I’m sure you’ve heard the statistic that half of all restaurants will close within the first three years of opening. In fact, new and exciting concepts are generally started by a chef or restaurateur, but often not by a business person. The systems for running these operations are virtually non-existent, which isn’t really a problem in a single-unit environment. However, once you begin expanding from a concept to a group or franchise, that’s where the biggest mistakes can be made.
For example, it’s common to believe you should prize consistency in all things when expanding to new locations. However, a successful group knows what should always remain consistent – such as food quality and customer service standards – and what should evolve, such as real estate choices, financial practices and other business considerations. If not well-managed, your future locations are likely to have issues with inconsistent food quality and uncontrolled labor costs while lacking the same feel and standards that made your original location such a hit. In this post, I’ll walk you through the three mistakes I most commonly see restaurateurs make when pursuing this growth.
Mistake 1: Managing by Checkbook
Before you begin growing your restaurant empire, it’s important to analyze how you manage your finances. When operating one location, you can get away with paying attention to your bank balance to focus on the short term. However, managing by checkbook is a casual approach that can lead to big errors as you grow your locations, including:
• Working without a budget
• Planning for the short term and not the long term
• Mixing up cash flow and profit
Instead, start by keeping track of your finances through bookkeeping to avoid costly mistakes and prepare for the future of your thriving group or franchise. As your restaurant empire grows, consider hiring an accountant to help manage your finances and budget for the future. Not only will an accountant maintain your books, but they can also help with tax preparation and deductions to save you money in the long run.
Mistake 2: Making Real Estate Choices without Considering the Financial Metrics
One of the key reasons a restaurant can be successful is location, location, location. In fact, it’s often thought that once you have a “hot brand” some factors are no longer crucial including:
Let me stress that this is NOT the case and that all factors should be considered when choosing your next location. Additionally, it’s important to always consider the financial metrics. Assuming that increases in square footage from one location to another will translate to an increase in revenue is a common fallacy. When planning for your next location plan for the following:
• Lease terms – negotiating to ensure that your base rent is as low as possible in the beginning
• Construction costs – use competitive bidding to select a general contractor
• Business equipment – analyzing a lease versus purchase from vendors
Additionally, avoid over-estimating the consistency of profits from one location to the next. Keep in mind that every location needs to be tailored to fit the specific needs to increase the cash flow.
Mistake 3: Management by Osmosis
Managing and hiring for one restaurant is much easier than doing so for multiple locations. When growing your restaurant empire, it’s harder to be involved in every management decision and hiring decision made. How can you make sure that those running your business are making the same types of decision you would?
Don’t assume that your team understands your restaurant’s priorities and would make decisions like you do. There is no such thing as over communicating and over training. Written training, policies and value statements are a good start but they need to be reinforced constantly in the decision making and communications at all management levels. While it is impossible to be in more than one place there is no substitute for actually being on site so try to avoid spending time in a corporate office and visit your locations frequently. Preach your core values to everyone at every opportunity. Since turnover at the staff levels in a restaurant is so high and these are the employees who are interacting most closely with the customers it is most important to have good consistent training and reinforcement at this level.
About the Author
Bill Schwartz started his career as an auditor and worked in finance and operations roles in the broadcasting, gaming and manufacturing sections. During a break between those positions, while having lunch with a friend at his favorite sandwich restaurant, he was inspired to become an entrepreneur in the restaurant business. He started by purchasing one sandwich franchise, then other franchise owners approached him to buy their locations until he owned 11 popular sandwich stores across Austin and Chicago, which he eventually sold in 2014. Today, he advises restaurant owners, among owners of many other types of business, to help them achieve scale and maximize profit through effective financial and operational systems.