Issue
Many people eager to open a restaurant rush ahead without a clear plan. They may have an idea but not a fully formed concept, pick financial numbers out of thin air, underestimate the true cost of opening, or overlook marketing and the team they will need. Some rely on generic, fluff-filled business plan templates downloaded for free online. Others are put off by the image of traditional business plans as massive, 400-page documents. Without proper planning, impulsive owners often make costly mistakes, sometimes on the order of $10,000 each. As the author puts it, restaurants don’t fail; owners do.
Findings
The first step in opening a restaurant is to “hurry up and slow down” and draw up a business plan, because the plan provides the roadmap from where the owner is to where they want to go. The modern business plan is no longer an overwhelming document. Instead, it has five components and is built around the financial forecast.
The first component is the concept. An idea is not a concept. A true concept is so clear that the owner can close their eyes and picture working in the restaurant a year from now, seeing everything from the size of the menu and the color of the walls to who the customers are and how loud the music is.
The second is the financial forecast, which essentially proves the concept by showing whether what the owner thinks is a good idea actually is one. The numbers must be built from the ground up, answering questions such as how many guests will come in day over day and month over month, what they will spend at lunch, dinner, and late night, what revenue results, and what the cost of goods sold, labor, and other expenses will be. In effect, the owner must build the first year’s profit and loss statement before even renting a space.
The third is start-up costs, meaning what it will really cost to open. This includes utility deposits, first and last month’s rent, capital improvements, equipment, supplies, inventory, training, marketing and advertising, professional fees, and more. Every dollar must be identified because it will either come from the owner or a lender, and there must be enough, including working capital as a cushion to survive the early months.
The fourth is the marketing strategy. Reaching revenue projections requires an active marketing program, and higher revenue goals require larger marketing budgets. Social media can generate attention quickly but takes time, and local area marketing in the restaurant’s own backyard is key.
The fifth is strategic partners, the key players on the team, such as a lawyer, accountant, business advisor, manager, and chef. A strong team makes the owner’s job easier.
Solutions
Owners should complete all five components to create a business plan that is realistic and free of template fluff. Working with a business advisor can help them avoid expensive mistakes. With a properly prepared plan, owners can step back and objectively decide whether to proceed, learning before they spend their money whether they should spend it at all. The key is to plan to succeed and do all the work possible before taking the plunge.