The secret to starting a successful restaurant involves recruiting well, creating a budget and having a profit target.
Take a good look at that flash new restaurant or cafe that just opened in your neighbourhood. The chances are it won’t be there in six months’ time.
“There’s a high level of failure in restaurant start-ups,” says hospitality consultant and managing director of Profitable Hospitality, Ken Burgin. “People with energy and experience and money can fail just as easily as people with none of those things.”
Burgin says there are two things that successful restaurateurs have before they open their doors. They are good managers of staff, suppliers and customers; and they have established the restaurant on a proper financial plan that centres on the break-even point. “You must have your management approach and your finances sorted before you commit to owning a restaurant.”
Burgin, who consulted to Channel 7 on My Restaurant Rules, says good managers have usually had experience dealing with many different kinds of people.
The financial side is equally important [see box for break-even formula]. Burgin says a small cafe or restaurant costs at least $100,000 to fit-out if the premises has been used in hospitality previously. If it’s a site that has never had the special plumbing, drainage, power connections and gas fittings installed, it will cost at least $300,000.
One restaurateur who believes in treating hospitality in business terms is Sydney-based George Gavalas. Gavalas, who launched China Doll at Woolloomooloo and Eastbank at Circular Quay, wasn’t always running landmark eateries. He built up with cafes and snack bars before hitting the big-time with Quayside Brasserie, a Circular Quay restaurant. He says restaurants have a mystique if they are done well but the successful ones always follow basic rules.
“The secret to starting a restaurant without going broke is recruiting well, creating a budget and having a profit target. You have to think in terms of your money competing against other investments. It could be shares or money in the bank but you’re choosing to invest it in a business.”
Gavalas says the first recruits he goes for are the chef and the maitre d’. The other important aspect to the successful start-up restaurant is creating the budget that can sustain the profit targets.
“The rule of thumb for our restaurants is that you spend 30 per cent on food costs, 30 per cent on labour and 20 per cent operating profit, then the last 10 per cent is profit. In reality, most restaurants run profits between five and eight per cent. Few are getting double-digits,” he says.
Gavalas says it’s important for first-timers to be highly focused on the profits. “You should be working toward your profit target rather than just opening the doors and hoping for the best.”
According to Gavalas, the subject of location is often talked about in restaurant circles but he thinks it is overstated.
“We’ve been lucky with some iconic locations. But ultimately, restaurants are about product and service—how good is the food and how well am I being looked after. If you can’t fulfil the customers’ expectations, its won’t matter where you’re located,” he comments.
Product and service can only be achieved if you work closely with the staff. “There was to be an agreement about what the aims are, which means you—the owner—has to clearly define that. There’s no point in hiring the best chef if his costs come in at 45 per cent. You won’t make money.”
Gavalas says that first-time restaurateurs should use common sense. “People often put too much money into the fit-out. What’s the point in spending $1500 on a chair when you can spend $300 per chair? It won’t make the food taste better. What’s the point in a $100,000 marble floor when you’re selling $3 cups of coffee?
“The people who make money in this business understand cash-flows. They have a commitment to paying wages and looking after their suppliers. The standard pay cycle for suppliers is 60 days, but we pay ours fortnightly with direct payments into their accounts and we get great quality and consistency.”
Veteran restaurateur and managing director of CookChill Corporation, Brian Pozzey, says there are basics for starting a successful restaurant.
“You must have a plan. You need good staff, a good menu, you must identify your market and you must commit to training your employees. Few first-time owners do these things. They think because they’ve dined out quite a few times it must be easy, but running a restaurant is hard.”
Pozzey says setting up a restaurant properly is all aimed at getting the basics right. “What you’re trying to do is produce good food, good service and good value. Plenty of places look good and attract a trendy crowd but they don’t last. Customers take the basics for granted.”
Pozzey has opened scores of restaurants and he says that, in the end, the finances are just as important as the food and service. “Break-even points are just as important as good food. If your food costs are too high, or your prices too low, or the prices aren’t set to the market, it’ll fall over. You have to make a profit—that’s the point of business.”
Pozzey is so focused on the business aspect of restaurants that he says first-time owners should start by getting an accountant that specialises in the industry.
“There are accountants who do this work,” says Pozzey. “You need one of them because they can tell you how it works and what the benchmarks are.”
Maurice Terzini, co-owner and manager at Sydney’s Icebergs Dining Room & Bar, says position does matter for his restaurants which have included Otto’s in Sydney and Melbourne’s Caffe e Cucina and the Melbourne Wine Room.
“My approach to a restaurant is that everything you do must be telling the same story,” says Terzini. “Everything from the location to the font on the menu has to be from the same thinking.”
Terzini says location is an important part of a restaurant’s identity. “Any business has to think about location, and a restaurant—at the end of the day—is still a business.”
One tip Terzini has for first-time restaurateurs is to make the menu and the image drive the design, not the other way around. “I only go to the architect once I have some graphics or logos or a menu to show him. There must be a connection between the food and the design.”
His biggest tip is that the person managing the restaurant must take the front-of-house duties. “I don’t know how people manage a restaurant from the kitchen. I’ve always taken front-of-house.”
Wendy Jones, executive director of Restaurant & Catering Victoria, says people starting up restaurants should take basic business advice before getting too far into the vision of the restaurant.
“We run seminars every year at the Melbourne Wine & Food Festival. The
main things we’re covering are issues around what kind of accountant you need, the lease, finance options, dealing with suppliers, liquor licensing, food safety and basic employment issues.
“A lot of people going into the restaurant industry are new to business and they’re pursuing a lifestyle. So we talk about what kind of lifestyle you have to expect as a restaurant owner.”
Jones says the first step for new owners is to join an industry association.
But planning and good recruiting only gets you so far, says Ken Burgin. He says novices only pick up the real tricks once they get started.
“The classic mistake is to undercapitalise and end up skimping on the microwave ovens, the coffee machines and the power. You make most of your money in two hours of each day and if you have the cheap microwave, the cheap coffee machine or the 15-amp power rather than the 20-amp, you won’t be able to service the customers fast enough. If you don’t have enough refrigeration, you can’t buy in bulk and get the lower prices,” he says.
“In the end, most first-timers won’t be told. They have to experience it to learn.”