Restaurant industry · Food and beverage

Do's and don'ts of a restaurant business?

Kam

July 27th, 2016

I want to start a restaurant business but I lack the domain expertise. Can someone share their experiences on the do's and don'ts, regulations to follow and/or pitfalls to avoid when starting such a business? I haven't figured out details such as location, cuisine so I can't provide those yet in regards to this discussion.

Anonymous

July 28th, 2016

My advice is not to open a restaurant unless you have worked in one before. Not as a server or busboy but as a manager. Unless you have experience in the business most are doomed to fail. Badly.

Paul Garcia President at TABLE

July 28th, 2016

Howard is right. My advice working with thousands of bars and restaurants is DO NOT open one without working in multiple positions at another restaurant. Even then most restaurateurs and bar owners don't master the six basic business skills required. That means you either need to continue to learn those skills (takes time) or hire those skills (takes money). This is one of the industries where you risk hundreds of thousands of dollars, 70+ hours a week, and earn low, single-digit profits, and often don't pay yourself for a long, long time. New restaurants generally don't reach profitability for three or more years after the initial investment.

What are some of the biggest initial errors you asked?
1) inexperience
2) rent too expensive
3) no traffic study
4) insufficient cash and crushing debt
5) too large/too small menu
6) no formal training program
7) too much frozen food
8) hiring based on years of experience instead of capability and quality of work
9) being in it to earn a lot of money
10) focused on what you want to create instead of hospitality
11) not utilizing experts
12) not having strict inventory controls
13) trying to manage things on paper or in your head instead of with organized and electronic systems
14) not putting money back into the business to keep it updated

I could go on with a much longer list, but in case I have entirely discouraged you, the hospitality industry can be a thrilling and satisfying business choice. Risks are high, rewards are mostly personal, sometimes rewards are financial. If you aren't willing to take the step to work in restaurants first in multiple positions, then consider buying a franchise that offers ongoing management training. Be warned that many franchises just collect a monthly fee that goes towards advertising and don't actually support their franchisees on a daily basis to teach them business skills, but there are some who do. Right now most banks only offer loans to franchisees and not independent restaurants.

The six business skills you need are categorized under:
1) Marketing
2) Sales
3) Organization
4) People
5) Efficiency
6) Leadership

Very few owners have mastered more than 2 of any of these skills.

What motivates you to choose the restaurant industry?

John Litz Founder, CEO Thumbkandi

July 28th, 2016

I have founded, co-founded 5 restaurant concepts which fortunately have all been successful and profitable running the full length of the lease terms and option periods.I have also jumped in to turn around two large failing food & beverage concepts, each $12M in annual revenues with staff 150+ at each venue. I was able to get one of the businesses to profitability within 8 months and was able to get the other one to break even at 12 months.

Own the real estate is you can. Be overcapitalized and keep a reserve account for back up as you cannot control the economy. Your lease is your exit strategy is you need to go that route. Having a long term lease is critical as is having an ethical, honest landlord if you don't own the real estate. It's a tough game with low margins. If you are great at what you do, expect 10-12% net returns. I am not a hands on operator but do know the playing field well. Location, consistency of product, hire friendly, knowledgable FOH staff, and strong, stable, honest management... all absolutely critical to success.Many basic questions can be answered here: https://www.entrepreneur.com/article/73384.Good Luck!

NEAL HILL Mentor, Coach, Consultant, Interim CEO, Director

August 1st, 2016

Excellent response Paul.

Howard Joseph Relationship Manager at Heartland Payment Systems

July 28th, 2016

Do not open a restaurant unless you have managed one. Here are thing to think about. 
1) Will it be a sit down restaurant, quick serve or fast casual? 
2) Will you serve alcohol?
3) Will you be running it or will you have managers?
4) Will you be a hands on owner? Do you know that you will be working about 60-70 hours a week
5) Remember that there are many, many moving parts in a restaurant. Labor cost (including manager salary) food cost should be about 60-70% if you are lucky (based the state you live in). 
6) There could be a high rate of theft both food and money 

These are just for starters. Owning a restaurant seems like a really good idea but it is had work and if you have never worked in one you will be out of your league and you will be wasting your money.  





Bill Lennan Red Rope Social - everyone is an influencer.

July 27th, 2016

My family has a restaurant. 
What kind of questions do you have?

Kam

July 29th, 2016

All,

Thanks for your insightful responses. I'd like to group the common questions/statements and answer them in this post.

1) What makes you choose restaurant industry?
A) I believe there is potential for disruption in the classical restaurant model of business. I'd like to understand the industry and the value chain more before figuring out what are the options for disruption.

2) What kind of questions do you have?
A) I need to understand how the back of the restaurant works. What regulations to follow and how to hire trusted/verified cooks/food handlers.

And, I am trying to cover my lack of experience with learning and helpful responses from you folks. I can't cover all of it but at least I hope to start off on the right foot.

Andre Costa Account Executive at Shutterstock, Inc.

July 28th, 2016

I believe what David says above goes for any type of business you want to start, but it is essential in the food industry. I am not sure whether a food franchise would minimize the pitfalls, but if you want to start a food business with zero experience in the industry, you may be in for a rough awakening.

Paul Garcia President at TABLE

July 30th, 2016

Just a quick reaction:
Disruption in a market introduces a greater degree of risk for you. While it could be successful, it could also be much more quickly dismissed because of lack of acceptance. You see this happen even to celebrity restaurants. People like what they like.

Food handling is a permit, so there's a class for it. You can choose to hire someone with a culinary degree, but the question is more what responsibilities you will assign to your chef. There are different ranks of cooks/chefs, each with its own expected degree of responsibility and cost. Importantly, you want someone you can communicate with effectively and who has similar goals. Restaurant regulations vary from state to state, but they're all documented in freely available copies of the municipal code. Most are from the department of health, and some are from the state regulatory branch, a few are city ordinances, and a few are federal wage and tax laws. There are common ones, like needing a 3-compartment sink even if you have a dishwashing machine (in case the machine breaks), and there are obscure ones like not serving water to a customer unless they request it (water conservation).

Most of these regulations will be reviewed in part of a 2-year hospitality course program at your local college.

Andre Costa Account Executive at Shutterstock, Inc.

July 28th, 2016

I hope this helps a bit: http://www.grubstreet.com/2016/07/aska-reopening-difficulty.html

You can always Google some relevant keywords and do a thorough research from various sources before diving in.

Best of luck with whatever you decide to do.