5 things you must know before starting a restaurant

Make sure you know everything you want to, before taking the plunge, says Ravi Wazir.

If the restaurant business seems attractive, and you're keen on getting into it, remember that while it can indeed be truly rewarding... there is much to consider.

Here are a few important things you must prime yourself for in a restaurant start-up:

1. Profitability of a restaurant

Take the time to list your fixed costs, including the three big ones -- rent, electricity and labour.

While you may aim for a food cost of 25 per cent to 30 per cent, it will be better to project it in the range of say 30 per cent to 35 per cent so as to be competitive enough in the marketplace.

While you can pick up a phone and confirm costs of everything with a variance of say 15 per cent to 20 per cent, no one can predict what your sales will be.

Therefore, it is best to look at different sales scenarios and then calculate what your profit will be in each of these scenarios.

Recognise that profitability and therefore return... is not a constant.

If you earn a 20 per cent return on your investment on an average over the first year or two, it is considered good in this industry.

More than this will be great.

If you expect over 30 per cent returns from this business, you are quite likely to be disappointed.

2. Capital required

Apart from the obvious capital costs of civil work, rent, one-time licensing, production and service equipment etc. you must include:

a. The Refundable Deposit for the property you rent and also

b. The Working Capital (both Pre and Post-Opening).

Before opening your doors and earning your first rupee, you will have rented your restaurant space and hired some people.

You must budget for the fixed expenses that you will inevitably incur during this period of your start-up.

If after opening your doors, you hit the desired footfall to break-even or make a profit, that's wonderful. But what if you don't?

I'd advise a provision for post operating fixed costs as well, just in case it takes you a few months more before you hit your sales targets.

This provision will fund possible losses in your first few months so that you don't run out of cash.

3. The time it takes

While forecasting how long it will take you to start your restaurant, remember that though procuring things from suppliers may be fairly predictable, you need to budget for unavoidable circumstances where they are unable to keep their time schedules.

More importantly, don't forget that the time it takes to find a licensed or licensable location which is affordable is hardly something that can be defined.

Starting a restaurant and hand-holding it till it is strong enough to be on auto-pilot, takes a deep and long investment of time from its promoters.

Few restaurants have succeeded without their promoters' personal time and sacrifices.

Delegating your daily operations may help you prioritise your time by working on the business rather than in it.

Ask yourself whether you will invest enough time in your start-up to back your capital.

4. Scope of work

Good food may undoubtedly be at the core of your restaurant proposition.

Your team and you being passionate about food will certainly give you a distinctive advantage.

However, there is more to the restaurant business than food itself.

You need great emotional and physical resilience to turn your restaurant dream into reality.

You will need to create your concept and value proposition, plan your financials, design your brand creatives, find a good location, plan your layout, get it licensed, create your menu, price and portion your dishes, buy your equipment, hire a team and train them to deliver the guest experience you envision, set-up your operational systems, manage your relationships with everyone from approving authorities to neighbours and look after many other aspects of this dynamic business.

It is rare to find all these skills in one promoter and therefore prudent to recognise that you will need to hire these skills either on a temporary or permanent basis by way of business partners, employees, consultants, etc. who can help you bridge your skill gap.

Naturally, you will need to weigh each instance in which your spending on them will or will not justify their costs through a saving of time and therefore money which they can bring to the table.

5. Common business problems and their solutions

a. Food Pre-preparation: If we pre-prepare too little food on a certain day and are unable to meet our customer demands on that day, we've lost out on some sales opportunities.

If we pre-prep too much, it will get wasted.

Serving stale food to save money will lose us our reputation. This can only be meaningfully addressed after some time spent studying guest consumption patterns.

b. The Perishability of Time: The duration for which your guest seating remains empty during your operating hours translates into a loss of income.

This is best dealt with by finding ways to attract patrons in lean hours.

c. Staff Absenteeism and High Turnover: While staff issues commonly ail restaurateurs, it is important to be alert to your own human resource policies and practices.

Invest time in probing the minds of opinion leaders in your team for what ails them and work towards a better win-win employee engagement and retention plan.

To conclude I'd say, plan your work and then work your plan, knowing that things can go wrong... and they will.

Reflect on these words of General George S Patton and plod on -- "The time to take counsel of your fears is before you make an important battle decision. That's the time to listen to every fear you can imagine! When you have collected all the facts and fears and made your decision, turn off all your fears and go ahead!"

The author Ravi Wazir is a hospitality business consultant and author of Restaurant Start-up: A Practical Guide now in its 3rd Edition on Amazon.