FoodableTV

Hidden Restaurant Start-Up Costs; How to Prepare for the Unexpected

Originally Posted on FoodableTV – By Doug Radkey 08/22/2016

If you’ve always dreamed about starting your own restaurant, it’s imperative that you understand expenses. Even with thorough research and planning, an unexpected or slight oversight could happen, resulting in costs being added to your ever-expanding, start-up budget.

One of the many headaches aspiring restaurateurs face is the simple fact of running out of money before the restaurant opens. There are obvious expenses when starting a restaurant, however, you can’t ignore the often hidden costs that arise — ones that could total well over $20,000-$50,000.

Here are some hidden start-up costs you should address while you’re in your planning stages.

Permits and Licenses.

Make sure you receive the full list of permits that your local municipality requires for starting a restaurant. Unfortunately, like everything in life, many of these are not free. Visit your city clerks office to receive the entire list, their associated fees, and timeline for approval.

These include business licenses, overall building permits, zoning adjustments, occupancy certificates, electrical and plumbing permits, outdoor signage permits, health and safety inspection certificates, liquor licenses, and others. Each municipality, province/state, and federal government will be different, so ensure you receive the correct information for your specific location.

Next, one of the most often overlooked costs is the design approval from an engineer, even if you’re doing fairly simple renovations. Ensure a certified engineer (an additional cost) reviews and approves that your plumbing, electrical, and hood/fire suppression system will efficiently work and meet local codes.

The last license that 9 out of 10 startups overlook is music. Without a music license, you simply cannot play music in your restaurant or bar, even if you purchased a CD album or legally downloaded the song.

In Canada, you can receive your license through SOCAN and in the United States, you can receive your license through ASCAP.

Hood, Ventilation, Fire Suppression, and Washrooms.

Whether you’re planning to take over an existing restaurant space or build up from an empty shell, ensure you have budgeted for inspection, repair, and/or installation of these four costly areas.

You also need to confirm the number of washroom stalls your facility needs based on size and capacity, the correct air-flow calculations, and size of hood + suppression system.

Prior to signing your lease, have an experienced contractor or engineer walk through the space with you, making you aware of any further potential costs.

Hidden Deposits

Starting your first restaurant will result in the need to leave plenty of deposits, which are often an oversight when developing a budget. For all of your major utilities, prepare to pay a deposit for setting up a hydro, gas, and water account; for example. A majority of insurance providers, realtors, and accountants will also have an account ‘set-up fee’ or required deposit.

When taking over an existing space, ensure you receive confirmation that there are no longer any outstanding utility bills (debts) on the property from the previous tenants or any claims against the property with your provincial/state liquor control board that could result in surprise costs down the road.

Freight/Shipping

Unless you are planning on picking up the kitchen and bar equipment, tables, and chairs yourself, prepare to pay for freight/shipping costs. When completing your budget for equipment, don’t just add up the basic equipment costs and taxes. Consider how it will be delivered to your restaurant, as well – something can cost well over $1,000.

Training Costs

Simply estimating this cost will often result in inadequate training. It’s best practice to complete a mock training schedule during your planning and budgeting phase to determine staff training costs.

You also want to include food and beverage costs for training. Whatever the budget is, add one more week’s worth in case your training needs to be extended.

Credit Card Processing Fees

When completing your budget and operational forecast, don’t overlook the credit card processing fees which often range between 1.5 to 3 percent of the transaction. Know your target customer and average transaction in order to budget accordingly. Don’t be afraid to receive quotes from different merchant vendors to receive the best rate and service possible.

Clean Up Costs

When the interior renovations are completed at your restaurant, it’s ideal to have it professionally deep-cleaned before getting started with your training and soft opening. This may seem odd since everything is new, but there is a lot of dust and other particles that will land on your new walls, light fixtures, furniture, windows, and your new flooring. This will often set back a startup approximately $1,200-$2,000, depending on the size of establishment. If you’re lucky however, this may be included in your contractors list of services.

Operating Capital. 

You don’t want to open your restaurant with no money in the bank. This is setting yourself up for early failure. It’s ideal to have a minimum of 1-3 month’s worth of operating expenses for opening day capital.

You also want to budget for a possible extension in renovation time, in case anything during the start-up phase is delayed; for example any permits, approvals, deliveries, or unexpected structural problems.

Include expenses such as lease payment, utilities, loan payment, insurance, and any other administration costs into this budget.

Don’t allow your dream to become a nightmare before you even open.

Complete your feasibility study, concept development plan, and overall business plan with accurate financial projections and budgets. Review these numbers with industry experts or an accountant to feel confident and be prepared for the unexpected!

7 Tips on Pitching Your Restaurant Concept to Investors

Originally Posted on FoodableTV – By Doug Radkey 08/09/2016

You’ve developed your restaurant concept plan, you’ve completed a feasibility study, and you’ve written a pretty solid business plan. Or maybe you’ve been successfully operating a restaurant for years and are looking to expand. Fantastic! But now what?

Due to the high level of risk for independent restaurant related start-ups, the traditional bank loan is never an easy option. A majority of food service start-up or growth projects need an investor or business partner with the financial means to assist an aspiring restaurateur through the development stages.

However, you cannot approach an investor or potential partner without being prepared with factual research, a strategic forecast, and an execution plan. Investors are looking for opportunities that present scalability, profitability, consistency, and sustainability-related characteristics.

Here are a few tips to assist you through your first pitch!

No. 1 Perfect Timing. 

The first thing to keep in mind when pitching to an investor is their time. They will likely not want to read through the 100+ pages of feasibility, concept, and business planning content you’ve accumulated.

You need to first develop a “pitch deck,” a 10-15 page document (print and/or slideshow) that showcases the most relevant and important data from those plans. These points should quickly attract the investors attention, further exciting them and engaging them in key points of conversation.

No. 2 Being Prepared. 

Delivering a winning presentation starts with practice. Create a series of “pitch tests” to speak in front of friends, family, and other business or restaurant industry acquaintances. Adjust your timing, look for questions the investors may ask, and receive feedback on your presentation style (voice level, eye contact, posture, and more).

You can also watch episodes of “Shark Tank,” “Restaurant Startup,” or other investor-related shows and look at the questions they ask of the pitchers. Formulate a list of frequently asked questions and ensure you know the answers to them for your restaurant…quickly!

No. 3 Being Passionate.

As much as you’re selling the restaurant concept and explaining the gap it will fill within the market, you are also selling yourself. This is the opportunity to tell your story — a great way to start your presentation. Show your passion for food, beverage, hospitality, and general business.

Quickly highlight your education and industry experience. Why do you want to open or grow this restaurant? What makes you the best fit for this concept? Why did you choose that specific name? If there is a story, tell it!

 No. 4 Simple & Memorable. 

Include only key points within your pitch deck while using photos, graphs, and even quick video clips if it’s a digital presentation to help visualize and explain. Use investor and industry-related keywords while also leveraging any current food and beverage industry related trends.

If possible and safe to do so, have a small sample of your proposed and unique food or beverage offerings for the investor(s). This will help drive your value proposition points while indicating to the investor an element of your secret to success.

No. 5 Strategic Content. 

Keeping it simplified, along with it being approximately 30 minutes in length, will force you to concentrate on the most important points. Ensure that you identify the following:

• The gap within and size of the market
• How you will deliver a solution to the market
• Your secret(s) to restaurant success
• The overall concept and revenue model
• Your unique F&B menu options
• The summary of your marketing plan
• The current competitive landscape
• The structure of the management team
• Your projected key performance indicators
• Start-up or development costs plus exit strategies

For each key point, formulate three levels of time for discussion. Each point should be delivered or described in 5 seconds. However, you should be prepared to explain the point in detail over the course of 30 seconds and also 90 seconds if the investor would like to discuss it further.

No. 6 The Numbers.

Ensure you know your numbers. Know your market size, ideal customer counts, break-even points, seasonal fluctuation, total square footage needed, total kitchen size, detailed start-up costs, value of assets, interest rates, return on investment, food costs, labour costs, and the list goes on.

Yes, it’s hard to memorize all of this data. Most investors will not penalize you for having a ‘cheat sheet’ with all of the summarized data points for yourself. Include the most important ones within your pitch deck.

No. 7 No Guarantee. 

Nothing in life is ever guaranteed. If your pitch fails, don’t be discouraged. Note areas of concern for the investors, learn from any lessons during the presentation, and adjust your pitch for the next one. Look for other investors, visit local start-up incubators, attend industry-related trade shows, and build your network within the industry.

First impressions count, but good things also come to those that work towards a second opportunity!

Strategies to Save Time & Money During Start-Up

Originally Posted on FoodableTV – By Doug Radkey 07/12/2016

Going through the motions of starting your first restaurant requires an incredible amount of time and financial management.  Discovering opportunities to save on both will effectively result in less stress and a generous opening day budget.

Effective Planning

Before officially getting ‘started’, ensure that you complete a feasibility study, concept development plan, and business development plan. Although developing these can be time consuming (approximately 30-45 days, sometimes more) it will allow you and your potential investor to avoid financial pitfalls.

Feasibility study | This study informs you whether to move forward with your dream restaurant / bar or if you should re-evaluate your idea to fit and support the specific market space and start-up budget.

Concept development | This plan gives your proposed venue an identity with visual design components and a list of potential suppliers and contractors that can execute your vision in addition to the framework for your menu and the equipment that’s going to be required.

Business development | Outlines your action plan; including the details of your restaurant, the permits you will need, the time-frame for completion, operational strategies, marketing strategies, and the venues overall budget and financial projections for the next 3-5 years.

Saving Time

During start-up you want to save time, but you don’t want to cut corners or take uneducated shortcuts leading to future complications. Utilize and trust your developed plans and any expert advice.

Supporting Cast | First and foremost, don’t try to do everything yourself. Whether you’re building a small bistro or a large full-service 150 seat restaurant, you want to build a supporting cast and delegate tasks based on each individual’s strengths and weaknesses. 

Pro Tip: Work with someone who has ‘been there, done that’ in terms of starting a restaurant, for example a consultant, development agency, or close friend to be used as a mentor.

Checklists | Complete a start-up milestone checklist with S.M.A.R.T time-frames for completion, in addition to listing who is responsible, and the budget for each task. 

Pro Tip:  Hold weekly meetings and consider using an online project management dashboard to promote effective communication and organization within your start-up team.

Saving Money

Money management during start-up is vital. Numerous start-up restaurants overspend during this stage leading to a delay in opening, zero to minimal funds for marketing & advertising, minimal funds for training (paying) staff, or a combination of the three.

Hire an Accountant | Prior to signing a lease or hiring a contractor, build a relationship with a trusted accountant. This is your opportunity to stay on-top of budgets and control your spending.  

Pro Tip: Hold weekly meetings with your accountant to review, adjust, and then communicate the financial status with the entire start-up team.

Lease negotiations | First, always review your lease with a lawyer. Look for additional concessions, for example:  ‘free rent’ opportunities (for renovation period + first operating month), lease transfer opportunities (in case the restaurant fails), and negotiate other property maintenance & fixture costs (ex. air ventilation systems).  

Pro Tip: When seeking a new location, ensure it is feasible to be zoned for food service operations prior to signing.

Permits & licenses | Receive all of your permits and city requirements by visiting your municipal clerks’ office. Review federal, regional, and municipal requirements for operating a commercial food service business. Receiving a surprise infraction two weeks prior to opening can be costly and detrimental to your start-up. Receive each permit’s time-frame for approval, its initial fees, and any ongoing or future fees. 

Pro Tip: Work with a trusted architect who understands commercial food service requirements and building codes to complete drawings that will be quickly approved by your municipality.

Contractors & vendors | Ask nearly all experienced restaurateurs and most will say their largest headache was contractors. The most ideal situation is to hire an experienced general contractor that will lead a team of plumbers, electricians, mill-workers, HVAC professionals, and fire safety specialists through the project while managing the renovation budget. The best practice is to receive 2-3 or more quotes based on a specific and similar ‘job scope’ while measuring their level of experience, value, references, and overall cost. 

Pro Tip: Though you’re likely on a tight budget, don’t always go with the least expensive option. Sometimes, it will lead to higher costs or project delays later on.

Kitchen & Bar Equipment | A key tip to remember is that not all of your equipment needs to be brand new. Consider used prep tables, deep fryers, and lightly used refrigeration & freezer units. Depending on your start-up budget, consider equipment leasing opportunities versus purchasing upfront. There are pros and cons to this strategy in terms of assets, depreciation, and tax write-offs so it is best to work with your accountant. 

Pro Tip: Ensure your menu concept is developed and a chef is part of the kitchen & bar development process to ensure maximum efficiency in terms of food & beverage production.

Menu Development |  Customers today are seeking smaller menus; ensure that you engineer a small menu with re-purposed raw ingredients;  leading to less waste, easier training, and reduced start-up inventory costs. 

Pro Tip: Discuss payment terms with your food & beverage suppliers and don’t be afraid to ask for samples to reduce start-up training costs.

HR Management | Refrain from hiring your entire kitchen and front-of-house team until you have a very clear start date. This is likely 3-5 weeks prior, allowing for effective training, and for administrative tasks to be completed. Hiring your team too early will lead to increased administrative costs and time in potentially needing to re-hire. 

Pro Tip: Holding a job fair not only assists in time management, but if you execute it in an organized manner, it also works as a marketing tool to develop community awareness for your new restaurant.

POS Systems | Ensure you set aside a budget for a point-of-sale system prior to opening. It is surprising how often this is overlooked. 

Pro Tip: Look for speed and user friendliness plus a detailed revenue, staffing, & inventory report system that provides customer service support and no hidden costs for future POS updates.

Effectively using this list will undoubtedly save you and your start-up team hundreds of hours and thousands of dollars in unexpected costs; leading to a larger and speedier return on investment.