Risky Business

Investing in the right equipment from the beginning will save money in the long term.

Investing in the right equipment from the beginning will save money in the long term.

Buying into a start-up is tough but as Tracey Porter reports, there are ways to swing the odds in your favour.

For Ben and Andy Willis, the magic number was three—three weeks in which the husband-and-wife team had to settle on a menu, contact suppliers, secure staff and complete a renovation. From learning their offer to take over a fledgling nine-year-old Canberra restaurant had been accepted, they had just 21 days until they had to be fully operational to coincide with the former owner’s wish to be out in time for the new financial year.

It was, admits Andy, a frantic period. “Things happened so fast I can’t really remember the planning anymore but I just kept sourcing advice from everywhere I could. We then had to do a small refurb—carpets, tables, recovering chairs, paint—before getting the place open as quickly as possible because we had no money at all.

“I just kept thinking it was an existing business and it was doing okay numbers financially so hopefully the money should immediately come in once we get the doors open … hopefully. That was totally against all advice you get in regards to cash flow, start-up capital and business plans. All we had was the belief that we could provide a good product and people would turn up.”

Previous experience in the industry was key for Andy and Ben Willis, and their restaurant space, Aubergine, prevailed despite its inauspicious start. However, not everyone is so fortunate.

Tim Keenan, director of TK Restaurant Consulting, whose clients range from suburban cafe and franchise owners to multinational conglomerates looking to enter the Australian market, says while he advises clients to give themselves as much time as possible to prepare for an opening of a new food service company, even the best laid plans can come unstuck.

This is particularly true when operators fail to recognise that the project management side of running
a business is every bit as taxing as its actual operation, he says. “I’ve never witnessed anyone opening a restaurant or cafe in the time they set out to do it in. I’ve seen delays ranging from one week to one year.”

A former executive chef and catering operations manager who has worked for the likes of Gordon Ramsay and Guy Grossi, Keenan says most operators make their first fatal mistake before the lease on their new premises is inked.

“Where they go wrong is not investing in the right equipment and systems that will save money on a daily basis,” he explains. “Not costing a menu and not understanding the difference between a net dollar profit and profit expressed as a percentage of revenue—even more experienced operators can find this difficult.”

Urban Cooking Collective owner Vicki Uriate, who has more than 25 years’ experience as a restaurateur and caterer in Sydney and London, agrees inappropriate cost allocation can also cause headaches for those starting out in the business. “You can give too much. Giving extras to clients causes problems further down the track as they then come to expect this in every job and you end up footing the bill. It’s important that you charge for everything right from the start.”

Ben Willis, who has gone on to open a second space called Temporada, says he spent the first three years constantly honing, spending and finding ways to save money in some areas to ensure he didn’t have to compromise on quality. This covers “small background things like chemicals, printing, linen and large items like refrigeration and electricity. It’s worth taking time to have things quoted on by another supplier rather than just keeping things as they are. You have to always question what the costs are.

“I didn’t do it to get rich; I did it from the fear of failing and the desire to stay afloat through hard times and to make sure I could afford to employ good quality, skilled people and put out a product I’m proud of.”

Keenan says operating a restaurant or catering business is akin to parenting a small child—it needs love and a lot of attention. But this is impossible to do if you haven’t set aside adequate finances to help you through your first 12 months of operation.

He says would-be operators should realistically bank on spending around $100,000 for a small cafe when doing most of the development themselves, or up to $1 million for a larger restaurant with professional shopfitters. “Ideally, you should start by deciding on a menu and location. The next step is to see a professional about the viability of the concept and an opinion of probable cost for kitchen equipment. Add to this your branding, marketing and packaging costs. Don’t forget to set up additional funds for restaurant operating expenses.”

Uriate, who added a management degree to her chef qualifications to help her run events more efficiently, says she expected to find bringing in new business the toughest aspect of operating her catering company.

In reality it has been finding staff that share her vision that has proven the biggest challenge. “Staffing is always
a problem in the hospitality industry. Many people are working transient jobs, moving from place to place—it’s hard to continually retrain staff to work to your rhythm and style. I currently have my son working with me and that is a joy and a challenge.”

Ben Willis feels similarly and says it’s important to remember nothing in this game is likely to prove easy. “Restaurants are a tough business to run—the hours are long, the margins are small and the issues that you’re dealing with regarding staff and customers are endless. Restaurants don’t sleep, so finding enough hours in the day is a huge challenge.”

Keenan says while passion for what you are doing will take you a long way, on its own it will never be enough to run a successful restaurant, cafe or catering business.

Should the worst happen and the business is not the success you hoped it would be, it is also important to recognise when it’s time to cut your losses and plan for the inevitable financial fallout, he says. “It costs money to close or sell too, from employee entitlements and taxes to demolition fees, agent selling fees and outstanding invoices and loans, as well as potentially a broken lease to pay out. Franchise exit fees are usually an after-thought when signing. An accountant will say, ‘Operate for 12 months and then assess’. I say, if you’ve lost your passion then it’s time to close.”

This great content is produced for members of the Restaurant & Catering Association. Find out about becoming a member here.

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