Biz Flash: What to Know Before Starting a Restaurant
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“My advice to someone starting a restaurant is don’t be afraid to fail. Failing is okay. And it will give you lessons on how to do better next time. Most people don’t start because they’re afraid that it won’t work out.”
Sara Willis, Restaurateur
Starting a restaurant is no small feat. According to the National Restaurant Association, 60 percent of restaurants fail within their first year, and 80 percent fail within five years.
Even with those statistics, thousands of new restaurants open each year. Restaurant entrepreneurs invest immense hard work, dedication, and planning to get their restaurants off the ground. From finding the perfect location to securing financing and hiring staff, many steps are involved in launching and running a successful restaurant.
The restaurant industry can be very lucrative and has seen steady growth year over year. According to Fortune Business Insights, the global foodservice market is projected to grow from $2,540.05 billion in 2022 to $5,194.60 billion by 2029. This growth can be attributed to various factors, such as introducing new technologies and strategies that help restaurants increase their revenue and sales. While many factors contribute to a restaurant’s success or failure, having a clear understanding of the business and what it takes to make it successful is essential for any aspiring restaurateur.
Extensive work and research before opening a restaurant are critical: “The more you know about your own business, the better chance you have for success. If you’re unwilling to do that, don’t open a restaurant because it is so rough,” cautions serial restauranteur, Sara Willis. It is important to ensure that there are sufficient margins to ensure all bills can be paid. “I have opened a restaurant where the numbers didn’t pan out ahead of time, and I failed. No amount of ‘Okay, we’ll make it work’ will make it succeed if the numbers aren’t there,” she says.
Keep reading to discover Willis’ top advice for being a successful restaurateur.
Meet the Expert: Sara Willis
Sara Willis is a successful entrepreneur and restaurateur who has managed multiple restaurants over the past three decades. She got into the business world at a very young age, starting her first business when she was only 21, doing delivery food service, which she managed to get off the ground despite numerous challenges.
From there, she went on to open two food booths in Santa Cruz before venturing into the restaurant business. She realized that liquor license costs in California were high and would make it difficult for her to open her restaurant there, so she decided to move to Mexico, where she could start her first restaurant, Fandango. After a few years in Mexico, she received a call from an old friend who informed her of a turnkey operation for a restaurant in Eugene, Oregon. She then opened Red Agave, followed by El Vaquero, Asado, and Carmelita Spats.
Despite the success of her restaurants, Willis has faced several challenges, including financial difficulties and landlord disagreements. She was forced to close Carmelitas in late 2018, a move she was unprepared for. For a few years after Carmelitas, she successfully ran Saucefly, a small restaurant, storefront, and online retailer that sold a subscription service where members receive a box of goods each month. Currently, she is working on a new project in south Eugene which she hopes will bring together her years of experience and wisdom in the restaurant industry.
Run The Numbers First
As with any business, starting a restaurant needs to make fiscal sense. Many aspiring entrepreneurs open a restaurant because they are infatuated with the idea. However, it is essential to treat a restaurant like any other business, craft a complete business plan with expenses and estimated income, and then stick to the plan.
“I was helping a friend who opened a restaurant in Springfield, Oregon. He was a bartender, so he liked the business, but he didn’t really understand it. He just thought, ‘I’m gonna open a restaurant.’ It’s such a recipe for failure,” explains Willis. “He took out a loan for $200,000 to build a kitchen that someone selling restaurant equipment told him he should build, having never opened the restaurant before. How many years of between 3 to 5 percent profits on his gross sales will it take him to pay back just his kitchen?”
Estimates and expenses on a spreadsheet can help aspiring restauranteurs make realistic decisions about moving forward or not: “Don’t force the situation that is not meant to be. If you think you have to have that lease, if it doesn’t pencil out, don’t do it. Don’t get into a situation where you want it so bad you do it anyway. Stick to your guns. Know your business. If it doesn’t math, pass on it,” encourages Willis.
When starting a business, it can be tempting to take out large loans or investments with the promise of returns in the future. Unfortunately, starting in significant debt can end a restaurant before it even opens: “You can’t be irresponsible financially and take people’s money when you can’t pay them back, or you haven’t planned out your business correctly,” says Willis. “This was one of my biggest failures and how I lost El Vaquero. Once you can’t pay your payroll taxes, bills, and debts for more than a couple of months in a row, it’s time to say goodbye because the margins and restaurants are so low that you can’t dig yourself out.’
One way to stay on top of new restaurant finances is to do it yourself. “Understand QuickBooks, even if you have an accountant. You should be going in there and bringing your books up to date yourself, if not daily, then weekly. You may have to pay someone to clean up what you might have put in the wrong place, but it’s important to see exactly what’s going on with your finances so that you know where you are,” advises Willis.
As much as they can, new restaurant owners should operate their restaurants on a cash basis, which means not taking lines of credit: “I don’t recommend a 30-day credit from vendors when you’re first starting because you’re down to the wire, and we don’t have a lot of extra cash. As quickly as possible, always pay on delivery. Invoices, whether from your fishmonger or your drivers, stack up so fast. If you have a couple of off months and you can be $100,000 in debt just from purveyors. It’s very hard to get out from under that,” she says.
“What I tell people is to be as scrappy as you can. Get used restaurant equipment because oftentimes better than new. Be creative and figure things out in a way that does not put you in a position of opening with you a lot of debt that acts as a drowning anchor,” she encourages.
Consider a Partnership
Opening a restaurant can be a lonely endeavor, so Willis recommends doing it with a partner: “It’s great if you have a partner that can handle different things than you do. My partner Katie and I worked really well, with one of us being at the front of the house and the other at the back of the house. We each had our area of expertise,” shares Willis. “Also, it allows you to take a break. The hours and days at the begging are so long that you want to be able to take a break and not have everything fall apart. Even if you have a financial partner that agrees to work a set number of days, that allows you to get a bit of a mental break.”
She adds, “I think partnerships are ideal because you can’t afford to pay someone enough money that they care about the same details that you or your partner do as owners.”
Pay Attention to the Details
Over the years, Willis has learned that she can determine if a restaurant will succeed or fail by examining one small detail: “I can walk into a restaurant and determine if this place will fail because of the chairs. I’ve experienced it so many times. Ultimately, it’s not just the chairs, but that’s a place to tell you haven’t thought through the small things. If you are doing all of this stuff for your customers and want them to have a great experience, but they’re sitting on $25 metal chairs with tiny uncomfortable backs or nowhere to put their feet, it leaves a bad impression. Spend money on good chairs,” she advises.
She continues, “When I opened Red Agave, I bought captain chairs from an auction that were from a country club from the 1940s. Each chair weighed close to 40 pounds. When we opened, of course, everybody loved the food, but the cozy chair made a big impact. Customers would come, sit down, and immediately be comfortable. A comfortable setting makes customers feel like they wanted to be there. This is especially true with fine dining, where you want people to spend money on wine, and you stay for a long meal.”
Know When to Negotiate
One thing Willis has learned from opening many restaurants is more things can be negotiated than you may initially assume: “Figure out how to get what you need for the best price. Shop around,” she encourages. “People don’t realize things like linens and dishwasher leases are negotiable. Often you can get locked into new contracts because when you sign up for these things, the sales people give you the absolute highest price they possibly can. If you agree, you’re locked into that price under contract. But it’s a very competitive market, and you can get those prices down.”
Another place where negotiating early on can make a significant impact is when signing a lease. Commercial leases for restaurants are different from residential leases: “When you’re negotiating a lease, you understand and consider triple net because it varies greatly,” Willis warns. Simply put, “triple net” means the tenant—not the landlord—is responsible for expenses on the property: “You pay a portion of the property manager cost, any maintenance done, any repairs, and the insurance. Almost every commercial lease is triple net, and it’s very rarely understood before your first lease.”