By Roger Robinson, Ph.D., SCORE Mentor
Obstacles in Opening Your Own Restaurant
The single biggest problem in the first year is a lower sales volume than expected, due either to fewer customers or customers spending less money than estimated. Do not overlook seasonality. In the Phoenix area in the summer breaking even is a challenge.
Owners seem to have the idea that they can just open the doors for a grand opening and customers will come flocking in. Increased marketing in the restaurant’s immediate vicinity often cures weak initial sales – but be cautious about offering coupon specials as they are costly and often have a low rate of generating repeat business. Also, talk to other restaurant owners outside your competitive area for lessons they learned in developing their businesses.
Funding Your Business
Money needed to start depends on the type of business, the facility, how much equipment you need, whether you buy or lease new or used, your inventory, marketing, and necessary operating capital. Banks seldom loan more hen 50% of required funds. Depending on how much money you have to
invest in your food-service business and the particular type of business you choose, you can spend over one million on a facility.
- Your own resources. Inventory of your assets. You may have more assets than you realize, including savings accounts, retirement accounts, equity in real estate, recreation equipment, vehicles, collections and other investments. You may opt to sell assets for cash or use them as collateral for a loan.
- Family and friends. Friends and relatives who believe in you and want to help you succeed. Be cautious with these arrangements; no matter how close you are with the person, present yourself professionally, put everything in writing, and be sure the individuals you approach can afford to take the risk.
- You may choose someone who has financial resources and wants to work side by side with you in the business. Or you may find someone who has money to invest but no interest in doing the actual work. Be sure to create a written partnership agreement that clearly defines your respective responsibilities and obligations. And choose your partners carefully–especially when it comes to family members.
- Government programs. Make your first stop the SBA, but be sure to investigate various other programs. SBA programs generally work through banks and require a complete business plan. The business section of your local library is a good place to begin your research.
Food operations are strictly regulated and subject to inspection. Fail to meet regulations, and you could be subject to fines or be shut down by authorities. And if the violations involve tainted food, you could be responsible for your patrons’ illnesses and even death. Issues such as sanitation and fire safety are critical. Provide a safe environment in which your employees can work and your guests can dine, follow the laws of your state on sales of alcohol and tobacco products, and handle tax issues accurately, including sales, beverage, payroll and more.
Most regulatory agencies will work with new operators to let them know what they must do to meet the necessary legal requirements. Investigate the governmental regulatory requirements, city, county and state, starting with the Arizona Environmental Services Department as well as county health departments. Prepare for an excess of paperwork, including complex codes with regulations covering everything from kitchen exhaust systems to sinks, storage devices and all interior finishes.
Qualified Labor – one of your biggest challenges.
Finding qualified workers and rising labor costs are two key concerns for food-service business owners. The supply of workers age16-24, the primary pool for restaurant employees, has been declining. Develop a comprehensive HR program and a personnel manual. The job description needs to clearly outline the job’s duties and responsibilities. It should also list any special skills or other required credentials, such as a valid driver’s license and clean driving record for someone who is going to make deliveries for you.
Next, establish a pay scale. Research the pay rates in your area. Establish a minimum and maximum rate for each position. You’ll pay more even at the start for better qualified and more experienced workers. Of course, the pay scale is affected by whether or not the position is one that is regularly tipped.
- Hire right. Every prospective employee should fill out an application even if they submit a resume. A resume is not a signed, sworn statement acknowledging that you can fire the person if he or she lies about his or her background; the application, which includes a truth affidavit, is. Thoroughly screen applicants. Do background checks. If you can’t do this yourself, contract with a HR consultant to do it for you on an as-needed basis.
- Detailed Job Descriptions. Don’t make your employees guess about their responsibilities. Be sure they understand what you expect of them. Interview key personnel to determine their perception of their roles and responsibilities. A written description for the owner and all personnel providing position title, qualifications required, basic functions, reporting relationships, authority, responsibilities, and measurements of performance can then be used for training and compensation purposes.
- Formal Personnel Evaluations. A process that will communicate performance results to company employees on an ongoing basis – and is a fair – is an objective way to provide recommendations for improvement in behavior and performance. After documentation, establish a baseline for developing practical recommendations for improvement. Again, have the employee sign the evaluation form after discussions and a copy kept in company files.
- Motivational and Compensation Process. Incorporate a profit-motivated employee incentive plan with a bonus weighted according to the employee’s contribution towards achieving both the company profit and individual growth goals as specified in the job descriptions. A new owner should consider profit sharing to provide incentives, reduce turnover, promote teamwork, and improve overall employee operational efficiency.
- Understand wage-and-hour and child labor laws. Check with your own state’s Department of Labor to be sure you comply with regulations on issues such as minimum wage (which can vary depending on the age of the workers and whether they’re eligible for tips), and when teenagers can work and what tasks they’re allowed to do.
- Report tips properly. The IRS is very specific about how tips are to be reported; for details, check with your accountant or contact the IRS (or see your local telephone directory for the number).
- Provide initial and ongoing training. Even experienced workers need to know how things are done in your restaurant. Well-trained employees are happier, more confident and more effective. Plus, ongoing training builds loyalty and reduces turnover. The NRA can help you develop appropriate employee training programs.
When your restaurant is still new, some employees’ duties may cross over from one category to another. For example, your manager may double as the host, and servers may also bus tables. Be sure to hire people who are willing to be flexible in their duties. Your payroll costs, including all taxes and benefits, your own salary and that of your managers, should be about 25 to 30 percent of your total gross sales.
- Your most important employee. Your best candidate will have already managed a restaurant or restaurants in your area and will be familiar with local buying sources, suppliers and methods. You’ll also want leadership skills and the ability to supervise personnel while reflecting the style and character of your restaurant.
Quality of manager are paid well. Depending on your location, expect to pay a seasoned manager $30,000 to $40,000 a year, plus a percentage of sales. An entry-level manager will earn $22,000 to$26,000 but won’t have the skills of a more experienced candidate. If you can’t offer a high salary, work out a profit-sharing arrangement-it’s an excellent way to hire good people and motivate them to build a successful restaurant. Hire your manager at least a month before you open so he or she can help you set up your restaurant.
- Chefs and cooks. When you start out, you’ll probably need three cooks–two full time and one part time. Restaurant workers typically work shifts from 10 a.m. to 4 p.m. or 4 p.m. to closing. But one lead cook may need to arrive early in the morning to begin preparing soups, bread and other items to be served that day. One full-time cook should work days, and the other evenings. The part-time cook will help during peak hours, such as weekend rushes, and can work as a line cook during slower periods, doing simple preparation.
- Salaries for chefs and cooks vary according to their experience and your menu. Chefs command salaries significantly higher than cooks, averaging $600 to $700 a week. You may also find chefs who are willing to work under profit-sharing plans. If you have a fairly complex menu that requires a cook with lots of experience, you may have to pay anywhere from $400 to $500 a week. Pay part-time cooks on an hourly basis.
- Your servers will have the most interaction with customers, so they need to make a favorable impression and work well under pressure, meeting the demands of customers at several tables while maintaining a pleasant demeanor. There are two times of day for wait staff: very slow and very busy. Schedule your employees accordingly. The lunch rush, for example, starts around 11:30 a.m. and continues until 1:30 or 2 p.m. Restaurants are often slow again until the dinner crowd arrives around 5:30 to 6 p.m.
Servers who earn a good portion of their income from tips are usually paid minimum wage or just slightly more. When your restaurant is new, you may hire only experienced servers so you don’t have to provide extensive training. As you become established, however, you should develop training systems to help both new, inexperienced employees and veteran servers understand your philosophy and the image you want to project.
This is part of a series on Starting Your Own Restaurant