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’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.

I have been asked if using business plan software is a good idea when writing a business plan for your restaurant.  My answer would be, “Yes and no.”

Business plan software is a great way to automate the process of writing a business plan, and there are some very good ones out there.  BPlans from Palo Alto Software is an excellent program.  Once Once you fill in the information the program formats it, and puts it all into a presentable form.  It definetly saves you a lot of time there.

Where you have to be careful with business plan software is that it allows you to get lazy.  BPlans comes with hundreds of templates and examples that make it possible to “borrow” from the template for your own projections.  Bad idea!

Think back to what the purpose of your business plan is.  While most people focus on it as a tool to get financing, the bigger job is to make you focus on your business, and make a plan about your restaurants future.  That can only happen if you do your homework, and focus on all of the nitty-gritty details.  It means doing your market and competitive research.  It means looking at the economics of your location, and making realistic projections based on what is going on in your area.  No software or template will be able to do that as accurately as you can.  It takes hard work, but if you want your restaurant to succeed it is a necessary process.

If you are doing your homework to collect and analyze the information all along the way, then by all means use a good business plan software program.  The key to success is doing your due diligence, and knowing your business inside and out.

Starting a restaurant is only the tip of the iceberg. There are tons of details to keep track of, and issues to deal with. If you want to own a successful restaurant, you must keep your eye on your finances.

I’ve written in the past that if you don’t know what you are doing with the accounting part of the business, you should hir it out to a professional. That doesn’t mean you are off the hook with all things financial. Quite the contrary. If someone else is doing your books for you, it is all the more important that you spend the time to thoroughly understand your restaurants financial position. One way to do that is to make sure you know how to read your restaurants financial statements, and understand what they are telling you.

There is a lot of information that will be available to you. Over time you should learns as much as you can, but for starters there are three basic reports that you should be able to understand:

Income Statement – Tells you good your restaurant is at making money.
Cash Flow Statement – Tells how your restaurant is paying for it’s operations, and shows you future growth potential.
Balance Sheet – This shows you what your restaurant owes, and what it owns.

Income Statement

When people talk about the “bottom line,” they are talking about a businesses net profit. The income statement is where you find the bottom line.

In it’s simplest form, Profit = Income – Expenses. The income statement is a detailed list of that formula. It starts by listing all of the restaurants income. Every way your restaurant has to make money is listed, along with how much was made. This is totaled on the line called Total Income or Total Revenue.

The next section is the Cost of Goods Sold (COGS) or Cost of Sales. This is the direct cost of the things that you sold. If you sell a steak dinner for $15, and the food cost $5 and the labor cost $5, then the cost of selling that steak dinner was $10. Subtracting the cost from the income will give you Gross Profit.

The next section in the income statement is Operating Expenses. This is the cost of running your business. This section is where you account for building lease, maintainence and repairs, insurance, marketing, etc. This is totaled to give you Total Operating Expenses.

When you subtract Total Operating Expenses form Gross Margin you are left with Earnings Before Interest and Taxes (EBIT). When you subtract out interest and taxes you are left with Net Income, which is located on teh bottom line of the income statement.

Again, this is a very quick overview of the Income Statement. Look for future posts that will go over the Cash Flow Statements and the Balance Sheet. After that I will try to get back to looking at each of these areas in a little more detail. There is a lot that you can learn from these if you take the time to figure it out.

You can take a lot of the risk out of starting a restaurant if you do your homework and really understand what you are getting yourself into.