A New Restaurant

I know.  Nothing like pointing out the obvious, but too often taxes are the 500 lb. gorilla in the room.  we all know about, but we hate to bring it up.  Like it or not, it is that time.

Across the country there are restaurant owners huddled over their computers, trying to squeeze an extra dollar or two out of Quickbooks.  My advice on the matter: talk to your accountant!  The tax code is a complex beast, and if you don’t know how to handle that beast, it will hurt you.

There are  deductions you haven’t even thought of, not to mention the ones you did think of that aren’t really allowed.  A good CPA has studied this stuff for years, and has built up a bit of expertise on the subject.  The savings they can give you in found deductions and by avoiding penalties is worth far more than they will charge you.  Not to mention the fact that if your taxes are prepared by a professional, they will help represent you in the event of an audit.

To many business owners will try to save as much money as they can every where they can, but to survive and succeed in restaurants, or any business, it’s not always about pinching pennies, it’s about know where to spend and where to save.  Dealing with the IRS is not the time to try to do it on the cheap.

Don’t risk making a costly mistake that could cost you your business.  Hire an accountant to do your taxes for you.

I recently read a piece that someone had written about a problem that every restaurant owner has to deal with: silverware being thrown into the trash.  The writer suggested that on way to deal with this problem was to offer rewards for employees who found and recovered the utensils from the trash cans.

While his suggestion seems like it has the possibility of working, the reality is, that kind of reward will have the opposite effect; it will actually encourage your staff to throw the silverware in the trash.  By putting a reward on finding the utensils, they will start putting things in the trash so they will be able to “find” them, and collect the reward.  While you may see a reduction in the amount of silverware you lose, you may not see any savings.  By the time you are done paying out the rewards, the program may end up costing more than buying the replacement silverware.

Rewarding behavior is a risky thing.  Corporations spend large amounts of money making sure that what they are rewarding actually encourages the desired behavior, and not some unforeseen behavior that is the exact opposite of what they want.

The process starts by looking carefully at what you want to happen.  This can not be a general result you want to achieve.  You need to be as specific as possible.  In the scenario above, it is reducing the amount of loss that comes from silverware being thrown in the trash.  However, the reward didn’t address that problem.  The reward was for pulling things out of the trash, not for stopping the problem before it reaches the trash.

The other problem with this scenario is that by rewarding silverware recovery with cash, you are eating into any savings you would get for reducing the loss of silverware.  Another option is to figure out a way to give non-cash rewards to the staff for achieving certain goals; in this case, for reducing the amount of silverware loss to a specified level.  In this way, you are rewarding desired results, and not a specific behavior.  there would be no incentive for employees to throw away silverware so they can later “find” it fo the reward.

Be careful of reward programs.  If done right, they can work wonders for your restaurant.  If done poorly, it can be throwing good money after bad, and that does not help your chances of success.

Economic times are tough, and if you listen to the financial experts, things are going to get tougher before they get better.  The talk is that people are going to have less income to spend on dining and entertainment.  As a restaurant owner that relies on paying customers for your success, this is a cause for concern, but don’t despair, you can get through this.  We’ve been through lean times before, and many restaurants find ways to avoid failure.

There are several different strategies that owners use to try top counteract a down economy.  In some restaurants when the income starts going down, they immediately raise their prices.  The problem with this strategy is, if people are staying away because of less money to spend, raising your prices will guarantee they will stay away.  You need to lure them in, not price yourself out of business.

The second strategy you see is lowering prices.  The problem is, your fixed expenses aren’t coming down at all.  Lowering prices across the board will lower your profit margin.  This isn’t necessarily a bad strategy.  Even with lower margins you can still be successful if you make up with the tighter margins with increased volume.

There is another option that you may want to consider; keep your prices where they are, and run lower priced specials.  This works for you in a couple of ways.  You have lower priced items that will continue to attract customers, but you still keep profitable items on your menu.  It’s helpful to have servers who are trained in how to suggestive sell.  Even when the money is a little tight, people still want to have a good time when they go out.  By suggesting appetizers and desserts, you can still see some nice check averages even with the lower priced items.

For your restaurant to be successful you need to make sure you have a steady stream of customers coming through the doors.  You need to keep the cash coming in.  The best way to do that is to make sure you are offering prices that will entice them in, without sacrificing your profits.

The other day I wrote about not being able to please every one with your food.  Going along with that is that you can not be all things to all people.  You need to narrow your focus down.  Define who you are, then be the best you can be at that.

I need to talk about the restaurant that recently opened in my neighborhood.  I keep going back to this example for a couple of reasons.  First, I had the opportunity to work there during the opening, so I got an inside look at what took place.  I got to see what went right, what went wrong, and how many of the mistakes could have been avoided.  Second, there was a lot that went wrong during this opening, and there are a lot of lessons that can be taken away from this experience.

When the owner decided on his concept, he chose what he referred to as a Southern California restaurant concept.  The restaurant was constructed with a dividing wall down the middle, creating two separate rooms.  One side was a dining room, with white linens, mood lighting, and on Friday and Saturday evenings, a strolling musician.  On the other side of the wall was the lounge.  It had a juke box, TV’s tuned to whatever sporting event was taking place, and on the weekends, live bands performing.

The building was designed so later in the evening when the dinner crowd had cleared out, the center wall could be opened, creating one large room for the late night lounge customers.  All well and good, except the owner couldn’t seem to decide whether he was a restaurant or a bar when it came to marketing his establishment.  Much of his marketing was focused on increasing the late night business, and the restaurant part didn’t receive as much publicity.

To complicate matters even further, the people that lived near the new restaurant had grudgingly agreed to allowing the city to grant a variance for selling liquor at the restaurant.  They were concerned with potential drunks coming to their neighborhood.  They were appeased by the assurances that nice restaurants do not typically attract that type of person.  As the owner began doing more marketing for the lounge, the neighbors became more concerned.  They had agreed to the restaurant, but they were now feeling like the restaurant was just a cover to allow the owner to run a bar.

The restaurant has survived it’s initial opening trauma, but it continues to struggle.  While it’s opening was greeted with anticipation and excitement, many of the customers feel like the lounge is the main business, and the dining room is an after thought.  What had the potential to be a successful restaurant limps along trying to compete with the business on the other side of the wall.

How will it end?  Only time will tell.

Dealing With Customer Complaints

Taking the Good With the Bad – Compliments and Complaints

In this business you need to develop a bit of a thick skin.  If you don’t you will drive yourself crazy.

When I was a waiter, one of the hardest things I had to deal with was customer complaints.  The same meal that drew compliments from diners night after night would not be up to one customers standards, or wasn’t prepared the way Mom always used to make it, and they would have to take it out on me.  While most were relatively oplite about it, some did everything short of cursing my ancestors.  I quickly had t learn not to take it personal.

One of the truths of food service is that you will never please everyone.

The fact is, we all have different likes and dislikes.  Whether it’s a result of dietary restrictions, or upbringing, or the way your spouse cooks, we like our food different ways.  The dilemma this creates is, the dish that you serve may be wonderful for most of your customers, but there will always be some who don’t like it.  Despite the rave reviews you have gotten in the past, they are out spreading the word that the food in your restaurant isn’t very good.  In a business where success or failure is a product of how the customers perceive you, that can be a hard thing to deal with.

The only thing you can really do is let it go.  Try what you can, within reason, to make the customer happy, then go on about your business.  If you are constantly changing your recipes in an effort to please everyone, you will never have any kind of consitancy.  Develop recipes taht you are happy with.  If most of your customers like what you are serving, leave it alone.  If you don’t have a good reason to change the recipe, don’t.

In the long run, your success will be a result of consistently serving quality meals.  The customers that like your recipes will come back.  The complainers will either order something different, or they will go elsewhere.  Take care of the customers that you have.

Remember, your not as bad as the complainers say you are.

We all know how important it is to have a great location, but have you thought about how the concept you decide on affects your location choice.  It does.  Your concept will, in part, determine how far people will be willing to travel to get to your place.  That little piece of information can be a big determining factor in your restaurants success or failure.

A Tale of Two Restaurants

There are two different restaurants in my area that have different concepts, and very different abilities to draw customers.

Restaurant #1 is one I’ve talked about before.  It is an Italian restaurant that has finally started to see a little bit of success.  The problem is, however, there is no shortage of Italian eateries in our area.  That limits this restaurants ability to draw from surrounding communities.  While the food is good, there isn’t anything that would make potential customers want to drive past one or more of the other Italian restaurants in order to visit this restaurant.  Restaurant #1 has to rely on the people living in the neighborhood for it’s long-term success.

Restaurant #2 is located about 10 miles way.  It’s a restaurant that specializes in sandwiches, burgers, and home style dinners.  It has huge portions, and has positioned itself as a quirky, fun place to go.  It has  a burger topping bar that is in the trunk of a Cadillac that is attached to the wall.  Even though there is a pretty good burger joint not far from my house, I’d rather travel the 10 miles to get to  restaurant #2.

The point is, these two restaurants are in completely different types of location.  Restaurant #1 needs to be located near residential areas.  Because it has to rely on the people living nearby for it’s success or failure, it needs to be in a location that is close and convenient.  Restaurant #2 is located on a busy intersection, but the closest residential area is nearly a half mile away.  There are a lot of restaurants that are closer and more convenient to get to, yet restaurant #2 continues to thrive.

Now I’m not suggesting that you should ignore all of the rules when it comes to finding a great location.  A bad location makes success much more difficult.  While there are a lot of people that are convinced that they are the ones that can overcome the obstacles, the failure rate indicates that most of them are wrong.  Just be aware that there are a lot of factors to consider when you are thinking about your restaurants location.  Don’t be impatient.  Keep working on your business plan and doing your homework.  The right location will come along.

I know I’ve mentioned this before, but it’s worth repeating; restaurants are risky business.  You know it, I know it, and the lenders know it.  That’s why it is critical that you have done your homework before you go to the banker for financing.

Here’s how the conversation goes:

You: I’m looking at opening a business and I need to talk to somebody about lining up my financing.

Banker: We would love to help you.  what kind of business are you thinking about?

You:  I’ve got an idea for a great restaurant concept.

(Silence)

Banker:  Ummm… A restaurant?  Let’s see what we can do?  Do you have any restaurant experience?

Be prepared for the fact that loans for restaurants have a higher bar for qualification.  A credit score that might qualify you for a regular business loan will be a little higher for restaurants.  Depending on which financial institution you go to, the requirements can be very different.  One bank I spoke to offered an SBA backed line of credit with nothing down, no business plan of a line under $100,000, interest rates between 6.5% to 9%, but you needed a credit score of at least 750 to qualify.  The next bank wanted a credit score of 640, but they wanted 20% down, a business plan with 2-years projections, and an interest rate of 9.5%.

In general, the easier it is to get the loan, the more you are going to pay in the long run.

Things are starting to look up in my quest for my own restaurant.  I have stumbled across a property that may be what I am looking for.

One of the things that stand between potential restaurant owners and their dream is the ability to finance the operation.  Starting a restaurant from scratch has a huge start-up cost.  Unless your personal finances are in excellent shape, it is very difficult to raise the needed capital.  Because of the high mortality rate of new restaurants many lenders have higher requirements for new restaurant than they have for other forms of business.  Without the start-up capital, your dreams are dead in the water.

One way to reduce the start-up costs is to get into a place that is set up for a restaurant.  That’s what I stumbled across last week.  The restaurant that had been there wasn’t there for very long.  People that had eaten there said the food wasn’t good, and it was in direct competition with another restaurant that anchored the plaza it was located in.  Then the couple that owned the business went through a divorce, and that was the end of the business.

The location is a little bit larger that I was initially looking for, so I need to be careful running the numbers to make sure my business model can support a higher lease rate, but it is in a good location, it’s the end unit of a small plaza and has great visibility, and it has a lot of daily traffic going past it.

Because the exhaust system and most of the equipment are already there it will reduce some of my start-up costs.  There is a bit of remodling to be done, and it’s not the most ideal kitchen design, so I will need to make sure my menu can be supported by the kitchen.

Be sure to check back for updates.  I will keep you posted as I continue to develop the restaurants concept, and as I develop my business plan.

I have mentioned a number of times the restaurant that I recently worked for.  It was a start up by an owner that didn’t really know or understand the restaurant business.  He had some success in other businesses, but he faced a steep learning curve when he started the restaurant.  It’s a great case study in how not to get started in this business.

One of the things that was lacking in his operation was adequate signage.  we were approaching the restaurant.  You are nearly passed it before you even realize it was there.  He was told by several people that he needed new sign, but he was slow to finally get one up.  Money was getting tight, and he was getting overly cautious on how he spent it.  That’s understandable, but there were some places that you really need to spend his money.  Making sure potential customers could see his restaurant was one of those areas.

He finally did break down and buy a new sign, and that’s made all the difference in his business.  Every time I go by his parking lot nowadays there are cars in the lot.  He doesn’t run nearly as many specials, and he’s not discounting his menu the way he used to.  Still, the customers are coming in.

When thinking about how you can make your presence known you need to make sure your customers know you are there before they reach your parking lot.  Leave them enough time to slow down and turn into your lot.  Once they get past your entrance, they may decide that it’s too much trouble to turn around and come back.  The more time you give them, the better the chance that they’ll stop.  And getting them to stop is what it’s all about.

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I hope you all had a great holiday season, and that you did a brisk business leading up to Christmas.  Now, with the new year upon us, many restaurant owners in the northern US are settling in for what has traditionally been the slow season.

With cold weather, ice, and snow, many customers will stay home in the evening instead of going out for dinner.  This is what separates the winners from the losers.  Success in the restaurant world comes from not only handling the busy times, but also in controlling your costs and battling through the slower times.  Sometimes that means making some tough decisions, especially where your staff is concerned. 

One of the hardest jobs for many restaurant owners is telling a good employee that you can not afford to keep them.  How you handle that distasteful job can have an effect on the rest of your staff,

It can be a hard call; do you work them till the end of the shift and then let them go, or do you give them a little notice that it’s coming, after all, you would want them to give you a notice.  The sudden end of the shift pink-slip always leaves a bad taste in your employees mouths.  The remaining staff will have their confidence shaken.  After all, the same thing could happen to any one of them, and they may not see it coming.  On the other hand, giving a notice opens up the possibility that the employee may not finish out the time they have.  That leaves you short handed, and the remaining staff will have to pick up the slack.

In truth, there is no easy answer.  All I can say is to handle it gently.  Treat the outgoing employee with respect.  This is a business decision.  You are not firing a bad employee here, you are laying off what could be a good worker.  How would you want to be treated in that situation.

Remember, winter is a temporary condition.  Don’t make decisions that will make it a difficult spring.