There are an estimated of 616.008 restaurants in the United States as of 2014. Think about it, 616.008 is a huge amount of restaurants in the USA. This is a 7% increase over last year (2013).
59% or more of restaurants fail with-in the first three years in the United States. 26% fail in the first year, 19% fail in the second year and 14% fail in the third year.
Over 25% of the restaurants in the United States failed in the first year, why?
- Bad location.
- Too much competition.
- Start up Costs.
- Not managing controlled expenses such as labor and Utilities.
- Not managing uncontrolled expenses. Examples: rent and manager’s salary, depreciation etc.
- Not understanding, monitoring or reacting to labor cost, percentage and the labor controls.
- Not understanding, monitoring or reacting to food cost, percentage and food cost controls.
- No systems and policies in place.
- Inferior food and service.
- Time and temperature issues.
- Customer complaints.
- Management is inconsistent.
- Lack of training.
Controllable costs are expenses that a business has the power to change such as payroll cost and some utility bills such as gas and electric. As long as management monitors and reacts to labor cost especially on the hour, then the labor percent goal may be met. Of course if you don’t monitor or react to labor cost, you could be out a considerable amount of revenue and it will affect your bottom line big time.
During slow periods in your restaurant you should reduce the amount of electric and gas you use.
Examples are: turn off any lights that you don’t need, such as: manager’s office, storage rooms storage areas, portion of an empty dining room or prep room. Every switch you turn off can save money.
Examples are: restaurant rent and manager’s salary’s. Anything that is going to cost the same over any given time. These are set amounts.
Regular employee’s rate of pay may change in any given period. Although, you do have the power to change rate of pays to stay in competition of other restaurants in your area. Typically management has a set rate of pay for new hires with no experience and a set of rate of pay for experience employees. New hires and experienced employees are paid in some restaurants one amount, then after the probationary period they may receive a different amount or rate of pay.
How can I prevent this from happening to my restaurant?
Do your homework; know what you’re getting into and the costs associated in creating a restaurant. If you are not sure how to open a restaurant then you need to find someone that does. For example: a restaurant consultant.
If you are going to open up a restaurant you might as well do it right.
Here are the steps you need to take to open up a successful restaurant:
What will your restaurant concept be?
What kind of restaurant do you want to open?
- Fast food
- Casual family
Once you decide what kind of restaurant you want to open, the next step is deciding what type of food you want to serve such as:
- Home style
- French Bistro
Typically the type food you want to serve is what you specialize in.
Choosing a great location is key:
- In view of people walking or driving
- Located near a busy intersection
- Attractive landscape and parking lot
- Not located in an area that is considered high crime
- Restaurant theme fits the area where your restaurant is located.
Make sure you do your homework. How many other restaurants opened in the same spot that you want to open and did they fail?
Choose a Restaurant Name:
Choose a name that will best describe your restaurant theme, be creative. Ask family and friends for an opinion.
For ideas use the Restaurant/Bar name generator tool.
Restaurant Business Plan:
This is a crucial step, without a business plan you will not be able to get financing.
The following link is an excellent tool in creating your business plan.
Taxes Permits and Licenses;
- Employer Identification Number (EIN) – You can apply for an EIN number online at the IRS.gov website. This is a free service. It is advised to apply for your EIN number just before you open the restaurant. Once you obtain an EIN number, the government will assume that you are making money and will want you to pay taxes on your revenue.
you must form a business entity. There are several types of business entities:
- Sole Proprietorships
- S Corporations
- Limited Liability Company (LLC)
For more information go to:
- Income Tax
- Employment tax:
- Social security and Medicare taxes
- Federal income tax withholding
- Federal unemployment (FUTA) tax
For more information go to:
Business License / Tax Permits
- Food Service Establishment Permit
- Alcohol License
- Workers’ Compensation Insurance
- Health Permits
- Food Handler’s Permits
- Sign Permits
- Occupational Permit
- Building Permit
- Alarm Permit
- Music Permit
- Zoning Permit
Check your state for the proper permits and licenses.
When opening a restaurant you need to consider the different types of demographics such as:
Things to consider are: gender, age, race, religion, income, background, prejudices and sexual orientation, this will give you a clear understanding as to who you should be marketing to.
When you target the market, it is impossible to target everyone. If you try to target everyone, you will not stay open long, in fact you will close very quickly.
When targeting the market, decide what kind of restaurant you want to open. Do your research on what type of food that people are looking for.
Remember Demographic and Target Marketing.
Understanding who will buy your product will give you better results than thinking what you want to sell to the population.
Would you put an upscale restaurant in an area where senior citizens live and depends on fixed incomes?
Would you put a family style restaurant in a high crime neighborhood?
You need to cater to neighborhood. Within a three mile radius you need to determine if there are enough people that would want to buy your food.
Tighten the gap of potential customers, for results that could give you high traffic of potential customers.
The larger the group of potential customers located closest to your restaurant will yield you better results.
- Is the area residential or business?
- This area heavily populated or is it more spread out?
- What are the lifestyles and professions of those people?
- What are the age groups?
- What is the most popular mode of transportation?
- What is the income status of the surrounding residents?
- Is there room for future development in the years ahead??
- If your restaurant closely located to businesses, how are the rush times, busy or slow?
Age groups are between 1946 and 1953-1964 Using 2011 their ages would fall between 50 & 64 years of age.
Generation X age groups are between 1965 to 1976-1982. Using 2011, their ages would fall between 29 to 45 years of age.
Generation Y age groups are between 1977~1982 to 1995~2001, age groups are between 10 to 33 years of age.
It is a known fact that baby boomers dominate the restaurant market. The younger generation prefers to eat at home.
97 million restaurant visitors that are above the age of 45 are single in America. Think about it that is a lot of baby boomers dining alone at night, and even more single guest eating lunch at their favorite restaurant.
To capture the market is to know who lives and works near your restaurant, the closer the better.
Creating your Restaurant:
Knowing where everything should go into your restaurant is very important.
Setting up the kitchen: keep in mind functionality plays a big part in designing your kitchen.
Dining Room: You need to figure out the correct spacing of the tables and chairs or booths.
Use this tool to help you with setting up your dining room.
Here is another great tool in designing your restaurant:
Restaurant Design Software
Creating your menu:
There is science when it comes to creating your restaurant menu.
Make sure the color scheme on the menu matches the style of the restaurant
When creating your menu list in order from top to bottom left to right. For example an all day and night restaurants:
- Soup Salad
- Drinks and Coffees
If you sell alcohol, use a separate menu or insert that will fit into your menu.
Break down your menu into sections:
Break up your food categories by listing them separately and by using large readable letters.
If you have a large amount of different food items, assign them their own page.
If you have variety of foods, than list the foods by Breakfast, lunch and dinner. Subsection seafood, beef, and poultry under lunch or dinner.
For each category have a special dish or signature dish. To draw people to those items highlight them or box them in or place a star next to those items.
When describing each dish, you need to be specific and descriptive.
How would you describe fried zucchini?
Deliciously fried to a golden brown texture. Topped with our very own fresh parmesan cheese and served with horseradish sauce.
Food Items and Prices
Make sure you have listed on your menu in each category inexpensive foods and expensive foods.
Price the menu by figuring out the food cost target.
The entree consists of a chicken breast, broccoli, cheese, rice and spices.
Figure out the cost of each one of those items: Chicken breast comes in 32 per case. Divide the case price $39.99 by 32 = $1.25 each. Do the same for each item. Chicken breast $1.25 cheese .25 cents, rice $1.00, broccoli .65 cents and misc. spices .75 cents for a total of $3.90. Food costing formula is your total plate cost divide it by a food cost of (.28%) = $13.93.
Most restaurants will not use $13.93; they will bump it up to $13.99. It is all about making a profit, you cannot figure out a menu cost per plate without pricing it correctly. By knowing what your food cost should be, when you price the menu correctly, you will make a profit.
Make sure you offer vegetarian or diet dishes. You could list your vegetables separately. List your add-on’s, such as:
- Add $.75 for mushrooms and onions
- Add extra shrimp for $1.99
- Salad with entree $2.99
Using pictures is a great way to selling your menu, hire a professional photographer – it might be costly, although in the long run it will pay for itself.
Before you print out the complete menu batch, print out a proof, this way you can correct the prices, words or layout.
Make sure you order kitchen equipment for your restaurant that works with your menu. Purchase all the supplies you need to get your restaurant functional. Sometimes you can get great prices by buying used items or refurbished. Also purchasing energy star equipment can be pricey; in the long run will save you money.
Hiring the staff:
As you creep closer to the opening of your restaurant you will need to hire for the back and front of the house. Be selective – do not hire to fill in the blanks. Do telephone reference checks and if necessary background/credit checks.
Train the staff:
Create a policy and procedure manual and training manual.
Once you hire the staff conduct an orientation. Explain what you expect for each employee and make sure they know your rules, policies and procedures. It is a great idea to have them sign an orientation sign off sheet. If sometime in the future you have issues with a particular employee than you can refer back to that sign off sheet. If that employee is terminated and files for unemployment, you might be able to use that sign off sheet as proof that they were aware of that policy they violated.
Train management and trainers first in every position in your restaurant. Set high standards and convey to them that you want them to train the staff consistently and correctly each and every time. The owner and/or general manager must follow up and be involved in the training process.
Advertising your restaurant:
- Advertise in your local newspaper, radio or television.
- Utilize social media such as Facebook, Twitter, and LinkedIn.
- Hand out fliers with discounts.
- Large banner in front of your restaurant.
- Churches and clubs
- Set up a booth in a high traffic/foot area and give out samples and talk up the restaurant.
- Tell family, friends and coworkers.
If you do not have the time to set up the restaurant, train or any of the above, contact a restaurant consultant to guide you.
Create an awesome website and make sure it is SEO Optimized.
(Search Engine Optimization) If you are not familiar with SEO then hire someone who can do it for you.