Restaurant Startup: Taking the Plunge
So, you’ve decided that opening a restaurant is no longer a romantic idea and now you’re taking real steps to turn your dream into a reality. Congrats!
One of the first things you will probably do, or may have done already, is search Google for budget templates, sales projection sheets, and documents you will need to prepare for any loans you will apply for.
Since we work with restaurants, I want to try and help newcomers with articles outside the normal google search result.
So, I sat down with one of our clients, David, who is about to open his sixth location. David and I discussed what it means to have a clear business model and manage the REAL costs. The following sections are the topics David and I discussed:
Clear Identity (Restaurant Brand)
Creating a clear identity can be a bit like an elevator pitch. You need to have an articulated 15 to 30-second pitch down that helps describe your idea.
- What is this restaurant going to be like?
- Are you a small-town pizzeria with a local feel, or are you going to be a high-end pizzeria that serves up brick oven pizza with a flair and signature cocktails and wine?
A clear business model starts with a clear identity and making sure you’re opening the RIGHT restaurant to be successful.
Crafting the vision of your brand can be just like crafting a new recipe.
Plan out your steps and do not be afraid to change them up. As Ross Geller (David Schwimmer) famously said “Pivot”! Find a better spot in the city, in the next town, or change your identity slightly to make it work.
If you have a location in mind, don’t be set on the idea you have to make it work even though the size or layout would prevent it.
Being flexible with your identity helps keep you in the business mindset!
Speaking of business mindset, forget the idea that you might be good at it, or you enjoy it. While those are good qualities to have and will help drive your passion, you also need to have a passion for running a business as well.
Is your restaurant a necessity?
Stay in the business mindset throughout the process of decision-making.
You must ask yourself “Is this something that is missing in my market”? Just because you are good at a particular style of cooking doesn’t mean that your area needs that.
How do you know if it’s a necessity?
Research your market. Take to Facebook and ask around, use Google maps to search the area for all the types of restaurants, and ask some local restaurateurs in the area.
You should look at your restaurant objectively. Just because everyone loves your cooking does not mean you will be a successful restaurateur.
What do I mean by looking at it objectively? Well, let’s go back to opening a pizza restaurant.
- Are you opening a pizza restaurant in a town full of pizza restaurants?
- What makes your idea different from the others?
- Are you going after a different demographic than the other pizza restaurants in town, and does the area have a demographic large enough you can operate under that idea successfully?
If you find out there is not a need for your idea in the market, Pivot!
Objectively ask yourself, do you need to be a pizza joint when there are 3 others in your town?
Maybe you can open a cocktail lounge that offers small plate bites.
Understand your Costs
I’m willing to be many of you reading this jumped straight to food costs in your head. It’s been engrained at this point and pushed in almost every restaurant article published in the past few years.
I’m going to suggest an alternative approach to understanding your food costs though. Understand your costs by getting away from food costs!
Yes, food cost is a piece of the puzzle, but it is a distraction to your overall costs. Food cost doesn’t calculate the employee wages, water, cleaning products to clean the dishes, or even garbage costs?
The real issue is overhead. What are your overall costs and are you making a profit? If you know these, then you need to nail down your Cash Flow to help you Forcast your revenue.
In today’s pandemic view you should probably even factor in the food container and disposables that go along with the order.
The total cost of goods sold is much more thorough. There is a lot more that goes into the food you prepare and sell than just saying it costs X dollars to purchase so we sell it for X dollars.
Not all margins are created equal!
The idea that a 25% margin is a great food cost might be ok for some operations, but it’s not a blanket that should cover every restaurant.
Food costs could be 40% for a high-end protein restaurant, but on the other hand, a small pizzeria might run at the 25% food cost.
Shift labor costs (labor you put into food to get it out) are spread out over that concept too.
When you’re operating that high-end protein restaurant you might have 3 chefs working the kitchen that account for 15% of labor cost.
Adding the 40% food cost into shift labor cost you’re now at 55% cost.
On the flip side, for a pizzeria, you might have 7-8 people on the line to sell 300-400 pizzas on a high-volume night.
So now your shift labor cost here might be 25%. When you combine those, you are at a 50% cost to get your pizza out.