When I receive emails asking the age old question, “Ho much money do I need to get into the restaurant business?” I always look back at my first venture when I ran out of money to finish the bar in the front dining room. Then I pan over to the memories of my second venture when I could only open the small dining room, the Bistro, because I couldn’t afford to remove the eight foot mountain of construction debris which was cluttering the center of the main dining room.
How much money should you have? As much as you can raise, save, or borrow to launch the project on stable financial ground.
Yet, I seldom have met a restaurateur — especially a first timer — who has combined adequate capitalization with a plan for success. Usually, we as a group are more apt to begin a project and hope all goes smoothly enough to allow us the opportunity to entice more capital from friends, family and fools or to stay close enough to budget to have a smidgen of cash left to put in the first vendor order and open the doors.
This is like playing sudden death and expecting to win. The odds of making it in the business without substantial capitalization are almost impossible on any grand scale. Of course you can open a small, out of the way restaurant with limited funds and have a very full time job. And although the glamour of this adventure brings visions of stardom, freedom and celebrity to mind don not be fooled by those pictures. Most restaurants close because there isn’t enough money left for the owner’s at the end of the week and working twenty hour days, without pay, is foolishness.
When I received the last email asking the questions, the future restaurant owner was excited because the landlord was willing to give free rent for one year to the novice culinarian.
That is a sure sign for future disaster. I have only had one “free rent for a year” deal and it was a disaster that almost cost me everything I owned. The second floor space was almost non rentable by any marketing standards. The massive double wide brick stairway that lead to the hidden doorway sent a definite message of “good heart needed to get to the top.” By I didn’t care. The excitement of leasing a space that a previous restaurateur had remodeled to the tune of one million dollars prompted me to sign anything. I certainly didn’t weigh the fact that if someone had spent a million bucks on a space and couldn’t attract people, why should I be able to?
Yet, the landlord, and the real estate broker put enough flavorful spin on the deal that I couldn’t resist. After spending over a quarter of a million dollars on another cosmetic remodel- and being forced to use the landlord’s construction company, I opened my doors. But only for 18 months.
Not only was I undercapitalized but the “free rent” had run out and the rent increase from “free” to “current” was unbelievable and unrealistic.
Nothing is free, rent included. And, in order to open you need adequate capital, a budget to adhere to, and a plan for at least one year. When those are solid you have a chance of making it.
Without them you are gazing into a dream that can turn into a nightmare as soon as your capital evaporates.