I don’t run a restaurant, but it’s my job to know the business. For more than six years, I’ve covered the industry in Houston. I’ve watched restaurants succeed. I’ve watched them struggle. I’ve watched them close their doors for good. When it comes to restaurants, I’m the watcher on the wall or maybe Uatu, depending on which pop culture reference you’re most familiar with.
I hear about the struggles of food costs and of getting customers in the door. I hear about the battle with a conservative audience of diners who just don’t get the food. I sympathize with issues like the difficulties in finding trained staff and whether or not a place should hire a PR firm. I listen to both sides of the battles between employers and employees.
It’s utterly heartbreaking to see good people investing every dime, going without sleep and working their fingers to the bone, only to fail. What could they have done differently? I think about that often.
Of all the independent restaurants that open nationwide, a 2007 study determined that 60 percent fail within the first three years. (It’s not the often-cited 90 percent statistic. If that were the case, only the insanely hopeful would ever invest in the industry. Also, we need an updated study. Take note, professors and grad students.)
Many of the decisions that will determine if your restaurant will succeed or fail will be made before the doors even open. Based on what I’ve observed during my time writing about the industry (and my own business experience — I’ve run two different companies and been self-employed for more than 25 years), here are some tips that will help you be part of the 40 percent that succeed past the three-year mark.
This is a two-part series. Check out Part 2 tomorrow.
Open the Right Concept in the Right Area
What void in the marketplace does your restaurant fill?
Opening a pizza joint where there are five others already established isn’t a good move unless there’s some kind of “pizza joint row” where all diners know to go get pizza. Every successful business found an unmet consumer need or desire and filled it.
Understanding demographics is important, and market research of at least some kind isn't really optional. Know the area. No matter how passionate you are about haggis, opening a haggis-focused concept in a sleepy suburban strip center is probably not going to work out. Similarly, opening a high-end steakhouse in a working-class neighborhood isn’t going to be well-received, either.
It’s very hard to find commercial real estate that is both highly visible and affordable. Don’t overestimate your ability to make people go out of their way to find you. If your restaurant is not visible from a major thoroughfare, you’re in trouble from the day you sign that lease.
Related: Have an attorney review any lease agreement before you sign it, and don’t do business with crazy landlords.
Plan Not to Turn a Profit for One Year
Some restaurants open with a bang, do everything right from the get-go and never look back. Most are not so lucky and are too undercapitalized to survive more than a few months. Restaurant owners need to do the math and figure out how much money they need in the bank or in lines of credit to keep the doors open for one year.
Here’s some other food for thought. If your business starts out slow, and your front-of-house staff relies on tips for most of their income, how are you going to retain them while you’re waiting for business to pick up? Consider hiring your opening staff on a modest salary and build the labor figures into the starting capital. An agreement can always be structured to be renegotiated at a later date but you cannot escape the fact that people need enough money to live on and can’t necessarily hang around if your restaurant gets off to a slow start.
Hire for Attitude, Train for Skills
All employees need training. Even if they come to you with great experience, they need training to do things the way you want them done. Conversely, an inexperienced, smart person with a can-do attitude can be trained your way from the ground-up.
Obviously, some jobs require specialized skills. A cook, for example, needs experience and/or a culinary degree. For other jobs, novices can learn by shadowing an experienced person during a probationary hiring period for a few weeks. In the kitchen, that learning process is as natural as it is expected. There’s been more than one dishwasher who has worked his way up to chef.
Be Careful With Who You Choose to Get Into Bed With
Good business partners are experienced and easy to deal with and have a proven track record of success. If the partner is being considered for his or her financial acumen and the partner's success is not in the restaurant industry, you need to understand why that person thinks he can run a restaurant. The restaurant industry is not like real estate, or banking, or anything else.
A CPA or an attorney should draw up investment agreements. A professional agreement clearly details the nature of the investment, how and when investors get paid and whether they have say-so or not over the operation of the business.
This is doubly true when going into business with friends or family. You’d be surprised at how quickly Aunt Sally turns into a viper when she realizes there’s no payday coming anytime soon. Now, on top of financial difficulties, you have the stress of a good ol’ family feud, too.
Many marriages have ended in divorce owing to financial difficulties, and when there’s a “baby” involved, i.e., your restaurant, the business can become the subject of an ugly custody battle. Many restaurants have closed because of a divorce. Many divorces have happened thanks in part to the extra heartache and stress of running a restaurant.
Some husband-and-wife teams work beautifully, and others don’t. Proceed only with correctly drawn-up paperwork and great caution.
Yes, You Do Need Business Insurance
This is not optional. You need business insurance to protect you from liability if a customer slips and falls. You need protection from a lawsuit if you were in the hospital and couldn’t make it to the reception you were supposed to cater. You need an insurance company to pay you money if your place burns down. You know what you get if your restaurant burns down and you didn’t have insurance? Heartache and poverty.
Use Professionals for the Core Aspects of Your Business
Many chefs are creative and passionate about food. The problem comes in when they open a restaurant and decide they can also figure out interior design, public relations, photography and accounting. Some people can bootstrap that stuff. Others can’t because it is simply not part of their strengths or they're too busy doing their actual jobs — the ones they went into business for in the first place. Most successful restaurants have a chef in charge of food and a behind-the-scenes person or team who takes care of the business aspects.
Pay Taxes on Time—and Don't Forget About Employment Taxes
People think the IRS is ugly when it comes to collecting taxes, but compared to the Comptroller's Office, the IRS is the tax-agency equivalent of Mister Rogers. Failure to pay the employer's share of Social Security, FICA and Medicare taxes will lead to big penalties and frozen bank accounts.
By the way, even if you did hire a CPA or other financial professional (See "Use Professionals for the Core Aspects of Your Business," above), that doesn't mean you get to completely divorce yourself from financial oversight. Know what forms are due when, put them on your calendar and ask to get copies. You should be meeting regularly before tax deadlines. If there's any delay or resistance to a request for copies of forms, checks or information, something may be deeply wrong in a way that can get you into legal trouble fast.
Separate Personal Social Media From Business Social Media — and Still Exercise Some Restraint
People are people. We all have bad days and things we hate. However, a business social media account is not the place for an owner to express that. Your business social media account should tell consumers what they want and need to know. That’s it. It’s not a venue to express your criticisms, political views, social leanings, religious perspectives, sexual preferences or emotional state. A business is not a person, and is most likely to be successful if it seems welcoming to a big, diverse group of customers. The exception is if the success of your business plan hinges on serving a particular segment of the population.
(Even then, proceed with caution. Big Gay Ice Cream is successful and embraced by a broad audience. Ku Klux Klan Steakhouse might be viewed with some trepidation.)
Personal viewpoints should be saved for personal social media accounts, and even so, one should never forget that anything written can be saved, copied and pasted anywhere.
The occasional fun, quirky thing is okay. It adds interest (and might even win fans who are your kind of people) if you reveal that you rescue dogs, are a big comic book nerd (see the introduction for my own goofy bent) or were once a professional race car driver.
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In general, though, social media accounts should be positive, fun or thoughtful. Venting and rampant negativity should be shared — verbally — with trusted friends, partners or maybe even a therapist, depending on the severity of the issue. There is no shame in that. Just get the help you need.
How do you want to be remembered? As the chef who was a wonderful, respected person or the crazy, angry one who could never get along with anyone long-term and, wasn't it a shame since he was "so talented?"
Talent isn't everything.
Check back for more tips in Part 2 tomorrow.