Piece of Cake?

The reality of opening a restaurant might not be what you expect.
Magazine Contributor
3 min read

This story appears in the May 1998 issue of Entrepreneur. Subscribe »

Do you want to open a restaurant? According to the National Restaurant Association, more than 37 percent of all adults have worked in the restaurant industry at some time in their lives. Unfortunately for entrepreneurs, this seemingly widespread familiarity with the industry doesn't always translate into successful restaurant ownership. Phyllis Ann Marshall, president of FoodPower, a national restaurant industry consulting firm in Costa Mesa, California, answers some important questions to help prospective restaurateurs get started on the right track.

What is the most common cause of new-restaurant failures?

Most new restaurants fail because of insufficient start-up capital. "You need enough capital to see the operation through the first year if it makes no profit," explains Marshall. After building the restaurant site, entrepreneurs should make sure they have enough money left for menu development, personnel training, merchandising, marketing and unforeseen developments.

How do I define the market for my restaurant?

Try to identify the specific demographic groups your restaurant concept will attract. "Generally, entrepreneurs build a restaurant around the food, décor and prices they like and target it to their age group and lifestyle," explains Marshall. Instead, consider consumers' lifestyles, dining patterns, ages, income levels, ethnicities, family status, tourism trends and even driving patterns when developing a market profile.

How important is location; what should I consider when choosing a site?

"Location is vital. The better the location, the fewer marketing dollars you have to spend," says Marshall. Your restaurant should be highly visible and located in an area with a large number of the customers you're trying to attract. Don't make the mistake of leasing a location before you've got a solid strategy. "Lease last," warns Marshall. "Never sign a lease until the concept and the business plan are complete."

Once the restaurant is open, I won't have to be there every day, right?

Wrong. Says Marshall, "Entrepreneurs starting out are going to be involved in every detail of the business, working weekends, nights and holidays."

What obstacles am I likely to encounter in my first year of restaurant ownership?

You may encounter a lower sales volume than projected, due either to fewer people coming in or patrons spending less money than expected. "Entrepreneurs thinking about going into the restaurant business seem to have the idea that they can just build it, open the doors and people will come," says Marshall. Increased marketing in the restaurant's immediate vicinity often cures weak initial sales volume, she adds.

Being unprepared to deal with daily and weekly accounting responsibilities is another common first-year challenge, but learning to manage and interpret numbers will help.

New restaurateurs expecting a year of grand-opening festivities and fun are in for a big surprise. Says Marshall, "Just keeping the thing operating is the first-year challenge."

Contact Sources

FoodPower, foodpower@foodpower.com, http://www.foodpower.com

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