Starting a high profile new restaurant (after closing another)

[gfron1]

The value of a name. I'm having one heckuva a week with property discussions. On one day it's smooth sailing. The next the deal has fallen through. The next I have a major investor who wants to jump in. Then today I got this message (edited for confidentiality):

Quote

 

From Rob:  "Share with (Landlord's management team) that we are currently in the process of wrangling investors, and are not currently prepared to put that much money into the property. Should something change on our end or their's we would love to continue the discussion."  

------------------------

(Landlord's rep):  (Property owner) told us in the meeting at his office that he'd make this deal happen.  Can't imagine $45k in TI (tenant improvement) Allowance will separate us from getting a deal done of this magnitude.  The property has sat vacant for a while and needs a ton of work.  This capital will be invested in permanent improvements to the building that will be re-utilized in the future.  

 

Rob will be a catalyst to revitalizing the neighborhood.  Point being, this is not some random guy that decides out of the blue to open a restaurant or bar that will have a 5-10 percent chance of making it.  And Rob's addition to (the neighborhood) will lead to further redevelopment of the area which could drastically increase property values, especially (Landlord's) building at the main and main intersection.  This increase in value will be a lot more than $45k.  

 

Perhaps a discussion with the Alderman can open up some doors to some subsidy $ like property tax abatement or CID or the like that could help pay (Property owner) back quicker to get him comfortable with coming out of pocket another $45k.  

 

 

Well, to say this was fun to read would be an understatement. I have been thinking about what it would mean to open in this particular neighborhood, and how it will put this area on the map for a new vision than what it currently is - and developed in a classier way than say a sports bar or pizza joint. Tyler and I have been very cognizant of not gentrifying a neighborhood, nor colonializing one. We want to be a natural fit that would improve, but not shift courses, for a neighborhood, and it's a big part of why we have been looking at this particular location despite the building needing "a ton of work."

Edited December 29, 2016 by gfron1 (log)

[dcarch]

"---- So for example, if they do $100,000 in renovations (you may or may not be given an allowance by the landlord - money they're willing to invest to fix up the building at their expense), they will spread that cost out over the terms of the lease at a certain interest rate. ] ----"

 

Talk to a commercial real estate broker. Cost you nothing. 

 

dcarch

[gfron1]

Today I'm stepping back and doing something fun - working on the playlist for Bulrush. My starting point is King Krule and The XX. This will be a long running Pandora exercise. Each song needs to be enjoyable as background noise, but not having tones that are distracting. I don't want a rock concert, but I also don't want a symphonic performance. I don't want too moody, but not to techno either. Right now Pandora is giving me Radiohead's Creep, which is a song I love, but can get a bit energetic in the middle. A while back someone suggested Bjork as a starting point and I'm still on the fence because she can be very loud at times - kinda like the drunk uncle of the groups I think I would prefer.

 

All of this brings up issues of music licensing and the hawks at BMI that hunt you down and try to get you to pay for music. I support all artists but choose to do it through either buying my music directly or through subscription services. I believe my new facility will be waived because of square footage, but that remains to be seen. For those of you not in the business, BMI and other licensing companies can be relentless in pursuit of money to feed their lawyers.

Edited December 31, 2016 by gfron1 (log)

[gfweb]

I think I'd start with Miles Davis or Paul Desmond (but no Brubeck) and pandora around that.  Backgroundy but stands on its own too.

[Shalmanese]

9 hours ago, gfron1 said:

All of this brings up issues of music licensing and the hawks at BMI that hunt you down and try to get you to pay for music. I support all artists but choose to do it through either buying my music directly or through subscription services. I believe my new facility will be waived because of square footage, but that remains to be seen. For those of you not in the business, BMI and other licensing companies can be relentless in pursuit of money to feed their lawyers.

 

 

Aren't there businesses that take care of this for you? They install a box on your premise, they charge you based on your sqft and business type and you can program whatever playlist you want onto there and all the licensing revenue gets automatically handled by them?

[pastrygirl]

5 minutes ago, Shalmanese said:

 

Aren't there businesses that take care of this for you? They install a box on your premise, they charge you based on your sqft and business type and you can program whatever playlist you want onto there and all the licensing revenue gets automatically handled by them?

 

Yes, I know a guy here in Seattle who does playlists for businesses.

[gfron1]

4 hours ago, Shalmanese said:

 

Aren't there businesses that take care of this for you? They install a box on your premise, they charge you based on your sqft and business type and you can program whatever playlist you want onto there and all the licensing revenue gets automatically handled by them?

Yes, but my last place, and likely this one, will be below the square foot limit which means I won't have to pay. 

[gfron1]

Every day a new adventure! Over the weekend one of my investors said they might prefer buying me a building. So now we're re-opening the door to looking at properties.

 

On another front, I chatted with a friend who is a retired banker, who is a very active investor. I wanted to find the best strategy to create a win-win with my investors and so he talked me through a few options. Upfront I offered 10% simple interest no later than 3 years from opening. We talked about risk aversion, cash flow and the possibility of having shorter and longer term investment options. We also talked about the difference between a $1000 investment and a $100,000 investment in terms of what the investor could have been doing with that money had it not gone to me. I also wanted to incentivize potential investors to go a bit higher in their offering.

 

Recognizing the current market, in the end what I've decided to do is:

$1-10k

1 year return: 6%

3 year return: 10% (this was my initial offering)

 

$10,001-$25k

1 year return: 8%

3 year return: 12.5%

 

$25,001-above

1 year return: 10%

3 year return: 15%

 

The natural question by my friend was - why would I go this route when I can get a bank loan around 6% and my thought is twofold. First, compound interest on the 6% is greater. Second, is freedom. I did bank and SBA loans for my previous restaurant and the paperwork was a burden - not the initial paperwork but the ongoing reporting requirements. While I appreciated that SBA loan I would not do it again. Investors with no say or control in the business allows me to do what I need to do, and with my previous track record offers them a relatively low-risk investment with a strong return. In my eyes it's a win-win.

[Shalmanese]

4 hours ago, gfron1 said:

Every day a new adventure! Over the weekend one of my investors said they might prefer buying me a building. So now we're re-opening the door to looking at properties.

 

On another front, I chatted with a friend who is a retired banker, who is a very active investor. I wanted to find the best strategy to create a win-win with my investors and so he talked me through a few options. Upfront I offered 10% simple interest no later than 3 years from opening. We talked about risk aversion, cash flow and the possibility of having shorter and longer term investment options. We also talked about the difference between a $1000 investment and a $100,000 investment in terms of what the investor could have been doing with that money had it not gone to me. I also wanted to incentivize potential investors to go a bit higher in their offering.

 

Recognizing the current market, in the end what I've decided to do is:

$1-10k

1 year return: 6%

3 year return: 10% (this was my initial offering)

 

$10,001-$25k

1 year return: 8%

3 year return: 12.5%

 

$25,001-above

1 year return: 10%

3 year return: 15%

 

The natural question by my friend was - why would I go this route when I can get a bank loan around 6% and my thought is twofold. First, compound interest on the 6% is greater. Second, is freedom. I did bank and SBA loans for my previous restaurant and the paperwork was a burden - not the initial paperwork but the ongoing reporting requirements. While I appreciated that SBA loan I would not do it again. Investors with no say or control in the business allows me to do what I need to do, and with my previous track record offers them a relatively low-risk investment with a strong return. In my eyes it's a win-win.

 

Sorry, this was not clear, if I invest $100K, at the end of 3 years, do I get $115K back, $145K or $152K? It feels like there are other, more sophisticated ways to structure the deal that better align people's interests (profit sharing, convertible notes, collateralization, tranching the debt etc.) but maybe the simplicity of this is what's appealing.

 

edit: Also, are you creating a separate corporation to buy the building as from running the restaurant? It seems to me that there are investors who can be convinced to invest in a low risk, high collateral real estate deal at substantially lower rates than a high risk, low collateral restaurant venture. Given everything people talk about how the restaurant business is such a low margin business, it seems like just being able to shave a percentage point or two off your payments might mean the difference between untold riches vs being unable to pay your bills.

Edited January 5, 2017 by Shalmanese (log)

[gfron1]

@Shalmanese Thanks for the thoughts. All of the investors are friendly investors so everyone did want simplicity, so no need for other options. The interest is simple, not compound.

 

In New Mexico we had a separate Ltd for our Kumquat Property Group versus our S-Corp for the operational business. Since I won't own a building here we'll stick to our S-Corp, and if the investor(s) decides to buy a building for us, then it will be their decision.

[MrSpiffy]

It's been a while since I've visited this forum.  I come back to find your discussion on starting a restaurant.  I've been very curious to learn about this process, so I'm excited that I found this right on the front page.

 

I'll be following along, and I wish you all the best as you start your newest venture!  I also have some family in St. Louis.  Once you open up, I'll have to have them stop by and try the food. 

[gfron1]

18 minutes ago, MrSpiffy said:

It's been a while since I've visited this forum.  I come back to find your discussion on starting a restaurant.  I've been very curious to learn about this process, so I'm excited that I found this right on the front page.

 

I'll be following along, and I wish you all the best as you start your newest venture!  I also have some family in St. Louis.  Once you open up, I'll have to have them stop by and try the food. 

and please feel free to ask questions.

[MrSpiffy]

2 minutes ago, gfron1 said:

and please feel free to ask questions.

@gfron1, I appreciate that.    My wife and I have both tried starting small businesses, and I have to say that it's not just something you go and do on a whim.  It takes some planning and organization to do.

 

So, when you started Kumquat, I assume you came up with a business plan and all that.  How does your previous experience compare to this time around?

 

I'm curious, because...  well, to be honest, trying to create a business plan when you have zero experience running or owning a business is a bit scary and overwhelming.  Especially considering that you could be banking a good chunk of your life savings on it.

 

My small business is pretty simple.  Just me doing some real estate photography.  But a restaurant is a whole different ballgame.

[gfron1]

@MrSpiffy that's exactly right. For the Kumquat I worked through the Small Business Development Center (SBDC) to assist in writing my business plan. Even with that, much of what was in there was a best guess. This go around I'm using professional contacts to review my plan - friends who are lawyers, architects, etc. (many of whom I am hoping to have as investors). Instead of my 10 page plan with demographics and all the standard stuff, I'm skipped some of the fluff and got right to business. My new plan says Here's what I did in New Mexico; Here's what I plan on doing in St. Louis; Here are the financials. Experience drives my current plan, not theoretic and hypothetic data.

[pastrygirl]

4 hours ago, gfron1 said:

Even with that, much of what was in there was a best guess.

 

How good were your guesses?  How does one make better guesses?  That part of it is what scares me. There is so much turnover in restaurants now, of course everyone sets out to sell lots and pay their rent and be successful, but ...

[MrSpiffy]

@gfron1, I think that's something a lot of new, inexperienced business owners don't even know to do.  Check with the SBDC in your local area.  There are tons of free resources there that can help you get off on the right foot.  They even had free counseling for my wife when she worked on starting her business.  When she walked in with research done and something like 40 pages in her business plan, they nearly fell over.  Apparently most people just show up and have nothing.

[gfron1]

On 1/10/2017 at 7:12 PM, MrSpiffy said:

@gfron1, I think that's something a lot of new, inexperienced business owners don't even know to do.  Check with the SBDC in your local area.  There are tons of free resources there that can help you get off on the right foot.  They even had free counseling for my wife when she worked on starting her business.  When she walked in with research done and something like 40 pages in her business plan, they nearly fell over.  Apparently most people just show up and have nothing.

That's exactly right. Our SBDC said that they had succeeded if they helped people realize they weren't ready to start a business. Not for the faint of heart.

[gfron1]

On 1/10/2017 at 1:47 PM, pastrygirl said:

 

How good were your guesses?  How does one make better guesses?  That part of it is what scares me. There is so much turnover in restaurants now, of course everyone sets out to sell lots and pay their rent and be successful, but ...

Even with this second go around I used the same strategy to keep it from feeling overwhelming. Using you as an example...how many chocolates will I really sell in one day - not Valentines, but in October. Let's say you expect to sell 10 boxes a day at $20 per box. Besides chastising you for undervaluing your chocolates  I then do the math from there. 10 boxes x 5 days a week x 52 weeks. But we know that may not be realistic. Sundays may be worse. Hot summer months may be worse. Let's say we expect to sell $52,000 in chocolates per year. I then make the guess more conservative and say 60% = 31,200. So many factors though, right? Christmas, wedding catering, corporate gifts...just start breaking it down.

Let me show you a few examples from my current business plan (pre-edit):

Here is how I got my $45 drink pairing ticket price...

$45 drink pairing breakdown
Drink (71.147%)	Tax (7.113%)	Gratuity (20%)	Bank Fee (1.74%)
$34.92	$2.48	$6.98	$0.61	$45.00

	Estimated alcohol sales per yr
16 ppl/stg @ $45	$720	per seating
x 6 stgs/wk	$4,320	per week
x 48 wks of 6 stgs	$207,360	per 48 week year
	$124,416	60% capacity
Breakdown
Drink	$96,174
Tax	$8,850
Gratuity	$24,883
Bank fee	$2,165

 

Sorry for the goofy formatting but I think you can follow my logic. The moral is...start at one bite and expand it, then apply a conservative number so you don't come up short. On the expense side I fluff things quite a bit too.

[pastrygirl]

34 minutes ago, gfron1 said:

Even with this second go around I used the same strategy to keep it from feeling overwhelming. Using you as an example...how many chocolates will I really sell in one day - not Valentines, but in October. Let's say you expect to sell 10 boxes a day at $20 per box. Besides chastising you for undervaluing your chocolates  I then do the math from there. 10 boxes x 5 days a week x 52 weeks. But we know that may not be realistic. Sundays may be worse. Hot summer months may be worse. Let's say we expect to sell $52,000 in chocolates per year. I then make the guess more conservative and say 60% = 31,200. So many factors though, right? Christmas, wedding catering, corporate gifts...just start breaking it down.

...

Sorry for the goofy formatting but I think you can follow my logic. The moral is...start at one bite and expand it, then apply a conservative number so you don't come up short. On the expense side I fluff things quite a bit too.

 

Thanks.  Yeah. obviously it's not going to be Christmas every day (thank goodness!) or a chocolate festival.   I like your idea of being conservative on revenue and fluffing expenses.  I do have records from the past 2-1/2 years of business that I could pay more attention to, and I do hope to get more wholesale accounts before pursuing a brick & mortar.  And I should charge more!  I did raise prices a little bit before the holidays and nobody complained.  My margins are decent when I sell retail but a lot harder at wholesale.

 

I just looked at some properties yesterday, seems like there is potential but it's a neighboring city/suburb that I don't know that well.  But much lower rent than in Seattle proper, might be good for a production kitchen with less focus on retail.  There was a couple on the tour with me with no restaurant experience but who want to open a bakery.  Part of me wanted to scream at them "don't do it!  It's WAY harder work than you think it is!" but I didn't. 

 

 

[teonzo]

What kind of drink pairing are you planning to offer?

Wine from small producers?

Craft beers?

Cocktails?

A mix of the above?

Will you offer a non alcoholic choice too?

 

 

 

Teo

 

[gfron1]

@teonzo All of the above, and with the non-alcoholic drinks, we'll be giving equal care. My starting point for wines is the portfolio of Eric Solomon/European Cellars. I love all of their stuff. For beers, St. Louis has a crazy good craft scene that includes plenty of diversity but also foraged brewers and experimental brewers. The person I'm recruiting for Beverage Manager has been making a name for himself in Texas, and was my very first high school intern, so he knows how to incorporate foraged items into cocktails. This is the area where I see the most potential revenue growth since on the restaurant side we're limited by the number of seats and days. And unlike New Mexico where I could never afford a full liquor license (most recent rate is $750k), in Missouri they are $315. 

[teonzo]

Cool! I misunderstood what you wrote when you explained the calculations behind the drink pairing price, I thought you were going to offer only one. So that calculation is for an average of the different drink pairings?

I'm really happy to see you are going to offer a huge diversity, so I can't wait to read your first menus. This is one side were fine dining restaurants lack in my opinion. Ok, wine pairings can give great satisfactions, we all know that. But, as a customer, I'd like to get more choices, especially for non alcoholic pairings. It's underwelming to go to most michelin starred restaurants here in Europe and finding that the only wise choices are wine or water. I can drink water whenever I want. If I'm driving, I'm not going to drink wine. Another option to enhance the drink pairing experience would be more than welcome.

 

 

 

Teo

 

[gfron1]

The $45 is a set price that will include a diverse parings list. Ala carte options will be available as well with a wide range of prices.

So this morning was interesting. A design firm reached out and said - what if they came in as an investor where their services were the investment? Not sure what this entails - is it a gift? an investment? Anyway I share it here because it's a cool idea that I hadn't thought about yet.

 

i'm also thinking today about what happens with weather closures - St. Louis has a big ice storm coming in today. That's lost revenue. How do I handle customers who have pre-paid for a meal who can't make it in. How do I deal with the money, the rescheduling if we're fortunate enough to be booked far in advance? Can I have added seats to add them onto a sold out dinner (chairs at the end of the table to expand seating. Just thinking through at this point. Since we're closed 4 weeks a year I'm leaning toward acting like a school and adjusting snow days to our summer break to address the financial loss.

[gfweb]

40 minutes ago, gfron1 said:

 

i'm also thinking today about what happens with weather closures - St. Louis has a big ice storm coming in today. That's lost revenue. How do I handle customers who have pre-paid for a meal who can't make it in. How do I deal with the money, the rescheduling if we're fortunate enough to be booked far in advance? Can I have added seats to add them onto a sold out dinner (chairs at the end of the table to expand seating. Just thinking through at this point. Since we're closed 4 weeks a year I'm leaning toward acting like a school and adjusting snow days to our summer break to address the financial loss.

 

Refund and priority for the next booking is the easiest to keep the books on.

 

Making up the income for lost days is an ongoing headache if you are in a business that is already at capacity all the time (May this be your fate). I do not know of a way to do it other than adding hours ...which after one good winter season could tax you badly.

 

Several places in Phila routinely tweet or FB out when they have last minute openings. Seems to work well so long as the no-show diners are kind enough to call in advance.

[gfron1]

Today I am visiting a mushroom farm. I don't think I've previously shared this, so pardon me if I have...One of the key features of my new place will be that you'll walk in over a glass floor that is a window into the basement. The basement is stone lined walls (old building) with about an 8' ceiling. I'll be setting up a mushroom farm of my own down there (in addition to my wine cellar, chocolate production and koji meat processing). So, imagine walking about 20' over the forest floor with logs and hanging bags covered in mushrooms; hydroponic wild plant hanging gardens (chickweed, purslane, reindeer lichen (if I can get it to grow domestically). Every design element has a cost, and I have to justify whether or not it is worth it. In part, this is my response to Farm to Fable and the pervasive fraud in the industry. I want people to see everything about their food. I want people to feel a stronger sense of connection to food and its preparers. I'm so mindful of a culinary school student that I met a few months ago at work who didn't know how to identify the top (v. the root) of an onion. It really has become my mission to eliminate that lack of connection.