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Food & Beverage Industry

Prevent problems in your restaurant's first year with careful planning, professional help

Nation's Restaurant News, March 6, 2006 by Kevin Moll

Want to hear some good news? Your chances of success are better than most people think. According to the Bureau of Labor Statistics, the survival rates of all new businesses started between 1998 and 2002 reveal that 66 percent of them are still open two years after they started.

In addition, a Cornell University study of restaurants in three major markets showed a first-year failure--or closure--rate of 27 percent with only a 4-percent difference between the closure rates of franchised and independent restaurants.

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Regardless of how you crunch the statistics--and I might add that quality statistics for the restaurant industry are hard to find--approximately 30 percent of all restaurants go out of business in their first year on average. This means you have a 70-percent chance of first-year success if you have a viable, well-thought-out concept in a worthwhile location. It is important to note that of the 30 percent of restaurants that close during their first year, most of the operators were undereducated, undercapitalized--the most common reason--or not willing to make the time commitments necessary to get the job done.

Why am I concentrating on the first-year aspects of survival? Because statistics and logic both say that if you make it past your first year, the percentages are in your favor. So how can you minimize the risk in your first year? Here are some tips to aid in your survival:

Tip No. 1: Know your market. The easiest and fastest way is to do a feasibility study. I know of a restaurateur who was looking at placing a Mexican restaurant in a major metropolitan area. His feasibility study revealed that a quickly expanding local chain was going to greatly diminish his potential success, so he changed his concept, thereby avoiding an expensive potential failure. You, too, can avoid major failure by knowing your market and concentrating strongly on your biggest competitor. If you cannot or do not want to fight for market share, reconsider your concept niche or location.

Tip No. 2: Find your niche. We have all heard this before, but you cannot be everything to everyone and do it well. Select the market you enjoy and have experience in. If you know everything about the burrito business and believe your burritos are superior in quality, then chase down that great location, know your market and fill that niche. It is important to minimize the competition in your chosen niche. Done right, you can own the entire niche market. Why compete when you can own the market?

Tip No. 3: Have a plan. Do not shoot in the dark with your capital resources. Pay for a quality business plan and have a qualified restaurant consultant do it. You pay for legal and accounting advice because they are professionals. The same thing is true of a restaurant consultant. A business plan is not cheap, but it will guide you on the path to growing your business profitably.

Tip No. 4: Know the industry--or pay for the knowledge. Just a few pieces of quality advice at the right time can save you thousands of dollars. Did you know that if your restaurant consultant negotiates your pricing with your foodservice vendors, you would likely get better pricing than if you negotiate the prices yourself?

Tip No. 5: Don't forget that your menu is your No. 1 tool in ensuring a profitable operation. By costing out each menu item and placing it in the correct location on the menu, you can bring more dollars to the bottom line. Operators are concerned with food cost percentages, but the fact of the matter is that you take dollars--not percentages--to the bank. It costs a little bit, but the reward is great when you have your menu professionally designed. Regardless of the size of your operation, you cannot afford not to have your menu evaluated.

Tip No. 6: Keep in mind that the menu controls everything. From what you serve to what equipment you need to your signage design and concept name--everything revolves around the menu. What are you serving, and what is your position in the market? If you don't know, get help immediately.

Tip No. 7: Build your team. You need a few good players on your team. Those players are an attorney with restaurant experience, an accountant with a list of restaurant clients, a banker who understands the restaurant industry, and a restaurant consultant who understands startup ventures. When interviewing your restaurant consultant, know in advance that there is only one proper way to figure your food and beverage cost percentages. If you are told that you take your total costs and divide that number by your sales, you are getting inferior advice--keep looking.

Tip No. 8: Cover your business bases, including insurance, corporate formation, business registration, company structure, funding, design, architecture, location, building codes, health department regulations, permits and others. These all must be factored into your plans for opening and staying open.

Tip No. 9: Understand your marketing and have a plan. You may own a niche, serve the highest-quality products and be the best in your market. However, if nobody knows where you are located or what you offer, how will you pay the bills? A big part of the business plan is a high quality marketing plan.

Food & Beverage Industry

Prevent problems in your restaurant's first year with careful planning, professional help

Nation's Restaurant News, March 6, 2006 by Kevin Moll

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