The single biggest problem in the first year is a lower sales volume than expected, due either to fewer customers or customers spending less money than estimated. Do not overlook seasonality. In the Phoenix area in the summer breaking even is a challenge.
Owners seem to have the idea that they can just open the doors for a grand opening and customers will come flocking in. Increased marketing in the restaurant’s immediate vicinity often cures weak initial sales – but be cautious about offering coupon specials as they are costly and often have a low rate of generating repeat business. Also, talk to other restaurant owners outside your competitive area for lessons they learned in developing their businesses.
Funding Your Business
Money needed to start depends on the type of business, the facility, how much equipment you need, whether you buy or lease new or used, your inventory, marketing, and necessary operating capital. Banks seldom loan more hen 50% of required funds. Depending on how much money you have to
invest in your food-service business and the particular type of business you choose, you can spend over one million on a facility.
Your own resources. Inventory of your assets. You may have more assets than you realize, including savings accounts, retirement accounts, equity in real estate, recreation equipment, vehicles, collections and other investments. You may opt to sell assets for cash or use them as collateral for a loan.
Family and friends. Friends and relatives who believe in you and want to help you succeed. Be cautious with these arrangements; no matter how close you are with the person, present yourself professionally, put everything in writing, and be sure the individuals you approach can afford to take the risk.
You may choose someone who has financial resources and wants to work side by side with you in the business. Or you may find someone who has money to invest but no interest in doing the actual work. Be sure to create a written partnership agreement that clearly defines your respective responsibilities and obligations. And choose your partners carefully–especially when it comes to family members.
Government programs. Make your first stop the SBA, but be sure to investigate various other programs. SBA programs generally work through banks and require a complete business plan. The business section of your local library is a good place to begin your research.
Food operations are strictly regulated and subject to inspection. Fail to meet regulations, and you could be subject to fines or be shut down by authorities. And if the violations involve tainted food, you could be responsible for your patrons’ illnesses and even death. Issues such as sanitation and fire safety are critical. Provide a safe environment in which your employees can work and your guests can dine, follow the laws of your state on sales of alcohol and tobacco products, and handle tax issues accurately, including sales, beverage, payroll and more.
Most regulatory agencies will work with new operators to let them know what they must do to meet the necessary legal requirements. Investigate the governmental regulatory requirements, city, county and state, starting with the Arizona Environmental Services Department as well as county health departments. Prepare for an excess of paperwork, including complex codes with regulations covering everything from kitchen exhaust systems to sinks, storage devices and all interior finishes.
Qualified Labor – one of your biggest challenges.
Finding qualified workers and rising labor costs are two key concerns for food-service business owners. The supply of workers age16-24, the primary pool for restaurant employees, has been declining. Develop a comprehensive HR program and a personnel manual. The job description needs to clearly outline the job’s duties and responsibilities. It should also list any special skills or other required credentials, such as a valid driver’s license and clean driving record for someone who is going to make deliveries for you.
Next, establish a pay scale. Research the pay rates in your area. Establish a minimum and maximum rate for each position. You’ll pay more even at the start for better qualified and more experienced workers. Of course, the pay scale is affected by whether or not the position is one that is regularly tipped.
Hire right. Every prospective employee should fill out an application even if they submit a resume. A resume is not a signed, sworn statement acknowledging that you can fire the person if he or she lies about his or her background; the application, which includes a truth affidavit, is. Thoroughly screen applicants. Do background checks. If you can’t do this yourself, contract with a HR consultant to do it for you on an as-needed basis.
Detailed Job Descriptions. Don’t make your employees guess about their responsibilities. Be sure they understand what you expect of them. Interview key personnel to determine their perception of their roles and responsibilities. A written description for the owner and all personnel providing position title, qualifications required, basic functions, reporting relationships, authority, responsibilities, and measurements of performance can then be used for training and compensation purposes.
Formal Personnel Evaluations. A process that will communicate performance results to company employees on an ongoing basis – and is a fair – is an objective way to provide recommendations for improvement in behavior and performance. After documentation, establish a baseline for developing practical recommendations for improvement. Again, have the employee sign the evaluation form after discussions and a copy kept in company files.
Motivational and Compensation Process. Incorporate a profit-motivated employee incentive plan with a bonus weighted according to the employee’s contribution towards achieving both the company profit and individual growth goals as specified in the job descriptions. A new owner should consider profit sharing to provide incentives, reduce turnover, promote teamwork, and improve overall employee operational efficiency.
Understand wage-and-hour and child labor laws. Check with your own state’s Department of Labor to be sure you comply with regulations on issues such as minimum wage (which can vary depending on the age of the workers and whether they’re eligible for tips), and when teenagers can work and what tasks they’re allowed to do.
Report tips properly. The IRS is very specific about how tips are to be reported; for details, check with your accountant or contact the IRS (or see your local telephone directory for the number).
Provide initial and ongoing training. Even experienced workers need to know how things are done in your restaurant. Well-trained employees are happier, more confident and more effective. Plus, ongoing training builds loyalty and reduces turnover. The NRA can help you develop appropriate employee training programs.
When your restaurant is still new, some employees’ duties may cross over from one category to another. For example, your manager may double as the host, and servers may also bus tables. Be sure to hire people who are willing to be flexible in their duties. Your payroll costs, including all taxes and benefits, your own salary and that of your managers, should be about 25 to 30 percent of your total gross sales.
Your most important employee. Your best candidate will have already managed a restaurant or restaurants in your area and will be familiar with local buying sources, suppliers and methods. You’ll also want leadership skills and the ability to supervise personnel while reflecting the style and character of your restaurant.
Quality of manager are paid well. Depending on your location, expect to pay a seasoned manager $30,000 to $40,000 a year, plus a percentage of sales. An entry-level manager will earn $22,000 to$26,000 but won’t have the skills of a more experienced candidate. If you can’t offer a high salary, work out a profit-sharing arrangement-it’s an excellent way to hire good people and motivate them to build a successful restaurant. Hire your manager at least a month before you open so he or she can help you set up your restaurant.
Chefs and cooks. When you start out, you’ll probably need three cooks–two full time and one part time. Restaurant workers typically work shifts from 10 a.m. to 4 p.m. or 4 p.m. to closing. But one lead cook may need to arrive early in the morning to begin preparing soups, bread and other items to be served that day. One full-time cook should work days, and the other evenings. The part-time cook will help during peak hours, such as weekend rushes, and can work as a line cook during slower periods, doing simple preparation.
Salaries for chefs and cooks vary according to their experience and your menu. Chefs command salaries significantly higher than cooks, averaging $600 to $700 a week. You may also find chefs who are willing to work under profit-sharing plans. If you have a fairly complex menu that requires a cook with lots of experience, you may have to pay anywhere from $400 to $500 a week. Pay part-time cooks on an hourly basis.
Your servers will have the most interaction with customers, so they need to make a favorable impression and work well under pressure, meeting the demands of customers at several tables while maintaining a pleasant demeanor. There are two times of day for wait staff: very slow and very busy. Schedule your employees accordingly. The lunch rush, for example, starts around 11:30 a.m. and continues until 1:30 or 2 p.m. Restaurants are often slow again until the dinner crowd arrives around 5:30 to 6 p.m.
Servers who earn a good portion of their income from tips are usually paid minimum wage or just slightly more. When your restaurant is new, you may hire only experienced servers so you don’t have to provide extensive training. As you become established, however, you should develop training systems to help both new, inexperienced employees and veteran servers understand your philosophy and the image you want to project.
This is part of a series on Starting Your Own Restaurant
Entrepreneurs and owners of small businesses are used to doing everything – from unlocking the doors in the morning, to emptying out the trash cans, and locking up before heading home at the end of another long day. Along the way, making hundreds of decisions, often with significant potential consequences. It’s challenging, risky, unsettling, and often intimidating. But it doesn’t have to be lonely.
Every entrepreneur and small business owner will benefit from an informal team of advisors that they can call on for advice and help. As you pursue your entrepreneurial journey, seek out and invite an advisory team of business professionals to join you. Your core competency is running the business, theirs is to help you be successful.
Your advisory team should include a Lawyer, an Accountant, a Banker, an Independent Insurance Agent, and a Mentor. In addition, given the pace of technology, adding an IT guru and an On-Line Marketing expert is highly recommended.
Referrals and recommendations from friends and respected colleagues are the best sources of leads to fill out your advisory team. Once you identify one or two members, ask them who they feel comfortable working with and you’ll likely quickly assemble a talented team.
Each member of the team will be able to advise you on the many pitfalls that face small businesses, as well as help you set a firm foundation for future smooth operations. For instance, the Lawyer will counsel you on creating a legal entity for your business, but also provide guidance on the regulatory environment, labor law issues, and review of contracts (before you sign). Ask lots of questions, take advantage of free advice, but always be willing to pay for their professional services.
The Mentor on your team can play a particularly important role. Find a Mentor with relevant experience, a willingness to share, and the time needed to be available to you. SCORE is a great source of Mentors – with over 70 talented business professionals in the Greater Phoenix Chapter – and no charge for mentoring.
You don’t have to be alone in your entrepreneurial journey. Reach out to others and focus on identifying and forming a team of business professionals. Your advisory team will provide the advice and support needed to drive your success. Add this task to your “to do” list today, and then take out the trash.
About the Author:
Andy Beran is the immediate Past President of Greater Phoenix SCORE and has been a mentor since 2008. Andy currently owns a medical transport company in the Phoenix area. Since purchasing the company in 2010, he returned the business to consistent profitability and growth. During his extensive corporate career, Andy held various management positions at a leading Fortune 50 high technology research, development and manufacturing company. His positions included Group Controller and Director of Strategic Planning. He was a proven expert in the areas of Strategic Planning, Mergers and Acquisitions, Strategic Alliances, New Business Development, Operations and Capacity Planning, Finance & Budgeting and ROI / Productivity. Learn more about Andy here.
Whether you like it or not, you are part of your brand. Especially if you’re a consultant, service provider, designer or professional anything.
You join a group like the chamber of commerce or an association as your business to promote your business. However, you attend networking lunches and other events as yourself. At that point, you are your brand!
So, your personal profiles in the social networks play an important part.
I know some of you want to stay as incognito as possible – get over it.
Like joining a networking organization, you get out of it what you put into it. That’s how today’s marketing works.
You can automate a lot of the media, but you still have to be social!
Is your LinkedIn profile 100% complete? Are you an “All-Star” or at least an “Expert”? If someone Googles your name, your LinkedIn profile usually comes up in the top 3 search results. And remember, you only have one chance to make a good first impression!
Having a LinkedIn profile without your picture is like going to a networking event with a paper bag over your head.
Just like you wouldn’t go to a networking event with a paper bag over your head – your online image is just as important. You don’t want fuzzy graphics or logos that are cut-off.
An incomplete social media profile is like having a sloppy lobby!
Branding should be consistent on all the social networks. They are like extensions of your website. People should know in seconds what you do and what you have to offer.
The average person has an attention span of 7 seconds.
Google indexes all the social media profiles – both personal and business.
Social Media is Here to Stay
It’s no joke. Yes, it could be fun and entertaining and annoying at times, but if you know how to work it properly, it can be a very effective marketing tool.
The key is to clearly identify your target market(s) and figure out which networks they use the most.
Though you should have a presence in the major ones: Facebook, Twitter, Google+, and LinkedIn, not everyone has to be on Pinterest, Snapchat or Instagram. It all depends on who you want to reach.
If you’re more B2C (Business to Consumer), you should be mastering Facebook, Pinterest and maybe Instagram. If you’re trying to reach the younger generation (12-24), you should check out Snapchat. B2B (Business to Business) – focus on LinkedIn and Facebook. If you want to drive traffic to your website (and who doesn’t), then you can automate content to Twitter and Google+.
About the Author:
Giselle Aguiar, founder of AZ Social Media Wiz is a social media, inbound and content marketing specialist & trainer helping business owners learn how to leverage the power of social media marketing, increase traffic to their websites, generate leads, increase brand awareness and establish themselves as experts in their fields. She’s the official social media, newsletter and blog manager for Greater Phoenix SCORE and teaches once a month at SCORE. Join her on Wednesdays with the Wiz on Facebook Live at 4 pm MST every Wednesday.
We’ve all heard the saying that “if you fail to plan, you plan to fail” and it’s absolutely true. But have you heard of Marketing Pattern Baldness? It’s a side effect of the “you plan to fail” scenario. It’s a result of no plan, no timeline, no strategy and no allocated budget.
The cure is the liberal application of a comprehensive marketing plan.
Before jumping directly into the plan, however, it’s important to differentiate a few concepts: objective, strategy and plan. The marketing objective is the “what” you want to accomplish: brand awareness, acquisition, retention, etc. A marketing strategy is the “where,” it’s the road map for achieving your objective. A marketing plan is the “how” to execute the strategy to reach the objective.
For the purpose of this article, let’s assume you have a clear objective and strategy and you want to organize the “how” into a comprehensive plan. Here are five steps to make it easier to get a handle on your marketing plan.
There are a million marketing plan templates available online or you can create one from scratch. Take a look at a few templates and choose one you think will work for you. If you’re new to the marketing plan I would suggest starting with a template and modify it as needed.
The marketing plan should cover at least a one year period, maybe more depending on your industry. Regardless of the industry, it’s likely there are annual, regional or seasonal opportunities that complement your product or service.
Mark down the dates for annual, regional, seasonal and special events, trade shows, conferences, sponsorships, etc. Use actual dates. If a date hasn’t been released yet, estimate based on previous years.
Add promotional observance dates. Get your hands on a promotional calendar and peruse it to see if there are any observances that fit your business. For example, there’s National Chimney Safety Week or National Head Lice Prevention Month, or National Flashlight Day (all real promotional days, the first week of October, month of September and December 21, respectively). Wikipedia is a great source for these dates. Have some fun with the information; it’s a great way to stand out on an otherwise “typical” day.
Meet with other departments in your company to see if there are initiatives they want marketing to support. This is a great preventative measure against last minute requests. (It isn’t a guarantee against last minute requests, however!)
Begin at the deliverable date for each project and work backward to determine when you need to start working to deliver on time. Build in some cushion time to compensate for unforeseen happenings that inevitably arise.
Budget isn’t the only allocation needed for a solid marketing plan. Assign a project manager and make staff assignments to complete each aspect of the plan. Determine what work will be handled internally and what may be assigned to an outside agency and if staff from another department needs to be involved.
When your plan is complete, it’s key to do a presentation to senior executives, department heads and managers. Wrinkles can be ironed out and everyone has the opportunity to voice any concerns or make suggestions. But don’t get too excited, the plan will be fluid as the year progresses and that’s to be expected. Use project changes as a way to refine the marketing plan and modify it for the coming year.
Develop your marketing plan now. Don’t wait until you’re a victim of Marketing Pattern Baldness. It’s a preventable condition.
Layout and design are major factors in your restaurant’s success. Typically allow 40 to 60% of space to the dining area, approximately 30% to the kitchen and prep area, and the remainder to storage and office space.
Make sure the kitchen allows efficient, effective food preparation and interaction between staff, safety in movement, dry and cold storage, dish washing, an area for staff’s personal items, convenient delivery zone, ease of cleaning and maintenance and proper ventilation.
Aim for a practical, useful layout, while setting the mood.
Make sure you have:
Seating/waiting areas, serving room, cashier area, rest rooms, bar (optional);
One or more areas from which you can view the entire restaurant;
Lighting, signs and obstacle-free traffic flow;
A variety of seating arrangements: 50% of customers come in pairs; 30% come alone or in groups of three; and 20% in groups of four or more; To accommodate the different groups, use
Tables for two that can be pushed together in areas where there is ample floor space. This gives you flexibility. Place booths for four to six people along the walls.
Adequate floor space – the suggested square footage requirements per chair are: 10-20 sq. ft in traditional restaurants, 10-12 in cafeterias, 7-17 in coffee shops;
Often inefficient–the result is a poorly organized kitchen and less than top-notch service. Keep menu production in mind as you determine space for receiving, storage, food preparation, cooking, baking, dish washing, production aisles, trash storage, employee facilities and a small office. Arrange your food production area so that everything is just a few steps away from the cook. Allow for two or more cooks to be able to work side by side during your busiest hours
Plan your menu early as the kitchen layout and equipment purchases depend on it. See if you can purchase used equipment or lease new to reduce initial costs. Taste-test all the recipes repeatedly until the kitchen can achieve consistency. A good way to check the food and service is to have a private opening for family and friends.
Form a limited liability company or private corporation and be sure to define all key personnel responsibilities – in detail.
Allocate the available space considering furniture and equipment to be included. Consider efficient flow and applicable regulatory requirements. Be specific for dining, kitchen, dish washing, prep, storage, bathrooms, administrative work areas and entrances/exits.
Plan the layout for the dining area in detail. Remember to balance the desire for the maximum number of seats with customer comfort, and avoid seating in high traffic lanes or stuffed into corners. Avoid locating tables in the middle of the room like little islands and consider instead having low divider walls and hanging plants to break up the space.
Don’t forget the graphics – from exterior signage to the look of the menus, graphic design plays an important part in the overall image to be portrayed.
Pay attention to the lighting design. Focus dramatic light onto the tables to highlight the food, and compliment it with glowing background light to make the interior and customers look good.
Decide whether to offer a full service bar as this will dramatically influence initial investment requirements. Periodically Arizona releases a limited number licenses such as Series 6, 7 and 9 liquor licenses – Series 6 is needed to operate a bar, Series 7 is needed to serve beer and wine, and Series 9 is needed to sell liquor at retail. Until recently, the only way to obtain a bar or liquor license had been to buy it from another business with prices reaching $90,000 for an existing Series 6 and up to $240,000 for a Series 9. This state intends to issue a total of 126 new licenses this year at the going market rate.
Define your insurance needs. Restaurants are sources of potential accidents from fires to floods to food poisoning, and hundreds of other catastrophes. The NRA is an outstanding resource for guidance on related insurance coverage requirements.
Select and train your staff early. Look for enthusiasm, good grooming and experience. Allow them enough time to become familiar with your concept as well as for cross training. Remember that the person greeting customers is as important as the person running the kitchen – and great service and great food is a winning combination for success.
Set up a restaurant oriented bookkeeping and accounting system – more on this later on. Be sure to establish control over the meal checks as there are dozens of scams that dishonest servers and cashiers, especially bartenders, can use. In particular understand and document the entire process thoroughly, and watch the petty cash, cash drawer flow and check cashing processes. Get expert advice on how to prevent abuses.
Designate several trusted employees to supervise storage areas. Stress that they must check in all deliveries and audit the food inventory carefully – document these responsibilities into their job descriptions.
Read books and attend SCORE training seminars on managing a business. Take a class at a local university on restaurant management.
Finally, decide on the restaurant’s overall look. Beware of trendy, contrived designs that are short lived. Attempt to provide a warm, friendly atmosphere tailored to the customer base you are trying to attract.
Dining room design will depend on your concept. This is where you’ll make the bulk of your money, so don’t cut corners. Visit restaurants in your area and analyze the décor. Watch the diners; do they react positively to the décor? Note what works well and what doesn’t.
Calculating Seating Capacity
Note relation of costs to gross and to menu pricing which are functions of number of seats, seat turns, average cover, seasonality (caveat summer), lunch covers, dinner covers, etc.
Estimate gross by number of seats times average cover reflecting these factors:
Determine desired profit—convert to percentage of sales to get sales required;
Determine number of operating days—divide number of days into sales to get average daily sales;
Estimate volume percentages for meal periods (breakfast, lunch, dinner);
Multiply figures in step 3 by average sales per day to get dollar volume per period;
Determine average check per meal period;
Divide dollar volumes in step 4 by average check for the number of patrons per period;
Average seat occupation per meal period;
Time per meal period;
Divide time per period by average occupation to get seat turnover per period;
Divide possible seat turnover into number of patrons to get number of seats required per period;
Take the largest seating requirement in step 9 and add a 20% safety margin for the seating capacity.
This is the next in the series of posts on opening a restaurant. In this part we cover how to determine a restaurant’s target market, the marketing plan and location, location, location!
No single food-service operation has universal appeal. Focus on the 5 or 10 percent of the market you can get, forget about the rest. The main market targets of food-service business customers:
Generation Y. Born between 1980 and 2000, A prime target for a food-service business, Generation Y goes for fast-food and quick-service items. About 25 percent of their restaurant visits are to burger franchises, follow by pizza restaurants at 12 percent.
Generation X. Born between 1965 and 1977, they are concerned with value, they favor quick-service restaurants and midscale operations that offer all-you-can-eat salad bars and buffets. Offer a comfortable atmosphere focusing on value and ambience.
Baby boomers. Born between 1946 and 1964, boomers make up the largest segment of the U.S. population. Many can afford to visit upscale restaurants and spend money freely. Many are becoming grandparents. Offer them a family-friendly atmosphere and/or provide an upscale, formal dining experience.
Empty nesters. Early 50s to about age 64, typically have grown children who no longer live at home. They continue to increase as boomers grow older and their children leave home. With the most discretionary income and the highest per-capita income of all, they typically visit upscale restaurants. They focus on excellent service and outstanding food, they like elegant surroundings and a sophisticated ambience.
Age 65 and older, often on fixed incomes they tend to visit family-style restaurants that offer good service and reasonable prices. They typically appreciate restaurants that offer early-bird specials and senior menus with lower prices and smaller portions.
Marketing Plan – concentrate on local area
Generally lunch requires at least 10,000 potential customers within a radius of 1 mile
Generally dinner requires at least 60000 potential customers within a radius of 3 miles
Loyalty programs with significant rewards
Churches (ads in directory)
Schools (fund raisers – PTO/PTA)
National Restaurant Association (NRA) for additional information see website
Inserts in local papers
Co-op marketing with non-competing businesses
Personal contacts with hotel concierges, car dealerships, large employers
Grand opening campaign / specials
Location, Location, Location
Choosing the right location for your business is important. Considerations include the needs of your business, where your customers and competitors are, and such things as taxes, zoning restrictions, noise and the environment.
The better the location, the fewer marketing funds you have to spend. Your restaurant should be highly visible and located in an area with a large number of customers you’re trying to attract – don’t forget to include availability of easy parking. Don’t make the mistake of leasing a location before you’ve got a solid business model. Don’t sign a lease until the concept and business plan is complete and you’ve reviewed it with a SCORE counselor and an attorney.
Note that not every food-service operation needs to be in a retail location, but for those that do depend on retail traffic, here are some factors to consider when deciding on a location:
Anticipated sales volume. How will the location and seasonality contribute to your sales volume?
Visibility, Signage, Accessibility to potential customers. How easy it will be for customers to find you, to get into your business. If you are relying on strong pedestrian traffic, will nearby businesses will generate foot traffic for you?
The rent-paying capacity of your business. Do a sales-and-profit projection for your first year of operation? Use that information to decide how much rent you can afford to pay.
Zoning, Restrictive ordinances. You may encounter unusually restrictive ordinances that make an otherwise strong site less than ideal, such as limitations on the hours of the day that trucks can legally load or unload.
Traffic density. Carefully exam of foot traffic. Two factors are especially important in this analysis: total pedestrian traffic during business hours and the percentage of it that is likely to patronize your food service business. Estimate sales potential based on pedestrians passing a given location.
Customer parking facilities. The site should provide convenient, adequate parking and lighting as well as easy access for customers.
Proximity to other businesses. Neighboring businesses may influence your store’s volume, and their presence can work for you or against you.
History of the site. Find out the recent history of each site under consideration before you make a final selection. Who were the previous tenants, and why are they no longer there?
Terms of the lease. Be sure you understand all the details of the lease, because it’s possible that an excellent site may have unacceptable leasing terms. Be sure to negotiate a tenant improvement allowance for build out costs. Caveat CAM (common area maintenance costs).
Future development. Check with the local planning board to see if anything is planned for the future that could affect your business, such as additional buildings nearby or road construction.