by Tom Wilscam

The process of opening a restaurant from start to finish can be, and should be, an arduous one. It requires a tremendous amount of research and determination, and it can easily get overwhelming. Often clients ask, “What should I be doing?” It’s the right question, but not easily answered. Why? There is a whole array of things that must be done simultaneously in opening any business, but especially one as complex as a restaurant.

So, where do you start? The best place to start is with a plan, of course. Without one, it’s like shooting from the hip. Just trusting your instincts is a recipe for failure. “If you don’t know where you’re going, you are unlikely to get anywhere worthwhile.” So you begin with a business plan, a proven foundation of success and the road map to your dream becoming reality. A quotation worth remembering and putting into practice is, “Failing to plan is planning to fail” from The 7 Habits of Highly EffectivePeople, Stephen R. Covey).

Let’s outline two important steps necessary to create a successful business plan:

1. You must have an idea of the type of restaurant you want. That means coming up with a well-thought-out concept, visualizing it with graphics, and describing in writing. Your entire business plan will evolve from this: how to bring that dream restaurant to life; how to give it its unique personality; and what makes it different from other restaurants.

2. Study successful restaurants in order to formulate a model that fits what you have in mind. You don’t have to copy them, just determine why you think they are successful. Is it their food? Is it their friendly service or atmosphere? Most likely it will be all three, fitting together to form a total concept: great food, prompt and attentive service, and a comfortable, if not unique, atmosphere.

I like to use the example of a three-legged milking stool to drive this point home. If one leg is weak, then the whole stool is weak and collapses, hopefully not with you on it.

When I suggest learning from observing other successful restaurants, keep this thought in mind. Your restaurant idea must be uniquely yours. Combine the best parts of other successful restaurants into your own creative version of what you want. Perhaps it’s the personal service and unique food presentation that you have enjoyed at one restaurant, or the decor theme at another. Blend all the elements that you feel make those restaurants successful into your own total concept of food, atmosphere, and service, and you will have created your own original.

First, make an outline of what your business plan will include. Remember, BE SPECIFIC! Writing a business plan forces you to think through where you are going, how you plan to get there, and it is a tried and true road map to success. By organizing your thinking, you are more able to translate your thoughts to paper (or a computer screen) and watch a rigorous plan of action begin to take form.

THE BUSINESS PLAN

The Executive Summary: Your Executive Summary should be brief and two-fold, containing:

1.) A well-thought-out, condensed version of the business plan, a blueprint in developing your restaurant concept.

2.) The executive summary provides a banker, or potential investor, an insight into your thinking and an implied promise for profits. Condensed and to the point, the executive summary gives your potential investors the essence of the business plan without having to digest the entire document, and creates an immediate interest to read further.

The Company Structure: Describe the legal business entity that you have selected to conduct your business. Your accountant and lawyer will advise you based on your personal circumstances.

Restaurant Service Categories: How will you deliver service to your customers? Are you thinking of table service, with a wait and bus staff, or the limited staff of fast-food or fast-casual service systems?

Your service concept will determine the qualifications required of the employees you will hire and the pay scale appropriate to each.

Service: What attitude and personality should your service staff display? How will they interact with your customers? From behind a counter, in a fast food setting, or up close and personal, taking and bringing orders directly to the table with a smile. Good service, plus a pleasant attitude of your wait staff goes a long way in bringing your customers back.

Menu: Write out your menu. Be specific, with a detailed description of each menu item and projected pricing. Explain why you have selected the menu items and how they relate to your service system. Making a Caesar salad table-side does not work in a fast food restaurant. The menu and your service system are the foundation of your restaurant.

Customer Profile: In this section, you will describe your target customers, clarifying who your target market potential customers are: their age, sex, income, occupation, marital status. Present as clear a profile of your targeted customer as possible, with a sharp eye to demographics. Write out what you think it is, and then support your supposition with facts to back up how you perceive the demographics.

Competition: What are the other restaurants in the immediate area of your location? How does your concept for food, service, decor, and atmosphere differ from them? Which types of restaurants are doing the best business?

Marketing Strategy: Outline your marketing strategy, point by point. Show how it meshes with your concept. A profile of your target market is essential, especially the specific market within a one- to three-mile radius of your restaurant location. By adopting a hands-on, personalized approach in your marketing efforts, you will avoid the unnecessary expenses of a mass media campaign.

Location, Location, Location: Explain why you chose the location of your restaurant and why you feel it is best-suited to attract customers. Highlight the important demographics of your location, and why the menu, theme, and decor closely match the profile of your target market.

Ownership: List the owners/partners of your company and the percentages each will receive. Define what role they will play in the company and include their resumes. A bank will undoubtedly want to see the financial statements of each, and their last two years’ tax returns.

Management: State in detail what your management strategy will be. Will the principal owner, or owners, function as general manager or will you hire an experienced GM? Either way works, as long as you, the owner, are focused on doing the right things, and making sure that your manager is doing things right, that is, those things that make a restaurant profitable. State the key positions of your management team.

Operational Systems: Define your operational systems, the navigational instruments and rudder of your great ship. They set the course, steering the ship on a straight and smooth course. How will you ensure training, consistent ongoing operations, and effective controls? This should be summarized in your Business Plan.

Financial Requirements: Show your financial requirements in four primary areas:

1. Construction build-out cost per square Foot

2. FF&E (furniture, fixtures & equipment), including the decor package-pictures/paintings, etc.

3. Professional fees: legal, accounting, architectural, licenses, permits, and miscellaneous fees

4. Working capital: enough for opening inventories, pre-opening expenses such as training, and staying power while the business revs up.

Interior Floor Plan and Elevation Renderings: In this section of your business plan, you will need to provide a floor plan and elevation rendering of your restaurant.

Sales, Profit & Loss Projections: This section should show, in spreadsheet format, sales projections, which are critical to establishing a budget. The sum of rent, food costs, and labor costs subtracted from sales will determine the majority of your bottom line.

If you will scrutinize and research each of these steps, and follow this business plan outline, you will learn the information needed to give you the best chance for success.

For more than 40 years, Tom Wilscam has operated and helped others start restaurants. His experience has shown him the importance of having a proven concept, standardized operating procedures and the ability to help the new restaurant owner succeed.

Besides individual restaurants, Wilscam also helped launch the Einstein Bagel Company, Juan’s Mexicali and other restaurants that have become franchises through the application of standardized procedures. For more information about W&W Restaurant Group and how Tom Wilscam can show you how a startup restaurant consultant can help your business succeed, visit his website. http://www.noroyalties.com.

Many people at one time in their lives dream of opening their own restaurant. They may have a great idea with the energy and devotion to make it happen. However, the one essential ingredient that they do not have is the financial wherewithal.

Here is the typical requirement scenario for traditional bank funding. Begin with the fact that banks consider an independent restaurant startup loan to be highly risky. To the point that they will not even consider financing options for startup restaurants. Which puts us back to square one – and wondering where to turn for financing a startup restaurant.

There are a lot of aggressive lending institutions that are at least willing to consider an independent restaurant startup. Aggressive lending institutions also charge hefty interest rates and normally require a personal guarantee. We recommend skipping these funding options and encourage our clients to look for bank financing.

The chances of getting bank financing are greatly enhanced if the bank is SBA approved and you are a franchisee of a successful national restaurant franchise company that provide proven franchise style operating systems. In all cases, the bank will require the following: Liquid collateral of a dollar for dollar of the amount that you are borrowing. The bank would loan 80% of the project cost only and require you to provide the 20% balance.

A typical bank loan will be for no more than five years but with an SBA guarantee, the bank will normally extend terms to 10 or 12 years. A bank that may be considering the loan will base their decision on three primary factors: 1. Collateral requirements. 2. A comprehensive business plan that makes economic sense. 3. The applicants work history and demonstrated business acumen.

Being able to create a successful business plan has helped a number of startup restaurants get bank financing without being part of a nationally syndicated franchise chain. Other forms of financing could be a combination of bank funding, FF&E (furniture, fixture and equipment) lease financing and private investment. FF&E leasing can be extremely expensive and venture capital investors will demand usurious terms. Therefore the most viable alternative funding for an independent restaurant concept startup will be from family and friends.

Typically the best type of business arrangement for investors will be a Limited Partner structure whereby investors have no contingent liability and only risk the $$ that they have invested. Aggressive pay backs will be needed to make the deal attractive. I.e., the investors receive 80% of all proceeds until they receive double their investment back and then an attractive % profits thereafter.

With 90% of all new restaurants failing during their first year of operation, a proven business plan with a detail towards capitalization of the first year creates a safety net that can help your startup restaurant get through the first year successfully. All financial options should be considered when creating a startup restaurant. Finding the right restaurant financing option depends on the answers to many of the scenarios outlined above.

For more than 40 years, Tom Wilscam has operated and helped others start restaurants. His experience has shown him the importance of having a proven concept and standardized operating procedures can help the new restaurant owner succeed. Wilscam has helped many restaurants get startup financing through the creation of a well-written business plan.

Besides individual restaurants, Wilscam also helped launch the Einstein Bagel Company, Juan’s Mexicali and other restaurants through a well crafted startup restaurant plan. For more information about W&W Restaurant Group and how Tom Wilscam can help your startup restaurant succeed, visit his website at http://www.noroyalties.com.

There are far more than 10 reasons for a startup restaurant’s failure. However, let’s focus on the 10 most common mistakes a startup restaurant makes: 

1. “Failing to plan is planning to fail.” Steven Covey further states in his bestselling book, The 7 Secrets of Highly Successful People, “if you don’t know where you are going, you are unlikely to get anywhere.”
2. Under-capitalization. This can be the result of poor planning or unexpected cost. A good rule of thumb is to be capitalized with at least 20% more than your projected startup cost or a cash reserve equal to one year’s rent.
3. Owner/manager experience. So many times a new independent restaurant startup owner will assume that because they have been successful in corporate management or other types of business ownership that the same management principle will apply. The restaurant business is unique into itself. An inexperienced restaurant entrepreneur will likely not be aware of what they don’t know. Unfortunately, this lack of knowledge can lead to irreversible mistakes.
4. Hiring of a GM whose restaurant management experience does not commiserate with your restaurant concept. For example, management experience in a fast food or fast casual restaurant does not necessarily qualify that person to effectively manage a fine dining restaurant. A potential GM who has experience with franchise style operating systems will normally be a good prospect.
5. Hiring management and staff without checking former work references. Obviously, an applicant can put whatever they want on an application. The valid work history of an applicant is vitally important to making a good hire. As with any business, the success or failure of the business will be directly related to the company’s employees.
6. A concept that does not fit the demographic profile of the restaurant’s concept. A restaurant that is successful in one set of demographics may not work in a different set of demographics.
7. Lack of effective marketing. Many times a restaurant may successfully open with a big splash of advertising. After a few months of success, management may then drastically cut their advertising budget in the belief that they have now established a solid client base. A restaurants consumer market is an ever changing entity. People are moving in or out and new competition may be opening. A good rule of thumb is to allocate 2% to 4% of your annual gross sales to advertising.
8. Focusing on doing things right, rather than doing the right things. An owner/manager who is a great cook and spends all his/her time cooking and does not focus on other important aspects of the restaurant will typically fail.
9. Lack of commitment by ownership. A restaurant will not automatically run itself. It takes enlightened leadership and commitment to excellence by ownership to succeed.
10. Delegation but not abdication. Owner/Management that delegates but does not follow up is abdicating its responsibility for success.

For more than 40 years, Tom Wilscam has operated and helped others start restaurants. His experience has shown him the importance of having a proven concept, standardized operating procedures and the ability to help the new restaurant owner succeed.

Besides individual restaurants, Wilscam also helped launch the Einstein Bagel Company, Juan’s Mexicali and other restaurants that have become franchises because of the successful work he does creating a startup restaurant.

For more information about W&W Restaurant Group and how Tom Wilscam can help your startup restaurant succeed, visit his website at http://www.noroyalties.com.