How tough is the restaurant business? (lend, borrowing, insurance, lawyer)
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My niece wants to start a restaurant franchise. This is her first venture into the restaurant business. She asks me to back her. I like her ideas and business plan a lot. But other than eating in them, I don't know anything about restaurants.
What's her background, has she had other businesses or is this her first foray into business altogether? How much experience does she have working in the restaurant business?
She has degrees in business and accounting. She has managed, bought, and sold commercial real estates. She doesn't have any experience in the restaurant business.
Your post said a "franchise". What exactly does that mean? Buy one; start a restaurant and franchise the concept?
The issues....usually the person does not have enough money. Whatever they think it is going to cost, double it. And don't forget that they/you need money to keep yourself alive for a year or so while you see if your store is going to work.
Permits, insurance, inspections, maintenance, pest control, etc.
Food and beverage costs...a whole lot different for your one location store than it is for Olive Garden which is buying TONS of the same stuff you are buying 50 pounds of. Requires cash flow to keep all of that stuff in inventory.....
Customers...who are they? How are you going to get them into your store? Signs, advertising, promotion, etc.
Employees....it takes a LOT of good help to run a restaurant. You thinking of dinners only? noon to midnight. Add lunch? Nine to midnight. Chef, sous chef, line cooks, prep person, salads/desserts. dishwasher. And front of the house staff: Waiters, waitresses, bartenders, bus boys, hostess, etc. Even for a simple operation you will likely have ten employees.....who are relying on you for their livelihood. Payroll....taxes....
Utilities..it costs a bunch to run those ovens/lights/ air conditioners/furnaces/food heaters/walk in coolers....
Parking.....doesn't earn u a dime, but u have to have it.
Bank, financer, bookkeeper, maintenance companies to keep those coolers, refrigerators, ovens, etc. going. They all expect to get paid.
So...should u go into biz with your niece? Does she have a TIGHT, realistic business idea and PLAN? How much experience does she have in the restaurant business? How much money is SHE putting in? If it is less than $100,000, depending on the size of the shop (100 grand plus necessary borrowing gets you a minimal sandwich shop), then you are underfinanced right out of the gate. Has the concept been tested, or is it a "great idea" with no ability to be commercialized?
Running a restaurant is a VERY difficult business. There is LOTS of competition, just about every idea has been tried, it require a HUGE commitment of time and money, employees are by definition sort of flighty, fixed costs are substantial (and there is ALWAYS someone with their hand out an operating basis). Every bit of time and cash needs to be invested in the business. You have to be a solid business person: make people feel they are having a good time, and they are "your friend" (or vice versa--people like that; oh, "she knows me") while at the same time maximizing the amount of their food bill. Tricky. You can't give anything away...it costs, and represents your business waling out the door "for free".
The one thing I see mostly in independent operations is the idea that the money in the till represents "profit", and it gets grabbed for silly things, but then when the workers comp bill comes in for several thousand dollars, there is no cash. Ooops.....hard to borrow operating cash; bingo, business is done. Shuttered. Fixed assets sell for pennies on the dollar (Hint: when you are buying equipment, look at used; there is a ton of it out there (for a reason)).
Lastly...never lend money to a family member. Want her to have the money to start up? Assume it to be a gift. Don't think you are ever going to get it back. Exchange it for equity. If you are putting in $500,000, and she is putting in $100,000, and the bank is doing the rest, then you want to have a majority of the equity. Sorry honey, that is the cost of starting a business with no money.
I hate to say it, but watch "shark tank" or the "Texas investors club". It is scripted for TV, but it gives you some idea of how hardnosed people are who lend money to start up ventures. They don't do it for "feel good" reasons. It is ALL business.
I worked in my parents' restaurants for years and years. My parents did well and that success spun off to real estate investing and building some houses to sell for a profit. With that said the restaurant business is extremely tough. Competition is fierce. You have to know your market very well. You need to pay extra attention to your customers and the competition. You don't own the restaurant. The restaurant owns you.
I have decided to not get involved. Apparently, she isn't hurting for money that badly, as construction for the project has already started. She told me she's gonna be fine if I am not interested. PHEW.
I have decided to not get involved. Apparently, she isn't hurting for money that badly, as construction for the project has already started. She told me she's gonna be fine if I am not interested. PHEW.
I think you will come to appreciate that fortuitous turn of events. Mountain Biking nailed it: You don't own the restaurant; it owns you.
There is good money to be made, but it takes a large investment of both TIME and money.
Be a good customer. Regular.....but not TOO regular.
She has degrees in business and accounting. She has managed, bought, and sold commercial real estates. She doesn't have any experience in the restaurant business.
I have seen far too many franchised businesses implode over the years to ever buy into the hype they sell.
I don't care if it is the tastiness subs in what looks the busiest part of town, the freshest most health oriented juices / salads /wraps, or the staples of griddle cooked meat on a bun with a side of fried potatoes, I've seen all of shut down and wipe out some dreamer's life savings. Very very very tough path to true success.
Real estate is no walk in the park either, but at the end of the day you either have a tenant or looking for one tomorrow whereas with a resturant it is a never ending struggle to keep the employees honest, the customers coming back and the place from burning down...
I have decided to not get involved. Apparently, she isn't hurting for money that badly, as construction for the project has already started. She told me she's gonna be fine if I am not interested. PHEW.
Thats probably for the best as the restaurant business is risky and many will not make it. It sounds like she has a fair chance, least understands the business aspect and has money apparently to startup with. Hopefully she knows someone else who is in or was in the same business who can help and mentor her.
This girl has big dreams. She wants to turn her ideas into a brand name like Panda Express or Chipotle.
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Wish her luck, don't give her money...
