By Roger Robinson, SCORE, Mentor
So you want to open a restaurant, it’s your dream. How are you going to make your dream come true? After all, there are thousands of entrepreneurs like you who dream of opening their own restaurant, whether it’s fast food or a fine dining establishment. Like you they know that increasing numbers of consumers want to dine out or take away prepared food. The number of U.S. foodservice operations has skyrocketed from 155,000 about 30 years ago to almost 900,000 today, and nearly 75% of them are independent units – not chain restaurants.
Growth in the quick service segment continues to be driven by the desire for convenience. As the number of employed persons in the United States continues to increase, the amount of time left to prepare meals at home continues to fall. In fact, nearly three out of ten adults (29%) indicated that purchasing take-out is essential to the way they live. This trend is even more pronounced among younger adults, with 47 percent between 18-24 reporting that take-out is essential to the way they live. More than half of all restaurant traffic – combining both table service and quick service – is off premises, which includes drive-through, take-out and delivery.
A properly run food service can generate great profits. Fast food operations generally make a lower profit per sale but have higher sales volume. Fine dining operations generally serve fewer people, so they need to make a higher profit per person. Family priced and the average ethnic restaurant falls in between. On the flip side, a poorly run food service operation can lose plenty of money. A restaurant is one of the few businesses where there are potentially more chances to lose than to make money. The many aspects of food service such as the handling of money and perishable products make restaurants tough to run profitably.
Though the future looks bright for the food-service industry overall, there are no guarantees. This industry is a classic mature market. The competition is stiff, and profit margins are low. Many restaurants fail during their first year, frequently due to a lack of planning. Over 30% go out of business year one, 60 % or more fail after 3 years, eventually giving way to the pressures of owning one. Even the most successful operators will tell you this isn’t a “get rich quick” industry. It’s more like a “work hard and make a living” industry. The formula for success is a concept, ambiance, quality food, good service and great people.
Working in a Restaurant
Regardless of the type of food-service business, you intend to start, the best way to learn the ropes is to work for a similar operation before striking out on your own. This will give you significant insight into the realities and logistics of the business. You may find you don’t like the business. Or you may find you’re more suited to a different type of operation than you originally thought. Hopefully, you’ll discover you’re in exactly the right place.
Do as many different jobs as possible. If you’re not actually doing a particular job, pay attention to the person who is – you may find yourself doing it when your own restaurant is unexpectedly shorthanded. Remember owners starting out should be involved in every detail of the operation, working nights, evenings and weekends. Your investment and future success are on the line.
Your Roadmap to Success – The Business Plan
We at SCORE believe you can succeed provided you carefully plan for all aspects of your business. A well thought out business plan covering all start-up and key operational elements is necessary for success. Your business plan should cover, at a minimum, the following issues:
- Your dream – business description – who you are – what you will do (category/concept/product/services) – your competitive advantage – legal structure
- Your market – your target customers – competition – your competitive advantage
- Your marketing strategy – promotion/price/people/place
- Your operations – your business model / how you make money
- Your management – organization – controls – who is responsibility for what
- Your personnel – hiring – training – responsibilities – compensation – personnel policies
- Your financial status – funds / assets / sources / investment / working capital
- Your financial projections – P & L / balance sheet / cash flow / break even
- Your goals – strategic/financial/personal
- Your action plans – what – when – who – how – cost
- Your executive summary – you fifteen minutes of fame
This is part one of a series of articles on what to do if you want to open a restaurant. The next step is the business plan.