As we begin to come out of this debacle, I’m starting to see a lot of interest in opening new restaurants. There seems to be a glut of sideline cash in the PE and VC worlds, combined with some perceived idea that leases will be cheap and easy to come by.
I’ve received several inquiries lately about whether it makes sense to open a restaurant right now. It’s a tough call whether it’s now or pre/post-pandemic. It’s a business that takes no prisoners, so you better all have those “ducks” lined up.
So the stats, pre-pandemic, show 60 percent of restaurants close within the first year, and 80 percent in the first five years. While those numbers are grossly inflated (most of the research I’ve seen is about half that), there are still many variables that determine your chances of success in starting ANY business. With restaurants, there are even more.
If you’re looking to be a successful business owner rather than another sad statistic, planning and preparation is the only way to do so. Before you begin the process (and go and do something you’ll regret)…
Here are 9 questions you should answer.
1. How much will it cost to open your restaurant and to sustain it for a solid year? I think I can count on one hand where pre-opening costs came in at or below budget. Something always happens, so you have to have contingencies built into the budget. Of course, it isn’t just about identifying opening costs. You need to determine the total operating costs over the course of a year, so you will have an accurate idea of how much you need to budget. No matter how great you think your concept is, it takes time to get the word out and build a brand.
2. What makes you special? Food? Service? Ambiance? All of the above? To succeed in this business, you have to have a differentiator. Nail that down before you start, so you can start to build a culture around what makes you great.
3. Have you properly planned? You don’t necessarily need a 20-page business plan, but you do need to summarize the basics of your business: who your staff is, what you’ll deliver, size, logistics, where you’ll operate and how you’ll do it. Don’t overlook anything. What makes the most sense at this stage of the Pandemic? A lot of thought needs to go into your business plan. And of course, you will also need a comprehensive financial plan to support whatever you decide to do.
4. Speaking of Staff…. There is a staffing crisis currently in the restaurant industry and this isn’t going to go away anytime soon. The combination of government assistance keeping many workers at home with reduced restrictions and people wanting to get back to some normalcy, the employee cupboard is pretty much bare. Many restaurants can’t even open because they don’t have the staff. Be sure you can source and hire enough people, BEFORE you get in too deep.
5. Do you have experience in the restaurant industry? You better know what you’re getting into before you start. This is probably the most common issue I deal with. It’s generally someone or group that was successful in another industry and decided they wanted to fulfill a lifelong dream and own a restaurant. It’s also extremely common for prospective restaurant owners to have a misconception about the glamorous life of a restaurateur (Hint: it’s not so much.). Talk to people who are in the middle of it and get their perspective.
6. Do you have (lots of) time and energy? It takes a tremendous amount of both to succeed in this business. Be prepared to give up evenings and weekends for at least until your up, running and executing effectively.
7. Have you done enough market research? Get the stars out of your eyes and go check out the competition in the area you want to be in. Per question #2, you need to understand how to differentiate yourself. It’s also critical to understand what your customer is looking for. The world have forever changed and your concept needs to change with it.
8. Are you going to lease or buy? If you lease, which most people do, you’ll need assistance in the negotiation from both an attorney and a real estate broker. There is a ton of information that goes into a lease, so you’ll need to understand what you’re getting into. Not digging into a lease is a common mistake and one, if not done correctly, could doom you from the onset.
9. How will you market your restaurant? To get the word out, you’ll need to execute a great marketing plan on a consistent basis. Keep in mind that the best form of marketing out there is word of mouth. After you have your restaurant running smoothly, then you can implement a more comprehensive marketing program. Too many restaurant owners think paid marketing is how to build a successful business. You never want to pay to get more people to come visit you until you are able to provide an exceptional experience. See #2 again.
If you can’t answer all of these questions (and several more), then you’ll probably need an expert to help you fulfill your dream. Or you might consider franchising with a company that has most of the answers built into their business model. Or maybe consider NOT opening a restaurant? Whatever you decide…