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You Are What They Eat A how-to for the budding restaurateur

By Jacquelyn Lynn

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The numbers add up to a tremendous opportunity: Every week,Americans consume an average of 4.2 meals that are prepared awayfrom home--that's 218 meals per year and increasing. By 2010,the restaurant industry will operate more than 1 million units,with sales of $577 billion capturing 53 percent of the consumerfood dollar. Will one or more of those units be yours? It canhappen--if you have the right recipe for restaurant success.

Most baby boomers can easily remember when "going out toeat" was a special event; today, restaurant meals are anintegral part of our everyday lives. Whether we're grabbing asandwich on the run, sitting down to a leisurely gourmet dinner ata five-star establishment or enjoying one of the many choices inbetween, we're eating out more than ever--and the trend isexpected to continue. There's never been a better time to opena restaurant.

Experienced restaurateurs say that this is definitely a businesswhere you can make a lot of money quickly--but you can lose it evenfaster if you don't have three key ingredients: industryexperience, adequate capital and a thorough knowledge of the marketyou're serving.

Start With a Job

Successful restaurateurs agree that the best preparation forowning a restaurant is to work in someone else's first. Thinkof it as getting paid to be educated. "You'll learn a lotabout things you never thought about," says industry expertRich Melman, chair of Lettuce Entertain You Enterprises Inc., aChicago-based company that owns, manages and consults withrestaurants throughout the country. "There are hundreds oflittle things, each not being of great consequence as a singleissue, but of big consequence when you put them together."

Certainly you should read books and take courses, but plan towork in a restaurant for at least a couple of years doing as manydifferent jobs as possible. And if you're not actually doingthe job, pay attention to the person who is--you may find yourselfdoing it when your own restaurant is unexpectedly shorthanded."I've had to cook when I've had chef problems,"says LaVerna Gilbert, 42, co-owner and general manager of Shelly'sCourthouse Bistro in Santa Ana, California.

"With experience will come the knowledge that you know whatyou want to do," says Melman. "Are you certain you'regoing to love it, or is it going to wear off? It's your lovefor what you're doing that pulls you through difficulttimes." Ideally, work in a restaurant similar to the type youwant to open. You may find you don't like the business. Or youmay find you're more suited to a different type of operationthan you originally thought. You might even discover you're inexactly the right place.

"As I started working in restaurants, I realized this wasmy passion," says Scott Redler, co-owner and founder ofTimberline Steakhouse & Grill in Wichita, Kansas.Redler, 42, got his first restaurant job at 15, opened a Chinesefast food restaurant at 26 that failed in eight months, and now hasfive successful steakhouses. He also opened two Freddy's FrozenCustard restaurants. "When you have a busy restaurant andyou're watching everything happen as it should," he says,"it's a wonderful feeling of satisfaction."

"Everyone likes the idea of owning a restaurant, butit's easier to invest money than it is to work it," saysGilbert. Her advice: If you don't like the work but you stillwant to own a restaurant, find a good operator to partner with.

Decision Time & Putting the Plan Into Action

Armed with practical experience, you're ready to decide whatyou want to do and put together your business plan--the mostcritical element of your restaurant. Map everything out on paperbefore you buy the first spoon or crack the first egg. Melman says80 percent of what makes your restaurant a success will take placebefore you ever open the doors.

Your business plan should include: a clear definition of yourconcept; a description of your market; menu and pricing; detailedfinancial information, including start-up capital (amount andsources) and long-term income and expense forecasts; a marketingplan; employee hiring, training and retention programs; and plansto deal with challenges restaurateurs face every day. Bill Ellison,30, and Frank Perez, 31, co-own and operate Frasier's, a sportsbar in Apopka, Florida. Ellison recommends including an exitstrategy. "Know how you'll get out if things go bad, aswell as how you'll get out if things are going good," hesays.

Be thorough, but don't write your plan in concrete."You have to go into it being flexible," Ellison says."Don't say 'This is what I have to offer; take it orleave it.' Open with an idea, then evolve to what the customerswant."

Putting the Plan Into Action

Once you've decided on the concept and market, beginscouting for a location. Issues to consider when choosing where toput your restaurant:

  • Area demographics: Do the people who live and work inthe vicinity fit the profile of your target market?
  • Traffic: Consider foot and vehicle traffic. How manypedestrians and cars go by daily? How accessible is the location topassers-by?
  • Parking: Is the parking adequate, convenient andsafe?
  • Nearby businesses and other elements: What's aroundthe location, and how might it affect your operation?
  • Future development: Check with the local planning boardto see if anything, such as additional buildings or roadconstruction, is in the works.

If you're considering a location that has been the site ofanother restaurant, study its history so you know why the previousoperation failed--and be sure it's something you canovercome.

The Franchise Option

A viable alternative to starting a restaurant from scratch isbuying a franchise. There are a variety of options in thefood-service category, from fast-food operations and ice creamshops to fine-dining restaurants and everything in between.

The benefits of a franchise include a proven format, marketingand operations support, and at least some degree of namerecognition. But if you have your own ideas for the concept ormenu, you may find a franchise too restrictive.

Franchise consultant Gene Getchell says the most important thingto look for when considering a restaurant franchise is that theconcept is new and unique. "Look for quality and creativity,something that stands out, that's not a 'me,too,'" he says.

The unique element may be the food, the building or thepresentation--whatever it is, it needs to be different enough tofill a gap in the market and attract the consumer.

For a winning restaurant franchise, Getchell recommends that thefranchisor:

  • Have a proven track record of success
  • Demonstrate financial stability
  • Have a clear expansion strategy
  • Be very selective about who can purchase a franchise
  • Not put any pressure on you to make a fast decision

It's the Food, Got Money? & Follow the Rules

Service, ambience, management--it's all important, but mostrestaurants are known by their menus. Create a menu that ismemorable and appropriate to your concept and to your market.Frasier's menu includes items from similar establishments aswell as unique dishes. "Every restaurant should have signatureitems," Ellison says.

Setting prices can be a mathematical challenge. To calculateprices, consider your food costs, labor (for preparation andserving), overhead and profit. Survey other restaurants to get asense of what price levels the market will support. If a dishisn't both delicious and profitable, take it off the menu.

Got Money?

A thorough plan should show how much money you'll need toopen your restaurant--building, furniture, fixtures, equipment,inventory, liquor license and working capital. With that figure inmind, look at your financial resources. If you don't have orcan't raise enough, scale the number back.

Redler says raising the money wasn't as difficult as hethought it would be. The key is to demonstrate to investors thatyou have a solid plan and the experience to implement it. Also, youmust be willing to significantly risk your own funds. When Redleropened his first Timberline, he contributed $24,000 of his ownmoney and walked away from a high-paying corporate position.Because he was willing to risk so much, his backers felt confidenttaking a chance with him.

Follow the Rules

Though we don't think of food service as a heavily regulatedindustry as we do medical services or public utilities, the realityis that many aspects of your operation are strictly regulated andsubject to inspection. Fail to meet regulations, and you could besubject to fines or get shut down by authorities. And if violationsinvolve tainted food, you could be responsible for illness and evendeath. Issues such as sanitation and fire safety are critical. Youmust provide a safe environment in which your employees can workand your guests can dine, follow the laws of your state on sales ofalcohol and tobacco products, and handle tax issues, includingsales, beverage, payroll and more.

Most regulatory agencies will work with new operators to letthem know what they must do to meet the necessary legalrequirements. Your state's general information office candirect you to all the agencies you'll need to be concernedwith.

Get the Word Out & More Than a Good Meal

Once people try your restaurant, you know they'll come back.But how do you get them in the door?

Most small, independent operations can't afford a splashymedia campaign. "You'd have to sell a lot of burgers andwings to make up for the cost of radio and TV ads," saysEllison. "We did a grand opening with free beer and wings justto get people in here. We went door-to-door, passing out fliers.The rest of it has been word-of-mouth." Ellison'sexperience as a manager has also helped; customers of the placewhere he worked have followed him to his own restaurant.

Ellison stays away from coupons. "The people you get withcoupons are people who only come in when they have a coupon,"he says. "If people are taking dollars off your meals,you're charging too much to begin with. Instead, give peoplegood food at a good price and good service, and word-of-mouth willtravel."

"The best marketing you can do is have an owner-operator onthe floor of a restaurant," says Redler. Display your businesscard at the host stand or near the register. When you personallygreet guests, let them know you're the owner and that you wantto be sure their experience is positive because you want them tocome back.

When planning your marketing, consider what's going on inthe community. "Look beyond your front door," advisesLarry Schuler, 42, who owns Schuler's Restaurant, a fine-diningestablishment in Stevensville, and Schu's Grill & Bar inSt. Joseph, Michigan. Evaluate the things that can affect yourbusiness both short- and long-term, he says. If there's aconvention in town, will your volume increase? How will local ortelevised sporting events affect your operation? Pay attention, andyou'll manage more efficiently and profitably.

More Than a Good Meal

Even in its simplest form, Melman says, the restaurant businessis sophisticated. It takes knowledge, experience and hard work."Sometimes, you have to be a little lucky," he adds.

"Don't try to do everything yourself," Gilbertadvises. "Surround yourself with good people." Inparticular, she adds, make sure you have someone to stay on top ofthe paperwork.

Schuler advises joining your state restaurant association andthe National Restaurant Association, along with local businessnetworking groups. Take advantage of the information resources youhave. For example, most credit card companies will provide you withdetailed demographic reports on your customers who use thosecards.

Once you're up and running, listen to your customers.They'll not only tell you what they want to see on your menu,but will also give you clues about the business climate of yourcommunity and how restaurants need to change to meet evolvinglifestyles. After all, says Schuler, "Successful restaurateurslisten to the customer, evaluate their needs and figure out wherethat will take them in the next eight to 10 years."

The Human Factor

People are a critical component of the restaurant business. Notonly is the operation itself labor-intensive but guests willremember--and talk about--poor service long after they'veforgotten how good the food was. Managing your human resources mustbe a top priority. "I tell employees we work for them--theydon't work for us," says Bill Ellison of Frasier's."It's our responsibility to make sure they have thetraining, the equipment, the food and beverage to get their jobdone."

Here are some tips to help you find and keep great people:

  • Hire right. Take the time to thoroughly screenapplicants. Be sure they understand what you expect of them. Dobackground checks. If you can't do this yourself, contract witha human resources consultant to do it for you on an as-neededbasis.
  • Create detailed job descriptions. Don't make youremployees guess about their responsibilities.
  • Understand wage-and-hour and child labor laws. Checkwith your own state's Department of Labor to be sure you complywith regulations on issues such as minimum wage (which can varydepending on the age of the workers and whether they are eligiblefor tips), when teenagers can work and what tasks they are allowedto do.
  • Report tips properly. The IRS is very specific about howtips are to be reported; for details, check with your accountant orcontact the IRS(or see your local telephone directory for the number).
  • Provide initial and ongoing training. Even experiencedworkers need to know how things are done in your restaurant.Well-trained employees are happier, more confident and moreeffective. Plus, ongoing training builds loyalty and reducesturnover. The National Restaurant Association (202-331-5900) canhelp you develop appropriate employee training programs.

Want more tips? Read Entrepreneur's business start-upguide How to Start a Restaurant and Five Other FoodBusinesses, available at www.smallbizbooks.com.


Jacquelyn Lynn is Entrepreneur's"Insurance" columnist.

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