They work on commission, and they will sell you all the shiny new objects.

I opened my first restaurant with 80% used the equipment. Used equipment goes from anywhere from 10 cents to 25 cents on the dollar. Maybe you could save that extra cash for operations? I bought a used exhaust hood for around $2000, paid a guy to put some metal on the front and used a sander to create a pattern on it. Underneath that thing was dented and damaged. You never could tell.

Now one thing I do recommend buying new is new commercial refrigeration units. You want the warranty for these. They tend to become your worst nightmare when you buy used. I have even bought used walk-in cooler panels from a local store that had renovated for around $75 dollars a piece. I bought new compressors for them, and they worked perfectly.

They are great used deals out there. Remember cash is king! I rented a big U-Haul and drove around in one day to all the used restaurant equipment places in a day. Having cash on hand got me some sweet deals.