Writing a business plan to open a restaurant in a bad economy

During bad economic times, success with any new restaurant is often learned from those in our industry who failed… Your business plan to open a restaurant, especially multiple locations, in a recession should include avoiding these pitfalls that can help you do it right the first time. Here are ten reasons to consider even when the economy is in a downturn: 1. No Solid Plan…The old axiom – Fail to Plan, Plan to Fail – is still true in today’s sophisticated world of software programs, as it was when someone started with their thoughts on the back of a paper cocktail napkin. It is amazing how many would-be restaurateurs, who will spend hundreds of thousands of dollars, do not invest the time to formalize an idea into a workable, business plan. At the very least, your plan should include a) concept, customer demand and market analysis, b) realistic financial projections with breakeven and investment payback, and c) a strategy for when times are bad then get good again. 2. Too Little Capital… If you estimate three months of cash is needed until breakeven, double it. If you project a possible five percent construction cost overrun, figure ten. Statistically – 1 in 3 restaurants fail within the first year. Cash is King! Guess why? 3. Bad Timing… The right menu concept for your customer market is everything. Nothing worst than deciding to open a fancy new Sushi bar, when the neighborhood tastes are going gaga over Italian. 4. Ego NOT Economics…15th century art on the walls, fifty dollar dinner plates or sophisticated, state-of-the-art kitchen equipment has bankrupted many new restaurants. Customers buy food and service – not furnishings. 5. Cannibalism… Opening another lunch-only operation in an office building with too many similar choices is a bad recipe. Make sure customer demand exceeds supply. 6. Lack of Marketing…Great food, good service, reasonable prices and a wonderful atmosphere are only as good as the number of people who know about it. Investing a consistent percentage of time and money toward public relations, customer goodwill, in-house promotions, advertising, and especially your web site and Internet presence to keep your name in the public’s mind is just as important as your patrons word-of-mouth, and even generates it. 7. Bad Management… Great chefs are not always good people or financial managers. The artists often need business people teamed up with them to help everything flourish. 8. Big Staff… Labor costs – not food, bar, rents and other overhead – are the single largest expense in operating a restaurant. It is not only wages, but the payroll taxes and benefits that must also be paid. Once you spend it, the money is gone forever. Watch it like your cash registers. 9. Poor Controls… Food service is a volatile business. Money can be wasted easily. Implement systems that will monitor sales, costs and expenses daily. 10. Too Little or Too Much Expansion… Not all restaurants successful in one location will do well in another. If it takes one restaurant’s profit to subsidize the loss of two others, you may close all of the doors. Or, if you enjoy a growing clientele and reputation, but operating costs have you breaking even, it may be time to add seats or another restaurant elsewhere but not in direct competition. Suggested resources to write a business plan to open a restaurant are available through the National Restaurant Association and Restaurant Owner. Or, contact the blog author for additional assistance.