So You Want to Open a Restaurant?

I read a great article on the Wall Street Journal about the trials and tribulations of opening a restaurant. For many, this is a dream come true. But in reality, you can lose the shirt off your back in less than three years, which is why you should read your cards carefully before considering the gamble.  Based on statistics, 60% of restaurants fail within three years, with the first year seeing the most casualties. This figure is even higher in places like New York where competition is fierce. WSJ interviewed Zagat co-founders Nina and Tim Zagat, and their reasoning is solid—if you are thinking of opening a restaurant, don’t do it unless you have a concrete understanding of the business and hold a plethora of skills.  It takes more than being a good cook to make a restaurant successful.  Here is my advice based on personal experience.

Profit & Loss – Can you price out a food and beverage menu? Do you know what your food cost should be to make a profit? Do you know that having certain food products on your main menu may cause you to go bankrupt? Do you use seasonal ingredients? What are your bar costs? Staff costs? How much inventory can you keep on hand? What are your capital expenses at start up? What will it cost to maintain your equipment? What are your anticipated annual sales and annual return on investment (ROI)? What is your anticipated check average?

Style – Can you select a well-chosen selection of quality wine producers, along with a thematic match to the menu in both price and style? What is your menu concept? Can you satisfy guest demands without breaking the bank?

Leadership – Can you hire, fire, train and manage people? Do you know how to perform performance evaluations and deal with disgruntled employees? Can you write a schedule and deal with employees calling in sick last minute (on a busy Friday night)? Can you train staff to increase check averages? Most importantly, can you hire the right employee?

Real estate – Do you have good walking traffic? Easy access? Plenty of parking? Who is your competition in a three-block radius? Will your concept saturate the neighborhood or will it add a new dimension and attract guests?

Negotiation – Can you negotiate a good price for china, glass and silver? How about routine maintenance? Food product? The lease? Employee benefits? Negotiation is part of the game, and if you’re not cut out for it you may go bankrupt sooner than you think.

Purchasing – Buy too much product and it will spoil. Buy too little and you’ll run out. The later seems better, but you won’t get returning guests if you’re consistently out of product. Think about it—would you return to a business if they were constantly out of something you wanted to purchase?

Value – Does your restaurant offer a good value in these challenging economic times? What is your plan to keep guests coming back?

Stamina – Are you willing to work long hours? Try this on for size. Work New Years Eve until 2am, do an end-of-month inventory, then open your restaurant for breakfast at 7am. 100-hour weeks for managers and owners are the norm. Are you cut out for it?

Sunday Blues – If anything is going to break, it will happen on Sunday. If anyone calls in sick, it will happen on Sunday. If you run out of product, it will happen on Sunday. I’ve been known to wash pots and pans when a dishwasher breaks; bus tables when a busser calls in sick; wait tables when a waiter calls in sick. Run to the store for ice when the ice machine breaks; hand write tickets when the POS system crashes; track down another restaurant that can afford to let loose of 100 linen napkins, then call a taxi to deliver; plunge toilets when the toilet backs up; be cheerful when a new guest arrives a minute before closing. Are you cut out for it?

My advice is to know your market, know your finances, have a good business plan, be prepared, and above all know thyself and tread carefully.