Entrepreneurship · Local food

High-level budget expectations for a restaurant?

Quoc Tran CTO at Possum, LLC

May 19th, 2015

I'm helping a friend with research on opening a restaurant. At a very high-level, what are some the budget expectations she should have for costs and expectations on returns? How does that compare to a food truck?
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Derek Dukes Business Development, Startups at Amazon Web Services

May 19th, 2015

I'm part of the ownership group of Lazy Bear and worked closely with Chef Barzelay along the way to come up with a solid business model. The foundational assumptions of the model were based off of the food / labor costing David developed while running a pop-up.

If you're friend is a first time restaurant owner, and isn't backed by a team of seasoned operational people, or experts in the industry, the single best way they can start is by doing a pop-up.

Doing a pop-up forces the following questions (among others):
- What are the unit economics?
- WIll people eat your food?
- How will you market the business?
- How much business do you need to do to make a living / cover expenses?

In the end we raised a round of financing that was in the range of a solid seed round for an idea with some market traction and good rates of growth (the terms were not standard convertible / series a terms).

Things are going amazingly well for us. We've actually just returned our second round of checks representing just under 50% of the startup capital to investors since our opening in Sept. 2014 and we're at capacity most months. 

We're constantly looking at the expenses (COGS / Labor / Fixed) how they shift month to month and where we can optimize / reduce them. 

Most startups aren't restaurants, but you can start one the same way you start a tech company. 




John Mulrey President of JMC&C Inc.

May 19th, 2015

Quoc, the short answer is found in the the amount of revenue you an produce to exceed to your costs. Specially, location, target customer, competition and experience will add up to the whether or not you can generate a fair return over a month period.  If you have a starting point I would be happy to discuss.

jmulrey@advicoach.com

Karl Schulmeisters CTO ClearRoadmap

May 19th, 2015

Quoc

if your friend has not run a restaurant, have her take LanVy's advice.  For example if your friend is going to be serving wine or beer,  she really needs to have the experience of how to keep from having the profits get sipped away by the staff.   There is a whole set of managerial skills that are specific to running restaurants and bars that you have to have BEFORE you start your own.  And it does not sound like your friend has that experience

Quoc Tran CTO at Possum, LLC

May 19th, 2015

My family runs a farmer's market, so I put her in touch with them. She also knows several restaurant owners and is hitting them up. I'm asking here to see if there's any additional information I can help her out with, but it sounds like she's already got her bases covered.

Edward Robertshaw Started TinyCall

May 19th, 2015

Its really a (very) local area question so not sure general advice will help much. You need to know the level of demand and current offerings.

Go talk to some restaurant and food truck owners in the area. They should be well fed and not bite. 

LanVy Nguyen Founder & Managing Director at Fashion4Freedom

May 19th, 2015

Let's be frank, if your friend can't figure this basic data, she has no business investing in her own business.  

The best advice you can give your friend is to spend the next year working as a manager for a mom-&-pop eatery managing their expenses  and learning from experience.

You can be a better friend to her by advising her that you're truly NOT the right person to give her advice on this venture. 

Thanh Nguyen

May 19th, 2015

@LanVy: well said...

I spent my misguided youth in the restaurant business and not sure if I ever wanted to go back... 

Recently, there's a group came to our investment club (micro-lending for local businesses) to pitch their new restaurant. They spent 2 years doing pop-up restaurants and build up their customer base. They got funded because the landlord waived the lease hold improvement ($100K+). That was a good indicator that they are onto something. Plus they illustrated a good financial picture with reasonable startup cost and conservative revenue projection... I didn't participate in that investment, however.

Another example: a successful food truck came to us looking for investment to open a restaurant. They got the money (again, I passed on this investment). As it turned out, the restaurant operation is losing money. Running a profitable food truck does not translate to running a successful restaurant.

One last comment: restaurants are about managing inventory. This is the profit killer if one does not manage it correctly. I have seen so many restaurants collapsed because they ignore the inventory portion of their business.

One last last comment: location and foot traffic... The restaurant that got funded because they are in downtown with hotels dedicated for business travelers. They are able to justify their prices since most diners would be on expense. 

Tell your friend god luck!

Sean MBA Founder & Managing Member at RDMS, LLC

June 15th, 2015

Hello Quoc-

I am a restaurant industry veteran and started an accounting & finance analytics company tailored specifically to the restaurant industry.  Should your friend still need assistance I would be happy to speak with them if you would like to provide my contact info.   Good luck!  -Sean

Jolina Li

June 15th, 2015

My parents own several restaurants so I'm pretty familiar with the restaurant industry. Depending on how the atmosphere of the restaurant will be and the condition of the existing place, she can start a restaurant for as little as $160K to as much at $550K for fancy dine in restaurants. Give it at least a year to see ROI. Food trucks are less risky and can be done with less than $80K. I suggest that she gets into food trucks first, and once she built her customer base, then look into building a restaurant. 

Quoc Tran CTO at Possum, LLC

June 17th, 2015

Everyone, thank you for the feedback. My friend runs a pop-up stand at a local Farmer's Market. I've related the feedback, and she'll likely continue at the pop-up stand for a little while longer!