Starting a Restaurant in NYC

[Bond Girl]

Having dreamed about having my own restaurant for many years, I recently decided to get off my lazy ass, stop complaining about my job and start making this dream a reality. Hey, we all need a new year resolution sometimes! In an ideal world, I would waltz into a room full of investors, dazzle them with my vision and walk away with enough cash to start many restuarants. But in reality, to dazzle the investors, for even half a restaurant, I need a business plan and may be even a prayer to the patron saint of hopeless causes.

While I never worked in a restaurant professionally, I have a graduate degree in business, and a restaurant is after all a business. I know I wanted a casual fine dining restuarant in downtown manhattan, no bigger than 80 seats. A quick enquiry amongst all my restaurant friends told me that I probably need about a million at the minimal as a start up cost.

Being that finance is where I am most comfortable, I start with that part of my business plan. Assuming that I can get people to invest one and a quarter million structured as 75% capital stock and 25% loan, the investors can have 50% of my business, but I know that I'll probably end up giving away more than that.

Next I decided to make a few calls to check out the location and rent prices. According to a well know restauranteur, rent prices in Tribeca cost about $40 per square feet, but when I call several commercial real estate brokers it's more like $50 per square feet. Rents on Park Ave South goes as high as $100-$125 per square feet, but you are paying for the priviledge of having places like Patria and Sushi Samba down the street.

Like any banker I whipped out my calculator for a quick reality check. $50 pere square feet at 3000 square feet of space means about $12,500 per month in rent. Now the well known restauranteur also told me that my rent should ideally be no more than 5 to 10% of my gross revenue. If I settle on rent being 7% of my gross revenue, then my average check needs to be more than $70 per person. This would give my investors a return of 16% on their investment, which doesn't seemed like a lot. Hmm, back to the drawiing board and did I say I needed a prayer?

[Fat Guy]

I think I can speak for most everyone here when I say we're all praying for you, Bond Girl! But more importantly, I'm really looking forward to this chronicle of your business plan, wherever it may take us.

When you speak of "having [your] own restaurant," what do you actually plan to do day-to-day at the restaurant? Do you know what kind of restaurant you want to open? Tell all. Can't wait for your next installment.

[Pan]

I had no idea you wanted to open a restaurant, Bond Girl. Good luck!

[Bond Girl]

I want to own a sweet little place that serves inventive American cuisine. I want the quality of food to matter, the presentation to be interesting and service that can stand up to some of the best places in town. And, even though I don't know much about wine, I would like to have an interesting wine list. And, yes, I would like to be involved in the day to day running of a restaurant.

[KatieLoeb]

Two bits of advice. Find an honest and hardworking financial person to handle your bookkeeping, payroll, pay your taxes, etc. that has done it for a restaurant before. There are all sorts of little nuances to the restaurant business that make the bookkeeping slightly different, and could certainly be learned, however if it isn't something YOU are already familiar with, then you need someone who is.

The other thing is make certain your beverage costs are being carefully watched for waste, theft, etc. by someone who knows what they're looking for. I've seen restaurateurs almost be robbed blind before they realized what was going on. I know someone that lost close to $250,000 before discovering the glitch in the POS software that allowed the bartenders and waitstaff to ring in items, be paid for them and then make the checks "disappear" with no trail at all! The staff had already obviously discovered it themselves. The beverage department is where you stand to make the most money. It's also where it's easiest to lose it!

[wesza]

Bond Girl: Whatever you do please don't make your nut to high.

Start with a 60 mile radius of your favorite location.

Next look for areas that are under served, under utilized and where rents are reasonable.

Since your strong in the financing promptly investigate reprossesed properties or real estate for sale in those areas your interested as possabilities.

There are often chances to purchase a Building or Property with more feasable amenities with a Mortage that would be lower then renting or that may have a cash flow thru rentals that will cushion your overhead.

Also consider working out a sale leaseback with potential investors who may be attracted to a Real Estate investment them a Restaurant Business.

That should always be based upon a attractive, LONG TERM lease, something that rarely available in NYC or environs.

When you've but this together, during the time involved attend every Auction held within your area or even further away. You will be able to evaluate what used equiptment is being sold for in the Market, become familar with who the major players are, make contacts that will save you considerable money in putting together your restaurant.

This is only getting to the surface, but it can all come together by a learning curve.

Keep objective and start taking notes and writting down your thoughts. Keep this close to yourself. Do not advertise what you have in mind or what your intentions are as you'll receive more advice them you'll be able to deal with objectivly.

Take your time, seek professional advice of some one whom your familar with, who understands that while your learning you need protection.

This may help to protect your investment plus you will not be in the position of having your rent increased by a greedy landlord. Always attempt to avoid the insiduous PERCENTAGE LEASE so common in many venues everywhere in 2004.

Last during this period it woundn't hurt to aquire a Restaurant position initially part time and eventually in the type of place that you admire, but it's better to learn some skill at a place that you only use for the learning process. Again keep your thoughts to yourself and keep your own council. Concentrate on learning and attempt to aquire expertise where your most comfortable and interested. Learn and you'll be better prepared to understand what being a operator entails.

Best of luck in your endevour. But try to narrow the neccescity of the luck factor.

Please avoid most of the mistakes that others make as in this economy it's two expensive. Lower the odds as it's still a risky business.

This is just off the top of my head. Any questions just email.

Irwin

[Lreda]

If you're looking in a 60 mile area, I'd be willing to listen to an offer for my place.

Soooooo, would every other owner in the tri-state area.

I wish you luck in your search.

Godspead!

Lou

[jackal10]

Very few restaurants make money. Its capital intensive, labour intensive, top-end limited, slim margins and fickle.

The cash comes from the add-ons: catering, books, maybe TV appearances, and increase in property value. Doing it in rental property is making a tough deal even tougher.

Also trade doesn't start on day one. It takes time for reputation to spread, and to get into the food guides. You maybe need to figure a couple of years of losses into the equation, or spend a lot on marketing.

[carioca]

Bond Girl: If you are not a Chef, then how much of a capital are you putting up as a percentage ? A good Chef would also want a piece of the action.

Finally, it is about the cuisine - You'll have to first do Market survey before even fleshing out a business plan. Uno mil sounds a bit low - Interiors and furnishings itself can soak up a sizeable % of your capital.

[docsconz]

How does anyone get into this business?

[Mayhaw Man]

Love for the business and a combination of fearlessness and blindness (and occasionally, but rarely, way too much money in their pockets and a need to throw it away).

The way you stay in the game is to have a success and get a group of people who will consitantly back you financially. These people need to (and usually are) be more interested in how the overall bottom line pans out than how many free meals (none if it is done right) they can get out of the deal or whether your roast chicken is to their liking.

Some of the most interesting and intense meetings I have ever been involved in concerned raising money for restaurants and brewpubs. The term "qualified investor" gets thrown around alot as there is a pretty good chance that the money invested is going to slowly go down the drain and in theory a "qualified investor" knows this and can afford to take a chance-also because the operator is going to need to go back to the investors before opening for more money, as these projects almost always run over budget (at least on the first couple of tries).

Once a person or group has a decent track record, it is suprisingly easy to go back again and again to the same group of satisfied investors (and you would be suprised how many people call you out of the blue offering to give you money for your "next project"). Of course, at that point, you don't need the money and you already have an obligation to give your original investors first shot at whatever you have in mind.

It is not easy. If it was there would be many more places to eat. Running a decent place to eat is one of the more difficult and time consuming tasks that one can undertake.

OTOH, the amount of instant gratification involved in a success is hard to quantify or overstate. There is no drug that can recreate the feeling of running a large kitchen churning out good food smoothly and on time. Gladhanding it around a dining room with a room full of happy and satisfied customers who are paying you to do what you love is a pretty amazing thing. And the drink or two or ten that you share with your workmates after the end of a smooth and successful evening is the best one you will ever drink. If there were a buzz like that available in a pill, I would buy it and so would many of you.

[Bux]

The best advice I could probably give would be to discourage you. In general, high capital investments mean risk, but restaurants have one of the last successful track records of all businesses. Fine restaurants started by someone who's never owned, operated or worked in a restaurant in many capacities must have a failure rate approaching 100%. Before you get a lawyer, get a mental health consultant.

All that aside, it's always nice to have a friend who owns a restaurant. So with the caveat that Fat Guy himself has said that I'd make a terrible* restaurant owner, I'm at your service with all the advice you want.

*I have absolutely no sense that the customer is always right. In my experience, the customer is wrong about 95% of the time in a good restaurant. To succeed, you will need to placte all those complaining nitwits who come to your restaurant for the wrong reason and do it without letting then know they are nitwits.

Wesza offered a comprehensive list of reasons why Manahattan is a particularly risky place in which to invest in a restaurant. There is no 60 mile radius applicable. There are no areas that are underserved and which will support a fine restaurant. Areas that are inaccessible to neighborhoods which house those who will be most likely to frequent a fine restaurant, are already over saturated with fine dining. There is no such thing as a landlord who isn't greedy in NYC and you can blame the tax commissioners who have no trouble answering assessment appeals with a suggestion that a use not permitted by the zoning might bring the rentals necessary to pay your real estate taxes.

Your backers could be your biggest liability, especially if they have any say in running the place. You need to question their motives. Sometimes I suspect the number one reason for investing in a restaurant is to launder money. You might not want those people as partners. If they're investing as an investment, you might want to question their sanity. On the other hand, there's a great likelihood that they will expect certain consideration as diners. In a small restaurant, the need to keep a table open for an investor can hurt. What you need are investors who will be interested enough in the success of the place to give up their table at the last minute, not demand a reservation. Brooks has offered good advice here.

[Mayhaw Man]

To succeed, you will need to placte all those complaining nitwits who come to your restaurant for the wrong reason and do it without letting then know they are nitwits.

.

THIS is a class that should be taught in all business schools. It would be at least as useful a class as one teaching how to put together a business plan.

And while I fall just short of Bux in discouraging you to try to follow your desires (although I do support his suggestion of getting a good mental health advisor in advance of opening ) I do think that raising money from non family sources (and I mean your family-not the bent nose family ) is going to be very difficult for a first timer with no experience.

I might suggest that you try to get involved in an operation (or two or three) before you start and see what running a successful place entails. Anthony Bourdain's book is not a bad place to start, although as much as I enjoyed it I do not think that he spent as much time as he might have (he was writing an entertaining book, not writing a warning for potential operators) on how the places he worked in got off of the ground. The story about the two guys who brought in all of their Broadway friends and slowly went broke is as close as he comes to this.

Many of the things that might attract you from the outside may soon become VERY unattractive once you see them from the inside.

The best reason to open a place is because you genuinely think that you can make a go of it financially in a VERY short period of time. You will not have enough capital and your investors will not have enough money or patience for you to do otherwise. The worst reason is to open someplace because you are of the opinion that you would enjoy it and that you would be "good" at operating your own restaurant. The only people who truly enjoy it are adrenalin junkies. There are always exceptions to any rule, but I have found this one to be generally accurate.

My experience is absolutely not in Manhattan, but outside of rediculous real estate prices and supplier difficulties, most places are similar in terms of success rates for first time ventures (close to zero). I do have a very realistic view of what happens outside of New York, but I cannot even imagine what it would be like to take on a project there. My friend Jack Leonardi (Jacques Imo's) is about to open up in New York and he fortunately he has a great local partner, good investors with very deep pockets that love his food, and a number of successful startups under him. He might have an even chance. But even if he fails he still has his spectacular place on Oak St. in New Orleans that will be there for a very long time and while he has a great amount of personal pride and reputation wrapped up in the New York venture, he has no money in it (or that is my understanding, anyway) and a failure will not ruin him or his credibility (not to mention his credit). OTOH he is a pro and will work very hard to make it a complete success, but it is the only way he knows how to work which throws him into the "adrenaline junkie" category.

I would proceed with the business plan, but while you are working on it you might want to look into a job (back of house, to start) in a successful place and see what's up with that.

Good Luck.

[JosephB]

To succeed, you will need to placte all those complaining nitwits who come to your restaurant for the wrong reason and do it without letting then know they are nitwits.

Right, if you have the arrogance and superiority that plagued Primo, you'll have a tough go it. On the other hand, I would have a hard time giving the people what they want.

[Pan]

I essentially know nothing about the restaurant business, but the one thought I'm having off the top of my head is what did the NYU grad student (now graduated) Joohee Maeng do right with Temple, the Korean restaurant on St. Mark's Place?

(By the way, for those of you who might not have read Asimov's review of that place, here a link.)

You're looking to open a different kind of restaurant, but if you can find out how Ms. Maeng was able to work out the business end of things, that might be information you could use someway, somehow. Then again, you may already know how she did it.

[wesza]

The MOST IMPORTANT things to consider about the Restaurant Business are very important if you wish to make MONEY and survive.

You RUN the RESTAURANT it doesn't RUN YOU.

You must put together a operation that is not dependent on any specific employees EVER.

If you become dependent on any employee you become vulnerable. If your vulnerable then the business is running you.

Always treat your EMPLOYEES with respect. When your in any business dependent on employees especially a SERVICE BUSINESS it's important to evolve a working team.

Bond Girl's basic business plan is very well thought out. The most important thing to understand initially is that when you start into a new field of business that you leave room for a learning curve.

A Restaurant that will maximize into 80 seats will generally average about 60 guests per seating based on Table utilization.

This generally can be accomodated in a 2000 square foot area. The Amount of employees required should be a tight working team that can adapt with the business flow. There will be less employees required for opening allowing for weeding out and attrition. You should always prepare for BACKUP so management doesn't become vulnerable.

The Kitchen should be set up for any working condition, so that it can adapt into whatever the Restaurant evoles into during the process of becoming established.

Rules must be sustained as anything that your employees are allowed to do, will quickly become a given or a entitlement. It's little things that become givens that eventually become annoying and effect YOUR business. Start Right and Stay Right.

How often is management effected or Customers annoyed by Staff Chattering away somewhere on the premises. Or receiving telephone calls or making them when the should be attending to YOUR business. Going for smoke ? Not stopping to pick up something left on the floor? YOU set the example, they must follow up. After a while it becomes automatic. How many restaurants, even very good ones don't repace burned out bulbs? NOT YOURS.

You don't need any EMPLOYEE as a Partner or receiving a percentage of your profits unless your married to them or they are actually assosciates or partners. NO EQUITY or no way. Remember the BUCK stops here. You as a principal are making the decisions and taking all the risks. How and when you share the gains should be based upon your business ability always.

Never take anything for granted. It's your business so pay attention to it on a daily basis. Most novices who start out well don't sustain in the long run because they start to assume that the business will run itself on the momentum and start behaving like they are entitled to take advantage of their hard work. NOT SO.

A small business especially a service business depends on hands on management to survive. That a fact of the business that never changes and is a reason why Franchises are so successfull.

The vast majority of Independant Restaurants fail due to Burnout or Bad Habits and even Success. BUT the major reason for failure is that the principals eventually bite off more then they can chew.

Thats right what causes more failures of Successfull Independant Restaurants is thru trying to expand to another location. It's never the same as the operation that they've learned how to run nor are they organized or prepared by the management responsabilities of wearing two hats. It often becomes the undoing of all concerned especially since your dealing with egos and the human element.

Better get out of this lecture mode, sort of a know it all and start having fun. I've BEEN there and done THAT but always survived.

Learn by others mistakes and succeed thru what knowlege you've aquired.

Irwin

[Nick]

Bond Girl, I've got to agree with Bux. I've been in business for over thirty years and I can't imagine taking on the debt and responsibilties on the scale you're proposing without having any experience other than being able to write a business plan. But, I guess the test will come when you try to get some investors. If they want to go for it, what the hell. Give it a ride.

[Brian Young]

Your plan is a dream. Projected check average is way too high. Very hard to achieve. You need a cheaper rent.

[Pan]

$70/person on average in Tribeca is too high?

[vengroff]

I've never seriously considered opening a restaurant. But I did once do a back-of-the-envelope calculation that convinced me I absolutely never should.

Suppose I hosted a dinner for 8 at my home twice a week, and spent $100 per person on food and wine. That would get me some very high quality ingredients at a cost of about $80K per year. Now suppose I opened a serious restaurant in a serious restaurant city. I would consider myself extremly fortunate if I only lost $80K the first year. In the dinner party case, I would be working five or six hours a day two days a week. In the restaurant case, I would be working twelve hours a day seven days a week. The way I figure it, if I'm going to lose my shirt anyway I'd rather have the extra free time.

[clifford]

Even the most successful restauranteurs wonder aloud why anyone would wish to get into this business.

It's not enough to simply be passionate about food. It has to truly consume you.

And being talented, culinarily,won't necessarily get the job done, either. The world is littered with closed restaurants operated by culinary wunderkinds.

And if, in fact, you are a financial wizard, that often times is not enough in the fickle and mercurial world of restaurants.

You really have to be equal parts of all three, and a little bit lucky as well.

Every single year hundreds, if not thousands, of people just like you decide to chase their dreams and open up a restaurant. And yes, the attrition rate for these ventures probably runs about 95% over five years. But unless you give it a go, you'll never know.

Be prepared for 80 + hour weeks, dishwashers not showing up, seafood deliveries minus the crabmeat, broken stemware, health department inspection during the height of lunch rush, waking up in the middle of the night wondering if table 52 got their grilled calamari salad, etc. etc. etc.

And when its all said and done, if you still have your sanity AND your business, you have truly accomplished something extraordinary!

[anil]

BG: As many have said before - What would you be doing on a a day-to-day basis ? Managing inventory, reservations ? Not being a Chef, or having previous restaurant experience does put you in a situation so to speak...

[Jinmyo]

There is some very good advice here.

[Rachel Perlow]

Be prepared for 80 + hour weeks, dishwashers not showing up, seafood deliveries minus the crabmeat, broken stemware, health department inspection during the height of lunch rush, waking up in the middle of the night wondering if table 52 got their grilled calamari salad, etc. etc. etc.

Not having any time to read/post on eGullet.

Only being able to go to other restaurants once a week or so.

As we all know you like to experiment with recipes this one is big: Not having any time to cook for yourself.

Does anyone else feel like a rabbi refusing a conversion candidate? Like, if she makes it through all our negativity, she's got a better shot at being successful?

[Mayhaw Man]

Does anyone else feel like a rabbi refusing a conversion candidate? Like, if she makes it through all our negativity, she's got a better shot at being successful?

Thank you for putting that into words. It is exactly what I have been feeling since my first post.

As with anything in life, if she has the stones to do it and is willing to make the personal risk/investment, why shouldn't she give it a shot? Clearly some people do very well and make it big. Some people who run restaurants have lives outside of them and some people manage to have decent and fulfilling family lives, but not that many (see, there I go again-I will stop now ).