Matt Remuzzi is a restaurant consultant and the creator of restaurant business plan software for planning and funding new restaurants which has sold over 10,000 copies to date.
Starting a restaurant of your own is a thrilling, stomach churning, one of a kind experience that will probably change the entire path of your life- for better or worse! While recent research has finally put to bed the widely quoted but totally false claim that nine out of ten restaurants fail it is still true that the business can be tough and failures do happen.
The good news is that nearly all of the failures are the result of predictable and avoidable mistakes. If you want to open a restaurant and you want to have the best possible chance of seeing it succeed, then make sure you avoid these five common mistakes:
1) Not Being Market-centric
If you know exactly who you want to come and eat in your new restaurant then the decisions you have to make will be much easier. On the other hand, if you have no idea or just assume everyone will love your place and want to come then you are going to be all over the map and as a consequence very likely create something that doesn’t really work for anyone.
For example, if you are starting a restaurant concept for healthy fast casual Mexican food and you know your market is going to be mostly an office lunch crowd looking for something different and a dinner crowd consisting of local singles and couples grabbing something on the way home from work or the way out to a movie or party then you know a lot about what kind of menu, art, décor, tables, portion sizes, etc. you should focus on. The market you are catering to should drive your planning. If you don’t know who your market is then your plans will be vague at best and completely off at worst.
2) Picking a Location for the Wrong Reasons
Many new restaurant owners decide to get into the business because they found what they consider a great location. While there is no doubt your location is important picking a location first is backwards unless you are willing to conform your concept to whatever will work best at that address rather than trying to force your concept into a location that doesn’t suit it. Reread the first point again if this isn’t clear!
There are lots of other poor reasons to choose a location as well that will sink your efforts since your location is one of the few things you can’t change about your business once you’ve started. Signing a lease because it seems “cheap” is bad if the location can’t support even a cheap lease and so is signing an expensive lease for a “high traffic” location if the traffic it offers isn’t the traffic you need. The location must fit with the market and the numbers must make sense in line with your overall financial plan or else whatever else may be appealing about the location is immaterial.
3) Going Too Broad
Aspiring restaurant owners often seem to fall into the mindset of more is better and thinking that if they add more menu choices they will appeal to more people. In fact the opposite is usually true. With fewer menu choices you can concentrate on doing a really great job on those items to create a truly unique and memorable experience instead of having a lot of options that are only average. A smaller menu means better inventory control, less waste and spoilage, faster training for your staff and even lower printing costs for your menus.
While there are a few notable exceptions to this rule there aren’t enough to make going broad a good bet. Again it comes back to the first point and knowing who your market is and what they are going to like. If you can entice and enthrall them with eight great dishes you will be much better off than if you offer 16 or 24 dishes most of which don’t get ordered very often and which simply distract from your signature items.
4) Not Having a Solid Partnership Agreement
It is always surprising to me the number of partnerships running restaurants that have no partnership agreement at all. It’s one thing to split the cost of a sofa with a roommate you don’t really know, but a restaurant business is a six figure investment with serious financial consequences for all involved and it should not be entered into lightly. And it is more than just the money. A good partnership agreement should outline areas of responsibility, commit to a certain amount of work, ideas for future direction of the business and what happens in the event of arguments, divorce, financial trouble, etc.
Even more surprisingly, one of the most common reasons given for not wanting to do an agreement is that the partners “didn’t want to spoil the mood” or felt these topics were “too sensitive” to bring up early on. trust me, the issues will come up either way and a big fight over money or one partner feeling like they are doing all the work while the other takes home cash and food is definitely going to spoil the mood. Discuss the details upfront, before there is money at risk and feelings are hurt. If you can’t work it out at that stage you definitely shouldn’t be going into business together and making it infinitely more complicated and expensive to unravel down the road.
5) Skipping the Planning Stage
The number one biggest reason restaurants fail can be traced back to the owners not doing the proper planning required to ensure success. If planning is done then you can be sure you will have covered all of the above points and therefore reduced your risk to the absolute minimum. Not doing the planning is basically leaving the outcome of the business up to fate.
For example, two of the most common reasons restaurants fail is because they are undercapitalized and because there isn’t enough business to support them. Being undercapitalized is a result of not knowing how much you needed which is a direct result of not planning. Figuring out the cost to open the restaurant you want is easy enough to figure out very accurately with the right software. Taking the time to do it is another matter and if you don’t bother to do it then of course having enough money is going to be a crapshoot and you won’t know until you make it or you run out.
Not having enough sales is also directly related to planning. Again, with financial software you can figure out exactly how much business you will need every month to break even and you can pretty quickly determine if you can get there or not. If the software suggests you’ll need every table in the place to turn over eight times a day just to pay the bills and you go ahead and open anyway then how you fare shouldn’t come as any surprise. Your planning should also have gone a long way toward telling you if your concept was going to work and how big the market was to support it.
Opening a successful restaurant is not a matter of luck or of having some certain X factor that can’t be explained. If you do the planning, use common sense, avoid the obvious mistakes and keep at it despite the obstacles you will inevitably encounter, having your own restaurant is very much within the reach of anyone who sincerely wants to own one.