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Ask George: What is the biggest hurdle one encounters when entering the restaurant business? Carol M., St. Louis
It’s no surprise that the biggest impediment is financing such an expensive endeavor, but there are several more elements that are just as important.
The Financing — Ever since I can remember, unless you have a ready stash of available cash, financing a restaurant has never been easy. Banks have never been willing lenders (many of us have put up our homes as collateral) and SBA loans are cumbersome and iffy. Therefore, people use personal funds (including converting stocks and IRA’s, neither of which is a good idea). More likely they take on limited partners, sometimes in ownership position, other times not. However, personal and anecdotal evidence has shown that investors are a squirrelly bunch: When it's time to sign a check, many become evasive or disappear altogether. And how often have we heard of an investor “backing out at the last minute”? To make matters worse, I’m not sure any restaurant has ever opened on budget: cost overruns are 10, 20, sometimes even hundreds of percent over projections, at which point money really becomes hard to come by.
The Concept — Do you play it safe with another burger or pizza joint or push the envelope with a new and/or untested theory? What makes your idea different or better? And just because you devised a never-been-done concept before (a Kosher Japanese-Italian fusion restaurant comes to mind), doesn't mean it will succeed.
The Location — Many times the owner-to-be has the concept dialed in and the funds secured, but is unable to find space in a neighborhood appropriate for the concept, so they settle on the proverbial “B location,” which is a gamble. They often regret the decision, and lament not waiting for something “more expensive, but in the right place.”
The Lease — Restaurateurs often get so starry-eyed and anxious that they enter into a bad lease: they're either paying too much, or the terms are bad, or the renewal terms favor the lessor, not the lessee. I've seen cases where the restaurant needs to be at full capacity almost every night in order to fund the note. A poorly negotiated restaurant lease frequently leads to restaurant failure. Unfortunately, it’s an area most restaurant folks know little about and end up learning about the hard way.
The Key Personnel — I’m amazed at how many otherwise intelligent people establish all other aspects of a restaurant—concept, location, financing, lease, licensing—except essential personnel, as in front and back of the house management (the latter usually involving a chef). Finding good managers and chefs can be more challenging (and time consuming) than assembling the other pieces of the puzzle, yet many times it falls onto the “I’ll do that later” pile. Knowing how often chefs move from place to place, savvy owners now offer the executive chef a small percentage of ownership. Having skin in the game tends to keep even a wanderlust's feet grounded.
The Staff — In the last decade (and especially in the last five years), the number of restaurants has outstripped the available personnel it takes to run them, to the point that there's virtually no one left to hire (ask any person who's opened a restaurant recently). To compensate, owners end up with less than desirable employees, run short-handed, and curtail days and hours of operation. Food quality and service suffers, facts that are not lost on the operator. "Believe me, I know exactly where the problem areas are," several have told me. "I just wish I could do something about them."
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