A New Restaurant

After months of bad economic news, and hearing of restaurant struggling and even closing their doors, we are starting to finally hear some good news. Some people may even be considering if now is a good time to take a risk and start a new restaurant. Before you do anything too hasty, you may want to take a minute and analyze what the reports are really saying.

Before you rush right out and start making plans to start a new restaurant, consider the news that is still coming out. (more…)

Asking “How much does it cost to open a restaurant?” is like asking how much to buy a house, or to buy a car. While there are some guidelines to consider, the actual answer is determined by so many different factors, there is no way to set an accurate price that covers all different situations. Each restaurant is unique, and the price tag for each restaurant will be unique.

When you begin to examine how much it costs to open a restaurant you first need to have a very clear idea of (more…)

I heard a quote recently that was attributed to Sam Walton, the founder of Wal-Mart: — “I was asked what I thought about the recession and decided that I did not want to take part in it.”

I thought the quote was interesting, because it really goes after the issue of attitude when your restaurant is faced with difficult times.  (more…)

I write last week about rising prices, and how that can have a negative affect on your business.  That does not mean that it is time to panic.  They say every dark cloud has a sliver lining.  For you, that means that even in a down economy there is opportunity for growth for those that are prepared.

There is the potential to gain new customers as struggling restaurants close their doors.

It is inevitable that there will be a slew of restaurants closing in the near future.  They do it often enough when the economy is good.  The upcoming price increases will force many of them to close.  As they do close (more…)

I wrote about the steady rise in business costs in the past, but the problem has gotten a lot worse since then, and it seems to be accelerating. As a restaurant owner, you need to come up with a game plan that will get you through the difficult times that very likely lie ahead.

It’s a deadly cycle for all businesses, but restaurants really feel the brunt of it. As the cost of living goes up, people start making cuts, and the first area that gets cut is the entertainment budget. That means less movies and restaurant visits. It’s a lot less expensive to stay at home and watch pay-per-view and order a pizza.

That leaves restaurant owners with a huge dilemma: (more…)

Mother’s Day is May 11th in the US.  Are you getting ready

Mother’s Day can either be a huge profit day, or it can be a major disaster.  The choice is yours.  If you are ready for it, you will have a dining room full of happy families spending time together, and giving mom a day off from the kitchen.  If you’re not ready for the day, it can be an afternoon of long lines, impatient customers, and a frustrated staff that has spent the day being yelled at by their customers.

Learn From the Past

There are a few things you can do to make sure you’re ready for the day.  First, look at last year.  Too often we tend to get through a day and then put it behind us without making note of any lessons learned.  (more…)

I’m sad to report that the restaurant that I have written about in the past has closed it’s doors.  Just when success seemed to be within his grasp, the owner decided to call it quits.  After losing another round in an ongoing battle with the city over a noise ordinance, he decided that it wasn’t worth the trouble, and that the city would never allow him to run his business the way he wanted to run it.

I understand both sides of the issue: The owner wanted the noise ordinances applied  equally to all of the restaurants in the city (it’s not), The city wants to be able to apply more restrictions on businesses taht are located closer to residential districts.

Bottom line is, the failure was the owners fault.

I wrote in my post Top 5 Reasons Most Restaurants Fail, you gotta know the territory.  The owner of his restaurant knew that there were special variances put in place to allow him to open up his restaurant where he did.   He knew the rules, but thought once he got his doors opened he would be able to convince the city to change the rules.  That wasn’t the case.  He had the option to turn down the music, and focus on the restaurant, which was beginning to build a good reputation.  Instead, he decided to focus attention more on the bar side, and allowed his frustrations to get in the way of running a successful business.

I’ve said it before, you have to do your homework.  When starting a restaurant it is absolutely critical that you understand fully what you’re getting into.  You have to do your research into the market, the location, any rules or regulations that could affect your business.  Knowing that up front will allow you to either make adjustments to your business plan, or find a new location.

He chose to ignore the realities of the situation, and it cost him his business.

I liked the owner, and I really wish he could’ve succeed this, but he chose to take on a battle he could not win.

There’s a lesson to be learned here; do your homework, and know what you are getting into.  Starting a restaurant is risky enough without taking unnecessary chances.  You can succeed in his business if you know what your getting into and make smart choices.

I wish the owner the best in whatever is next for him, and hope that whoever moves into this location has better luck succeeding.

The restaurant graveyard is littered with the bones of businesses that have died because they didn’t have adequate cash flow.  The pieces for success were in place, but the restaurant died because it didn’t have enough cash to keep going until it could become profitable.  Steps that would have guaranteed success were not made because there wasn’t enough cash on hand to implement them.

Your restaurants survival is dependent on controlling your cash flow.  These 5 suggestions will help.

1. Know your balance

It is amazing the number of business people that don’t have an accurate grasp on how much money they have available.  They can tell you how much butter is in thewalk-in, or who is scheduled to cover tonight’s shift, but when you ask them about their restaurants cash flow, their eyes glaze over and they begin to mumble incoherently.  If you want to guarantee that your restaurant will not succeed, then don’t pay attention to your cash flow.

I success is something that you are striving for, make sure you have a plan to keep track of where your money is going and how much you have available.  This is something that should be in place from the very beginning when you are starting a restaurant.

To survive in this, or any other industry, you must be able to make wise business decisions regarding your finances.  The only way to do that is know your financial position.  Overestimate the cash available and you will make decisions that will leave you short of funds.  Underestimate and you will not make decisions that could improve your profitability.

2. Keep up with your accounting

One way to keep on top of your cash position is to make sure you keep up with your financial paperwork.  I once worked for a man who felt like God didn’t put him on earth to do paperwork.  He kept that attitude right up until the bill piled up so high that he had to declare bankruptcy.

The sad part is that it happens far too often, and it is so avoidable.  While doing paperwork may not be the most fun part of your day, if you keep up with it the time it takes is pretty short, especially in light of how much is at stake.

If you don’t feel like you can do an adequate job with it, hire someone to do it for you.  The main thing is to make sure it is done, and that it is accurate.  If you stay on top of it, you will always have an accurate figure to work with.

3. Manage from your books, not your bank statement

It is confusing to me that people will do things that they know aren’t right, but they do them anyway because it is more convenient.  Managing your finances from your bank statement is one of those areas.

Here’s a tidbit of information that should be common knowledge, but far too many people choose to ignore: bank statements are not relevant to your financial position.  Bank statements are a snapshot of the transactions that have occurred with your account at some given point in the past.  There is a lag between the time the check is written and the time it clears the bank.  Even though you have already spent the money, it does not show up on your bankstatement right away.  It is not an accurate reflection of where things are right now.

Remember the previous tip about keeping up with your paperwork?  If you are doing that you will have an accurate picture of your cash position.  You will know who you have paid, what money has come in, and how much is available.  That is handy information to have.

4. Project your needs

It is very easy to get caught up in the here and now.  After all, that is what you are dealing with on a daily basis.  That doesn’t give you an excuse for ignoring the future of your business.  To be successful you always have to be looking ahead and planning for the future.

This isn’t a crystal ball look into the future kind of thing.  This is about making projections based on factors that affect your business.  Your restaurant may be affected by the seasons, or there may be events or conventions that will affect your sales.  You should be able to look out at least 6-months to project what your needs are going to be.  You may needcash to survive a slow spell, or you may need to spend cash on marketing for a big event.

By knowing what your needs are going to be, you can make decision that will still give you the cash on hand that you may need.  It may mean the difference between making a wise investment in the future, and leaving yourself so cash poor that you can’t survive a slowdown in business.

5. Keep the Flow Coming In

I written quite a bit in the past about the importance of keeping the customer happy.  Well, here it comes again.

Customers provide you with the cash you need to stay in business.  Without the customer there is no cash.  Without cash, there is no business.  If you want to keep the cash flowing, you have to keep customers coming into your restaurant.  That could mean needing to spend some on strategic marketing.  Without a doubt it means taking care of the customers you do have.

It is a fact that it takes more money to attract new customers than it does to keep your current customers.  You’ve already spent the time and money getting them in, now do what it takes to keep them.

Cash Flow = Survival

It does your restaurant no good to be asset rich, but cash poor.  Your suppliers don’t really care about how much you invested in new equipment.  What they care about is getting paid.  Ask your employees to choose between a new fryer and their weekly paycheck.  What do you think they will choose?

Your business needs money to survive; it is the restaurants life-blood.  Keep track of it at all times, and you will significantly improve the odds of your success.

Myths of Restaurant Ownership

I firmly believe that one of the reasons the failure rate is so high in restaurants is that there are a lot of people who start new restaurants that have no idea what they are getting into.  They hear the hype, often times promoted by someone who is selling a new book on opening a restaurant, and they blindly charge ahead with their business plan.  It’s only after they are into it up to their eyeballs that they learn the truth.

The hard part is, many of the myths may be true, but they’re not true for everyone.  In order to do my part in helping you avoid making an extremely costly mistake, I’m going to examine the truth behind a few of the myths about owning your own restaurant.

It’s a Fun Job

I love the food service industry.  When everything is clicking, it can be a blast.  However, there are a lot of times that everything does not click.  There are times when “fun” and “restaurants” don’t even belong in the same sentence, unless that sentence is dripping with sarcasm.

The truth is, running a restaurant is hard work.  You have to deal with complaining customers, complaining staff, the constant battle to control your costs, dirty restrooms, broken equipment…well, you get the point.

Part of the “It’s a fun job” argument is that some people see having a restaurant as a great place to hang out with friends and family.  In reality, most of the time you don’t have the time to hang out with anyone on a regular basis.  If you want to hang out with friends, you would be better off getting a nine-to-five job, then going to someone else’s restaurant to hang out.

Like any other job, running a restaurant is only fun if you like that kind of work  I have an acquaintance who is in accounting.  She loves it, especially when she can find a nice tax loophole for a client.  I worked for a while in the accounting field, and it brought me no joy.

So yes, running a restaurant can be a fun job, or it can be pure misery.

You’ll Get Rich

Is it possible to to do very well financially owning a restaurant? Absolutely.  Are the odds in your favor?  Not so much.

For every Emeril or Paula Dean or Bobby Flay, there are dozens of Joe Schmo’s who grind it out on a daily basis, making not much more than they would have made being in the corporate world.  If you are good at what you do, and you can build a string customer base, the possibility is there to do quite well, but success is not guaranteed.  There are a lot of factors that play into financial success.  It is a product of steady cash inflow, and controlling your costs, some of which you don’t have a great deal of control over.

You’re a Good Cook, You Should Open Your Own Restaurant

I’ve heard this so many times it makes my head spin.  People who know nothing about me will make this suggestion based on what, my ability to saute a chicken breast?  Those that know me will point to my ability to run an operation, or my understanding of the business, along with my ability to cook.

Would anyone suggest you should open a bank because you can balance your checkbook?  No.  Nor should you get into the restaurant business, or any other business, if you don’t understand the industry.

The truth is, you don’t even have to know how to cook in order to run a successful restaurant.  You can hire good cooks.  It is more important that you understand what it takes to run a restaurant.  It takes understanding the need for consistent quality, cleanliness, excellent customer service, and controlling your finances.  Being a good cook is just icing on the cake.  Depending on the size and scope of your restaurant concept, you might not even be doing any cooking.

The key to success is to know in detail what you are getting yourself into.  Talk with other restaurant owners.  Unless you are opening in their neighborhood, most of them are very open about the business.  It is an expensive business to get into, make sure you know whether or not it is right for you.

Yes, it really does happen.  If your restaurant has grown beyond you and your spouse running everything, chances are good that at least one of your employees is stealing from you to one degree or another.  It could be skimming a little cash from the register, or stealing food from the cooler, or even just helping themselves to some extra meal items.  Regardless of how they are doing it, it is a cost of which you really need to be aware.

Employee theft comes in many forms, and there’s really no way to completely protect yourself from it.  All you can do is to have things in place that make it more difficult for your employees to get away with it.

Types of Employee theft

Under-ringing or tearing up dinner checks after collecting the money

If your restaurant uses hand written dinner checks, or older cash registers that don’t print out meal chits that are directly tied to a server and a dinner check, this is very easy to get away with.  The way it works is, the server gives the customer the bill for the meal, then rings a smaller amount into the cash register, and pockets the extra money.  Or they might not ring it into the register at all, and keep all or the money.

The solution to this is to spend a little more money to purchase a cash register system that makes each server accountable for what they ring up on the register.  While this may not be fool proof, it makes it more difficult for the server to under-ring meals.

Taking food

This is type of theft is just what you think it is; your employees walk into your pantry or cooler, and helps themselves to the food that you purchased for the restaurant.  Watch for employees that need to run back to the cooler or pantry just before they leave your restaurant at the end of their shift.

A couple of things you can do to discourage this type of theft are:

Do frequent food inventories.  People are more likely to steal if they think there isn’t much chance they will get caught.  By doing inventories on a regular basis you will know very quickly that food items are missing.  With that knowledge, it is much easier to narrow down who was working when the food disappears.

Another thing you can do is not allow employees to take any part of their employee meal with them when they leave.  Set a policy that all employees meals are to be eaten on the premises.  Without having this policy, employees will eat part of their meal, then pack the rest to go.  This gives them an excuse to pop into the cooler before they leave.

Charging for time they didn’t work

This requires two or more employees working together.  The first employee in will clock themselves and the second person in, even though the second person hasn’t shown up for work yet.  The second person is now charging you for labor even though they aren’t working.

This type of theft is pretty easy to foil.  Keep an eye on who is scheduled, and make sure they are showing up for work on time.  When you are doing the payroll, make sure you compare the payroll to the schedule to ensure you’re not paying someone who was not scheduled to be on the clock.

Another method that I’ve seen done is to require employees to have their time card initialed by a manager at the beginning and end of the shift.  It is more inconvenient, but it is a very effective method of avoiding time theft.

These are just a couple of the ways employees use to try to get a little something extra.  In reality, there’s no way I could list them all.  Dishonest employees can be very creative in the ways they will steal from you, so you have to be vigilant.  Keep an eye on your cash and your inventory, run background checks on employees.  Most of all make sure your employees know that not only will they be fired and prosecuted for stealing, but anyone who aids abets the thief will lose their jobs as well.

Your cash flow is the life-blood of your business.  When people steal from you, they are hurting your cash flow.  If you loose too much, you can loose your business.  You can’t afford to be soft when it comes to people stealing from you.  When it happens, everyone’s job is at risk.