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Small Business Center

Thinking of Opening a Restaurant? Consider These 6 Things First

January 26, 2023

Many chefs and food entrepreneurs dream about opening their own restaurants, but there’s a world of difference between cooking at home for friends and running a profitable business. That’s something restaurant advisor Kyle Inserra knows all too well. In his career, he has opened seven restaurants, and now he advises other entrepreneurs and would-be restauranteurs who are thinking of starting up or expanding their restaurant concepts. Below, he offers the top six things entrepreneurs should consider before opening their first restaurants.

1. Think About How Many Locations You Ultimately Want to Have

When planning your first restaurant, think about the future. “Do you want to have one really awesome Michelin-star restaurant or do you want to have a situation where you build out 10 units and see if you can sell it to some investors, or do you want to build three units and try to franchise your concept?” Inserra asked.

These plans will drive every other decision in your business plan, and the strategy for each concept is different. “If your goal is to only have one location, you don’t need to be focusing on scalability,” Inserra said. But if you plan multiple locations, start thinking from the beginning about how to build a workflow, team and process that don’t depend on you being present for every decision. You need a system that “is not reliant on you training somebody,” Inserra explained. “You need to teach others to train in your system.”

These different models require completely different markets and skill sets. Thinking in advance about what success looks like to you is “something I wish I had done and somebody had talked to me about before I opened my first restaurant,” Inserra said.

2. Be Careful About Who You Partner With

Restaurant startup costs are high. According to a 2022 survey by RestaurantOwner.com, the average restaurant startup costs are $175,500 to $750,500, depending on factors like concept and location. Though it may seem easier to find an investor than to find a bank that will loan you money to get started, remember that not all money is equal. When considering an investment partner, Inserra counseled, think about “whether they are providing value or just lending money.” Before signing any agreements, understand your potential partner’s motivations and expectations. “Some people lend you money because they want to come in for a free dinner every once in a while, and you need to decide whether or not that’s OK and what you’re looking for,” Inserra said.

To suss out motivations, consider asking questions like ‘Why do you want to do this?’ and ‘What are you trying to get out of this investment?’ Be frank with your potential investor about expectations. Inserra’s thinking for restaurant investors: “You can probably make more money in the stock market in the next three years than you can partnering in a restaurant.”

Other questions include whether the potential partner has invested in a restaurant before and, if so, what their experiences were like. You also want to get a sense about how they feel about your timeline and what happens if things change. “Too many times, the investor is like, ‘Well, hey, I gave you the money. You guys are supposed to do this,’ and then you’re stuck,” Inserra said.

Before entering into any agreements, understand what you’re looking for in a partner, too. Are you looking for them to manage the money, help with workflows, be hands-on or hands-off? What financial structure makes sense?

Partnerships are like marriages. You should enter them carefully, Inserra said. If you have any hesitancies or bad gut reactions during introductory talks, immediately walk away.

Once you agree to go forward with a partnership, get the specifics down on paper right away. “Sometimes, it seems casual and they’ll say, ‘I’ll give you this money. Just pay me back when things get good,’” Inserra said. That’s the stuff of lawsuits later on. “You need to nail that info down on Day One because if you don’t, it gets real messy later on.”

3. Don't Rush into Leasing a Space Just Because It’s Available

Location is one of the most important factors in determining a restaurant’s success. One recipe for failure is rushing to lease a space just because it suddenly became available. This can happen when an entrepreneur falls in love with a recently vacated restaurant location and assumes that such second-generation space won’t need much work. “Just because it was a good restaurant space doesn’t mean it’s a good restaurant space for you,” Inserra said.

One of his clients is dealing with the fallout from that specific situation. The client thought that because a recently vacated restaurant space had done well, it would be great for him, too. It turned out, though, that the two concepts were very different, and Inserra’s client is spending more time and money to convert the space to fit his concept than if he had taken the time to find and lease a new space and build out what he wanted.

If you see a vacant sign, Inserra said, “calling up the number on the sign and checking in is totally cool, but jumping just because it's available is most likely not the right move.” Instead, the best thing you can do is hire a real estate broker. Brokers know locations, market conditions and demographics. “They can tell you: ‘This part of town is only busy during the week or the weekend,’ or, ‘That concept is not going to work in this neighborhood for X reasons,’” Inserra said. And sometimes you just need an advisor who can help you take the emotion out of decisions.

4. Have Significant Operating Capital in the Bank Before Thinking About Opening

The old rule of thumb was that you needed four to six months of capital in the bank to open, but Inserra now advises clients to have a full year’s worth before opening. “It’s different today,” Inserra said. “If you’re not able to capitalize on multiple streams of income, you don’t want to get to a place where you’ll be shortened on produce because you couldn’t pay your produce bill.” And in places like New York, “if you don't pay your liquor bill to one vendor, every other vendor will only deliver to you on cash,” Inserra said. This can become a toxic cycle. The best way to get ahead of cash flow issues is “to just have the cash and realize that’s part of your investment,” he said.

5. Hire People with Skills That Complement Yours

Although it’s human nature to look to hire people who are just like us, it’s better for your business to hire those with differing skills and personalities. For instance, if you’re a chef who loves the kitchen more than the limelight, consider having as your partner someone who loves interacting with guests and being in the front of the house. And when hiring new positions, think honestly about your own strengths and weaknesses. Then, “hire people who fill those weaker spots,” Inserra said.

6. Budget for a Professional to Handle Your Social Media

More so for restaurants than for other small businesses, the quality of social media images and posts can determine success. “When people hear about a restaurant, the first thing they do is go to [that restaurant’s] website and social media. If [the images] don't look appealing, they’re going to look elsewhere,” Inserra said.

Along those lines, make sure your menu is accessible digitally and easy to read. The restaurant business is already competitive; you don’t want to give people a reason not to come to your place.

“Your digital presence matters,” Inserra said. “So many times, you see these restaurants that are just going through the motions on social media, and that’s a huge mistake.”

In the restaurant social media sphere, photos really are worth 1,000 words, and Inserra stated: “I would argue that a social media professional is just as important to your success as a bookkeeper or attorney.”

By Rebecca Meiser

Contributor, Commerce + Communities Today and Small Business Center

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