UPDATED 10/20/20
The idea of starting a new restaurant is daunting. After all, the restaurant industry is one of the most competitive in the world, with new restaurants opening and closing every year. This isn’t necessarily a bad thing, and a lot of restaurants do end up standing the test of time. According to the National Restaurant Association, about 1.6 million new restaurant jobs will be created by 2029, running the gamut from management to wait staff and a number of levels in between. It could be said that, thanks to the growing “foodie” scene fueled by the internet and television, people are more excited about the idea of starting a new restaurant than ever. But it’s important to remember that starting a restaurant is, at the end of the day, starting a small business like any other. You can’t assume that a degree of passion for your idea is going to guarantee it success.
In fact, your success in the restaurant industry is often not so much based on the idea behind it or even the quality of your restaurant. As with any small business, the success of your restaurant will likely be based on the business decisions that you make in its early days, as well as the financial considerations you make throughout the restaurant’s tenure. A restaurant requires a lot of maintenance — perhaps more than any other kind of small business. That maintenance requires a good amount of cash flow, and restaurant funding can be difficult to come by. Let’s look into what you should consider before starting your restaurant.
Location, Location, Location
The location of your restaurant will likely have a major impact on its initial success. Depending on the type of food you want to serve and the customer you’re targeting, you may want to be closer to residential areas, where families thrive — or you may want to target the food and culture scene in the city. The latter will most likely cost you more; but if you’re targeting a more high end audience, or attempting to build a kind of cult following, spending money may be the best way to make money. The broader location aside, you’ll want to consider the benefits of building a new construction or renovating an older building.
The fact is that there are often a decent number of buildings available at any given time, ready to be converted into restaurants. This is in part because some of them were restaurants in another life — which is something you’ll want to consider. If you’re buying an old restaurant building in order to renovate it and convert into your own, why did it fail the first time around? Was it due to the location, or other issues entirely? Of course, these buildings are not “move in ready”. Most of them will require kitchen remodels, and of course you’ll want to have the plumbing inspected, and look into whether or not proper HVAC maintenance was handled by the previous owners. One of the key parts of running a restaurant is providing not only great food but optimal comfort to your customers. Ideally, they’ll be spending a significant amount of time and money there — and they won’t do so if they aren’t a clean, pleasant environment. With all that being said, a lot of new restaurant owners feel more comfortable with a new construction. A new construction essentially tailors the location of your small business to your liking. You can put a unique stamp on it, without having to remodel anything. However, it also requires finding a space where you can actually build a new construction, and it may not be the wisest financial move. A new construction may end up costing you more than you would have expected. For your first restaurant, it may be wiser to renovate and remodel an older building to your liking.
Of course, you can’t brush aside the importance of branding during the remodeling or construction process. Your restaurant needs to have a unique stamp that is difficult to forget and straightforward. It’s often wise to employ people who can handle the promotional aspects of your restaurant for you. Though this may seem like an unnecessary expense in the early days, if you can make the investment it’s a wise move. Having a marketing manager on your side can be key to spreading the word about your small business, and building up a reputation that will carry through to the early success that you’ll need to sustain yourself in the long term.
Spending Money To Make Money
When thinking about running a restaurant, it’s easy to focus on the food and the feeling of the small business. As we’ve mentioned above, these are important factors to consider. But with that being said, you’ll want to delve into the practical aspects of the business as well, right from the beginning. After all, a restaurant requires a good number of employees before it can even get off the ground. The more people you employ, the more you’ll want to think of things like business insurance, workers comp, and benefits programs. None of this can move forward until you have the funds necessary to take care of it. As much as this small business might be your dream, it’s crucial to remember that for your employees, it will be a source of income. You can’t expect the kind of people you want to employ to sign up for a job that doesn’t offer a competitive salary; the right employees are not going to waste their time acting as virtual volunteers when they could be getting the pay they want from other employers.
There will also be a large number of inspections that must be paid for before you even open your doors. Inspectors don’t act according to your timeline, and you won’t only need to worry about the typical health inspections devoted to your kitchen. Fire hazards will also be a major consideration; your restaurant needs to be safe on every level. Of course, if you want to open on time — a late opening could end up costing you a good amount of money — you’ll want to make sure that your inspection goes off without a hitch. With that being said, set the standards for your employees early. Not only will this ensure that your small business is successful at the time of its initial inspection, but in the long term as well.
Building Your Presence
Part of the reason why you’ll want to employ a marketing team is that you need to build your presence in the community before you open your doors. How does this work? Well, a grassroots campaign is always appreciated — promoting your restaurant’s food at local events, building up a strong word of mouth based on the quality of your product. Furthermore, you’ll want to create a buzz by investing in attractive signage and billboards.
However, there is a key aspect of any small business that can’t be ignored, and that is online marketing. You’ll want to have strong website traffic before the doors open, and a big part of making that happen involves working with an accomplished, professional web designer. Maximize your online marketing through promotional emails, SEO, and maybe even giveaways involving gift certificates. The more hype you build around your restaurant before it opens, the more likely it will be that people begin visiting early, and falling in love with your food in suit.
Of course, as much as there is value to online marketing, don’t forget that you can save some money by courting local newspapers. While taking out an ad in the paper will cost you, many local papers appreciate human interest stories. If you’re open to accommodating journalists and offering a meal to small time food critics, you’ll build good will with the local press. Just be ready to put your money with your mouth is; if your food doesn’t impress the first time around, it may be difficult to convince people to give you another shot.
Securing Funding From The Start
As with any typical small business, it’s unlikely that you’ll be able to handle all of the necessary restaurant funding on your own. At least not in the beginning! But where does the money come from? A restaurant requires quite a bit of seed money, and you aren’t going to collect it through crowdfunding alone. It’s wise to court potential investors with any small business. However, a lot of private investors are hesitant to offer startup money to a restaurant. A small business can be a breath of fresh air in the eyes of investors. However, as we’ve discussed, a restaurant can be a big risk. You’ll ultimately be playing with fire if you aren’t able to make good on the promises that you make your investors. This is why, though you shouldn’t necessarily turn down private money, you’ll want to be very careful about the information you present to investors. For that matter, a lot of investors are understandably controlling when it comes to small businesses responsible for their money. They don’t want to merely be investors, but full business partners, which may not be something you want to deal with. Of course, individual investors are certainly not the only sources of restaurant funding available. You should also consider the options surrounding loan programs.
If you don’t want to sell everything you own in order to open your restaurant, and you don’t want to court individual wealthy investors and deal with new business partners, you should look into restaurant loans. In this case, of course, you won’t be tugging at the heartstrings of a single person — you’ll need to convince a financial institution that your restaurant will be viable. Essentially, you’ll need to put together a complete proposal for the lender. Have a loan guarantee fee in mind; this will essentially be the amount of money you’re guaranteeing to pay back, even if the loan can’t be repaid in full. Further, be prepared to negotiate the interest rate. The lender, of course, will want to know about as many costs as possible up front — from your monthly lease to the cost of your business insurance. This is why it’s crucial for you to budget carefully and get as many costs assessed as possible before moving forward with applying for a restaurant loan. Everything from license fees to restaurant equipment must be part of this assessment. Be brutally honest with yourself during this process. You may not have multiple chances to begin a restaurant. Now is the time to be a perfectionist.
Starting a restaurant may very well be the hardest thing you’ll ever do. It will require sleepless nights, as well as a good amount of blood, sweat, and tears. You’ll face the pressure of not only starting a small business and taking care of your own financial needs, but those of your employees as well. All the while, you’ll be spending money at a rate that may at first seem alarming. However — if your restaurant is successful, it could be the greatest thing you’ve ever done. You’ll be not only a small business owner, but an employer and job creator, all the while creating a product that you believe in for a customer base that’s buying something it wants versus something it needs. That is why so many people take the plunge and start a restaurant in the first place. To make that kind of commitment, you need a certain amount of love.
One of the most difficult things about starting a restaurant is securing the necessary financing. Beyond having enough funds to sign a lease, purchase the necessary equipment, and load up the kitchen with food, you also have to worry about the payroll for you and your employees. Although we all imagine that our endeavors will be successful from day one, the reality is it will take time for word on your restaurant to spread throughout the community. Because of that, it is unrealistic to expect to make much money for the first few months you are open. When you are searching for small business loans, have the foresight to borrow enough money to make sure your own personal, non-business, expenses are also taken care of. Being in a position where you can not afford your car payment or mortgage will put a damper on what should be the most exciting time of your life.