How to Lose a Fortune in the Restaurant Business in The First Year

How to Lose a Fortune in the Restaurant Business in The First Year


How to Lose a Fortune in the Restaurant Business

                                     IN THE FIRST YEAR

Avoid these 5 mistakes to keep your shirt on and navigate a successful restaurant venture….

Mistake # 1 -  Starting out under-funded

Get realistic about what it's really going to cost.  Whether you’ve purchased chattels, or are building from the ground up, an accurate business plan and enough money in the bank are essential.  You need working capital.

As your project develops, plans will change, and the costs along with it.  Start with a buffer, around 20% more than you project you will need.  

Too often restaurants start-ups have not enough capital to open the way they planned. When this happens, designs get changed, corners get cut early and quality and service begins to suffer.

Your reputation is everything. You've got to have amazing service and happy customers.

If you don’t start with a buffer you will find yourself doing stupid things.  You can't be running out to Costco to save $0.10 on pop or garbage bags and have nobody working the door when people are arriving. You cannot have slow service or understaffed dining rooms. But these are just a few things that happen why you’re trying to make the dollar stretch farther than it can.

Take the time to secure your funds and account for working capital.


Mistake #2 - Sticking your head in the sand under pressure

In the weeks and months after the adrenaline rush of opening, some or all of the following is guaranteed to happen:  

Exhaustion sets in, staff quit, customers complain, bills pile up, cooks don’t show up, line ups never stop, menu items don’t work out, reviews come steaming in, and they’re not all good!!!  These are some things that are part of restaurant start-ups, and naturally we focus on fixing them.  

Often in the early days, owners, managers and chefs are absolutely overwhelmed trying to deliver quality and service with new staff and systems.  Profitability gets forgotten all together, until it's discovered like moldy chicken at the back of a fridge.

Don't be too busy to be on top of your costs (labour, food, inventory & more) from day one. Keep the boat afloat.  You are the boss.   Find the time to do the job of the boss.

Don't be too busy to check the books daily. If time is a challenge, delegate and pay a professional to maintain your books and report to you regularly. POS systems are a critical step in data analysis and smart business planning.

Profitability is key.  The trick is not to give up on the things that are most important to profit.  Weekly and monthly checks and balances are essential to staying in business.  When things get stormy it's tempting to stick your head in the sand and ignore your problems.   

Don’t forget why you are here.  Keep your head out of the sand and be accountable.


Mistake #3 -  Acting like a Big-Shot before you're a Big-Shot

When opening day arrives, everyone wants to celebrate with you.  Word gets round and all your besties will show up to experience your new digs.

Don't be afraid to charge your friends!  Often restaurateurs feel inclined to buy drinks and meals and promo and comp for their friends and family.  It's not expected and it's just a plain bad idea during your first year in business.

Take all the revenue you can get your hands on and channel it directly back into your venture. And the reality is that you will promo the odd desserts or drink order, but do it with discrimination.

When new owners go over the top it's easy to accumulate ridiculous costs and lost revenue.  Don’t steal from yourself.  Get profitable and stable before throwing around the profits like a heavyweight.  Remember your not a big-shot......yet.

“If anything is good for pounding humility into you permanently it's the restaurant business.”  Anthony Bourdain.


Mistake #4 - Throwing your money away on outdated advertising

The restaurant business has changed drastically in the last 10 years, thanks largely to the internet.  The way we bring in customers through advertising is not the way we did it just a few years ago.

The yellow pages are not what they were.  Coupon books go straight in the recycling.  In spite of this, ad-sales reps and sponsorship requests will turn up on your door-step even before your doors are open.

Usually in the first year, start-ups are busy by word-of-mouth and because people just plain curious and hungry.  Focus on product quality, execution and keeping that customer coming back. Focus on making a profit from that customer, that's the key.

And besides, beautiful websites no longer cost a ton of money. Social media is where it's at.  Plugging into revolutionary trends like "Just Eat" can open all kinds of doors for the success of your food venture.  None of the above is that hard to do. So don't go crazy on extra spending for unnecessary advertising and promotion.

There is no real grace period in the restaurant business, it's high speed from day one.


Mistake #5 -  Not hiring a consultant if you're not an expert

Many people who have never worked in a restaurant open restaurants.  We can all be experts at serving a few folks our favorite dishes.  We can all be  connoisseurs of fine food and service.  The inner workings of a successful restaurant however, are science. And just like any other industry sector, successful business design and management requires experience.  

90% of restaurants go out of business in the first 2 years.  Average restaurant profit margins barely exceed 3%.  The life of an engaged restaurateur often requires 12 hour days.  If you plan to work in your new restaurant, your life is about to be turned on its head.

Opening a new restaurant is one hell-of-a ride and can be a lot of fun.  But not something even the smartest of us want to walk into blind.   

People that hire consultant’s have better success in their ventures.  If you want it done right and you don’t have the experience, then be smart and find someone who has the knowledge you need.  There is no business like the restaurant business. 

Avoid costly mistakes and pitfalls.  Call a consultant.  


Tim Halley is an Executive Chef & Restaurant Consultant who has been leading restaurants to excellence for over 30 years.  He consults, cooks, and writes with passion, and he lives with his wife and children near Toronto, Canada.
Tim is available to Consult for your business anywhere in North America.


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