November 16, 2018  
 
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Starting a Business

 

Starting a Restaurant

Starting a restaurant? Are you aware that restaurants have a higher business failure rate than other businesses? The bottomline is that opening a successful restaurant is easier said than done.

Restaurants have always been a popular option for budding entrepreneurs.
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But it takes more than a couple of recipes and a cash register to turn a restaurant into a viable business venture. Successful restaurant ownership requires guts, stamina, and the business sense to get started on the right foot.

Although restaurants attract more than their fair share of would-be small business owners, they also have a much higher failure rate than other small business startups. More than 30% fail in the first year and the five year failure rate balloons to 70%. If you're going up against those kinds of numbers, you'd better know what you're doing from Day One. Here's where to begin . . .

Financial Reserves

There's a good chance the cost of purchasing and operating your restaurant is going to cost more than you think it will. That means you're going to need cash reserves in place long before you open the doors. A good rule of thumb is to have at least 20% of your initial investment in cash reserves to cover operating shortfalls that come up when traffic falls short of projections and expenses exceed budgeted parameters. If you are financing your restaurant, it's also important to firm up your financing arrangements (and corresponding payment amounts) prior to making any commitments you can't walk away from.

Mental Preparedness

In order to launch a successful restaurant, you need to be mentally prepared for the rigors of startup. The first few years are highly volatile - for every day you spend on the mountaintop, you'll spend at least a day in the valley, wondering how you'll ever realize even the most modest return on your investment. During this time period, your success of failure will largely depend on your ability to determine what is (or isn't) working and make the appropriate adjustments. Everything from your menu to your marketing plan will be on the table, so be ready to embrace change when the situation calls for it.

Marketing & Promotion

New restaurant owners run themselves ragged promoting their establishment. There's never enough hours in the day to spread the word about the great new restaurant that has just opened its door down the street. In the beginning, your efforts will yield encouraging results as people stop in to check out what's on the menu. But as time goes on, it may become increasingly difficult to attract new clientele. Instead of cutting back on their efforts, many restaurant owners find it necessary to step up promotion after the initial wave of enthusiasm has passed.

Commitment

A lot of new restaurant owners simply aren't prepared for the time investment a restaurant requires. It's not uncommon for people to leave their 9-5 jobs and start a restaurant based on the fantasy that once they are the boss, they will finally have free time for the family, the vacation home, the boat, etc. If you're looking for free time, avoid the restaurant business at all costs. Life as you know it will end the minute you open the doors to diners and a new stage of life will begin in which you gain satisfaction from happy customers enjoying a fine meal at a restaurant with your name on its sign.

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Conversation Board

We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

PJ 12/9/2007

Great article on getting into the restaurant business. You are correct. Being in the restaurant/bar business my whole life, I can relate. This is the hardest business to be in. If you want to start a restaurant, understand what you read here....it ain't easy.

Ms. Zulma E Brooks 3/11/2009

I'm an unemployed college grad with a degree in hotel & restaurant management, cash poor, no collateral, currently poor credit, low income minority with the dream to open a multi million dollar restaurant and entertainment development business but who would be willing to give me a chance by investing/funding a total unknown $20M dollars? I'm sick of being poor and holding on to this 15 yr old dream. I dont need to read or hear good luck, we are not interested, when will live my american dream? Reading about billionairs makes me more depressed and angry that I deserve just enough to sustain me as well, all i want to do is start a business, why can't I get a break?.

Ken Gaebler 3/13/2009

Zulma, starting a restaurant is hard by the yard, cinch by the inch. Nobody is going to give you $20 million. Open a hot dog stand or something very simple and get some entrepreneurial experience. Then, open something bigger. To be quite frank, your biggest obstacle right now is your attitude.

Roberto Rodriguez 3/21/2011

I love all these entrepreneur articles. I've been trying to get my own restaurant business started and have been having a lot of trouble with initial funding. All these articles have affirmed what I believed, so I feel more secure with working hard everyday to achieve my dreams.


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