They say success is 90% planning and 10% execution – opening a new restaurant is no exception. As you begin planning for your next restaurant try this approach: Demand: Discovering whether or not there is a demand for your concept in your market is the first step in deciding if the concept will survive. Do your market research to determine if your idea has merit. Ask yourself if there is already a successful brand delivering your idea? If not, what neighborhood in your market has the demand for your offering?
Outlook: Once you’ve determined there is a demand in the market for your concept, develop a 5-year financial proforma to determine if your concept can financially succeed through the first 5 years. It’s known that the mark of a successful restaurant is one that survives beyond 5-years, so plan intelligently. Use total covers, turns per meal period and per person averages to calculate projected daily, weekly and monthly sales. Use these figures to reach your projected annual sales.
Location: It’s now time to scout potential restaurant locations. Find neighborhood or mixed use developments in your market that will foster the traffic you need to hit the financial projections outlined for your business. The ability to draw your desired covers per meal period is a key financial indicator (KPI) to your success. Don’t pick a location that can’t produce the needed traffic.
Lease: Once you’ve selected your location you will have to negotiate your lease. Don’t settle. Never settle! That’s a non-negotiable. Your monthly rent is a “make it or break it” financial fact. When negotiating, regardless of the tenant assistance or rent abatement offered, don’t fall into the trap of a base rent that exceeds 8% of your total sales. 6% is the target, but 8% is survivable. The triple-net rates will push it closer to 10% of total sales. 10% is the maximum. Don’t exceed that amount.
Accountability: Next you must define your company’s ownership structure. Seek the aid of a professional tax attorney to help you structure your restaurant’s entity in the way that best fits the desires and needs of the investors and members of the company. It’s important in the operational agreement to outline roles and responsibilities, so that no one is confused as to who will be performing which role in the business, and what they will be held accountable for.
Reaction: You’ve now thought through just about all the preparations for your next restaurant opening. Now it’s time to take a step back. Share the concept, the financials & the location with your inner circle(s) or confidants. See what their thoughts and opinions are, and where you may have consumed too much of your own Kool-Aid. Let the advice of those you trust help you determine if this is truly a concept and location worth pursuing.
Start-up: If you’ve passed the sniff test with your closest advisors, then it’s time to talk start-up costs. How much will it truly cost you to get the restaurant off the ground? That’s the $100,000 (or more) question. For construction costs on a 1st generation location, try not to exceed $100/sqft. For a 2nd generation location, try not to exceed $60/sqft. For Furniture, Fixtures & Equipment (FF&E), it’s important to identify what new items you will actually need and what you can get used. These dollars will be your “make it or break it” dollars.
Once you've completed this exercise, and if all of the D.O.L.L.A.R.S. makes sense, then go ahead and generate a business plan. Break a leg!