Starting a restaurant is a dream shared by many – even by persons presently in successful positions. In this longish article, we look at the real-world implications of this dream.
Starting a restaurant would involve complying with a lot of government regulations – federal, state and local. You would have to take the bother of finding out which regulations apply to you and complying with them.
Running a restaurant would involve:
- Starting early every day cooking the breakfast, continuing on to lunch and waiting up late to serve late dinners. The work involved could be up to 16 hours a day.
- Handling difficult customers who don’t like your cooking or service.
- Managing employees to ensure timely start to work, hygienic preparation of food, minimum wastage of provisions and tactful handling of customer complaints.
- An eagle eye to spot diners who try to leave without paying after eating – especially during busy times when your attention could be diverted.
Do you enjoy the restaurant business sufficiently to shoulder all these responsibilities gladly? Would your family be willing to share the work and support you?
Kinds of Restaurants
There are different kinds of restaurants serving customers with differing needs:
- Traditional: These restaurants serve a wide variety of foods. This means keeping a sizable inventory of provisions and many staff.
- Specialty: The restaurant serves one type of food, such as Pizzas.
- Ethnic: Ethnic restaurants specialize in foods from one country or region, such as foods from India.
- Fast Food Franchise: Serves a limited menu, and operates under the guidance of franchisers.
- Cafeteria: Offers simple, pre-cooked dishes, hot and cold.
- Self-service: Take-out or eat-in food. Small scale operations with small staff.
For beginners, self-service and franchise operations are ideal. The other types would require substantial restaurant experience.
However, you should look at the market that you plan to serve before deciding what type of restaurant to start.
Look at the prospective customers in your market. And the resturants already serving this market. What gaps have been left for you?
For example, if there is no convenient outlet focusing on take-out food, you might find that you could tap an unsatisfied and substantial need in your market. It all depends on the kind of prospects you have. Identify them and their needs.
- Who would be your customers?
- What kind of food and delivery services would they be looking for?
- Are these needs adequately met now?
- Are the customers dissatisfied in any way now?
You would have to get out into the field and try to find a niche:
- Observe competitors – their menus, prices and service,
- Talk to customers to get their comments on the competitors,
- Look at the composition of the customer groups to identify an inadequately served segment.
Availability of Facilities
You would need the following for starting your restaurant:
- Premises with adequate space for the kind of restaurant you are planning.
- A location that is convenient to the prospects you are targeting.
- Cooks with reqisite training and skills (unless you would be doing the food preparation yourself).
- Experienced waiters if you are opening table-service restaurant, counter assistants for a self-service restaurant.
- Different kinds of equipment and fittings for preparation, cooking, display/storage and eating-places.
- Convenient availability of all the provisions required for the type of food you are planning to serve.
Again, you would have to get into the field and check the availability, prices and other incidentals.
Now that you have studied the market, selected a location and ensured the availability of all the facilities, it is time to fine tune your marketing strategy. Decide how to do each of the following:
- Reach prospective customers with your marketing messages.
- Make these prospects aware of your existence. Distribution of flyers, a free-food launch, a public relations event or some other appropriate method might be found suitable.
- The content of your sales messages. What is the benefit that customers would most appreciate? Availability of something not presently available? The service of a renowned cook? A superb ambience with some exceptional views? Prepare your sales copy emphasizing the particular (and preferably unique) benefit that you offer.
After the startup publicity, word of mouth could be the most potent means of bringing in more customers. Ensure that you deliver on your promised benefits and send customers away happy with your food, service, convenience and other key aspects. Install systems to monitor customer satisfaction or otherwise, and the reasons therefor.
As operations get stabilized, local press ads and/or a web site could be used to spread the word wider. Decide on the particular kinds of publicity that would be appropriate and effective in your context.
Document the findings of your market assessment and the planned marketing strategy into a detailed marketing plan. You might have to review and revise this plan as you get feedback from your operations.
At around this stage, you would have to find all about the licences and government regulations applicable to you. Typically, these would include:
- Starting the restaurant at a location permitted by zoning regulations.
- A business license from your local council.
- Food establishment license from specified authorities.
- Music and liqor licenses if you play music or serve liqor at your restaurant.
- Building permits and health & safety regulations for your premises and equipment.
- Rules under retail sales tax regulations such as registration and filing of returns.
- Making suitable arrangements for smokers.
- Other appicable regulations under Food & Drugs Act.
You should also arrange for insurance cover against such typical risks as fire, burglary, liability and dishonest employees.
Sources for information on applicable rules and regulations include your local council office, government web sites and local chamber of commerce. And a reputed insurance broker could help you decide on the insurance cover you need.
Restaurant Business Plan
Now that you have assembled the data for starting a restaurant, it is time to make a formal plan. The plan would consist of:
- Marketing Plan
- Physical Resources Plan
- Personnel Plan and
- Financial Plan
The marketing plan would present your market assessment findings as well as your marketing strategy. We have discussed these above. The other plans are discussed below:
Physical Resources Plan
You would need kitchen equipment, seating for patrons and staff, service counters, provision storage facilities, food storage facilities, space for waiting patrons, toilets, staff changing rooms and miscellaneous incidentals. Make a complete list. Seating requires particular attention and we look at it below.
Make the following estimates:
- Patrons for breakfast – 6 to 10 AM
- Patrons for lunch – 11 AM to 3 PM
- Patrons for dinner – 6 to 10 PM
Next estimate the group sizes or arriving patrons. What percentage would come alone, in pairs, in larger groups? Do this for each of the above three sessions – breakfast, lunch and dinner.
Plan how to accommodate each group at their own table. Also estimate peak hour traffic and plan how to accommodate patrons waiting for a vacant seat. At slack times most of the seats would be vacant and too many seats could be a waste.
You could make these estimates better by observing competing restaurants at the same location. Check the numbers for each of the three meals – at peak hours and slack times. Observe the arrangements for service, including those for waiting patrons.
You could make a list of all the facilities that you can see during the restaurant visit mentioned above. Restaurant equipment suppliers might help you with completing the list.
Make a complete list of all the staff you would need – manager, cooks, stewards, waiters, storekeeper, accountant, cashier, counter staff, helpers and cleaners. Plan how you would get and train all the staff. And what you would pay them.
If you plan to work at the restaurant yourself, it might be a good idea to undergo a suitable training course.
Profitability of Operations
In a restaurant, the staff are also consumers. Hence, wastage could be high unless properly controlled. The following measures could help:
- Standardize recipes: The exact quantities of each ingredient must be specified for all dishes.
- Control serving portions: The size of portions served must be uniform.
- Minimize wastage: Quality ingredients, proper storage, just in time procurement and standardized preparation practices could mimimize wastage.
- Procure economically: Locate economic sources for quality provisions.
- Control receipts and issues: Receipts of supplies must be checked with orders or invoices. Issues must be properly authorized.
- Monitor consumption: Check the consumption of provisions against the portions sold.
- Check customer payments: Have a lookout area from where you could watch the entire restaurant and leaving customers.
- Train your staff: Provide training in proper food preparation, serving correct portion sizes, looking out for non-paying customers and other cost control practices.
Pricing is another factor that affect profitability. Ensure that prices cover cost of production. Higher priced items might have lower markups and lower priced items higher markups.
Prepare a profitability estimate as follows:
- Estimate Sales: Average spending by each customer multiplied by estimated number of customers at breakfast, lunch and dinner.
- Estimate monthly sales based on number of days the restaurant would be open in the month.
- Compute Costs: Use the standard recipes for each dish, and the numbers of the dishes estimated to be sold, to compute ingredient costs. List other costs like staff pay, rent, power & fuel, repairs & maintenance, rates & taxes, depreciation of equipment, travel and any other.
Finally make your profitablity estimates along the following lines:
|A. Monthly Sales||$$$$$|
|B. Food costs (only ingredients)||$$$$$|
|C. Gross Margin (A minus B)||$$$$$|
|D. Establishment Expenses (including salaries)||$$$$$|
|E. Monthly Net Profit (C minus D)||$$$$$|
The above method of computing profits would give you a clear idea of gross margin i.e. Food sales minus the direct costs of Ingredients. You would have to cover your entire establishment costs, including staff salaries, from this margin.
The financial plan would show the estimated cash outflows and inflows. The outflows would include:
- Costs of starting the restaurant – Premises, equipment, fittings, furniture and furnishings, rent and other deposits, licenses and other preoperational expenses.
- Cash losses during the initial operations to the stage when cash inflows begin to exceed cash outflows. You might not be able to recover your establishment expenses in full until the volume of sales reach the breakeven level.
Summaize the financial estimates. How much money would be needed for long term assets like equipment, furniture and fittings? And how much for working capital to purchase provisions and meet day to day expenses? Prepare statements with full supporting details.
After estimating the above costs, examine the financing options. How much would you be able to bring in from your savings? Who will finance the long term funds requirements? And the short term requirements?
Study this article on Small Business Funding to review financing alternatives and preparation of loan proposals.
There are also specialized financing institutions providing funds for starting a restaurant. Look in the yellow pages or ask your bankers about these institutions. They might be able to provide valuable management guidance as well as funds.