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BC Restaurant Financing 101


jamiemaw
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BC Restaurant Financing 101

This thread is a FAQ of life for me.

Not everyone is familiar with how the formula works for restaurant financing, and I thought it might be interesting to shed a little light on the dark science.

Just suppose that you are a chef or FOH manager with some sound experience of the hard knocks variety. And perhaps even the credentials that arrive with recognition for your work. And during the ingestion of innappropriate quantities of malt liquor you realize that you can do everything your simpering, cheapskate boss can do.

And then you sober up. But the feeling just won't go away.

You’re a realist though, and your ambitions are based in the pragmatics of an absolute dedication to operating a successful restaurant. Of course that will mean delaying having a family for at least five years. Hell, it may even mean delaying having sex for at least five years.

But you have a good idea, some modest savings and may have even ferreted out a location (increasingly difficult by the way: Senova’s landlord received 48 applicants when Coco Pazzo went dark). But if your credentials are strong enough to attract private capital, here’s the general formula:

Budget: $1m (for the sake of a round number), to include all hard costs (renovation/construction etc.), soft costs (legal, permits, professional fees), pre-opening (training etc.) and opening (food and wine inventory, glassware, supplies etc.).

You have: $50,000, or 5% of the budget - the minimum. In other jurisdictions such as the UK, that quotient can be significantly higher.

You need: $950,000

You locate: A group of investors willing to participate.

In exchange for their $950,000, they will expect you to:

1. Vest your own $50,000 first, but extract it last (FILO);

2. Charge the partnership between 3.0% and 4.0% of sales for your professional services (i.e. your salary for development, opening and management) for operating the business;

3. Pay from cash flow all expenses associated with operating the business;

4. From the after-tax profits pay 100% of residual cash flow (return of capital) to the investment group, plus a current interest rate of about 7% to 8%;

5. Once the investor group has received 100% of their investment plus interest back, the sharing formula converts to 50% of net C/F to you and 50% to the investor group.

6. Many restaurant partnerships allow for the operating partner (you) to repurchase increments of ownership/cash flow at pre-designated intervals.

7. This formula does not provide for but can accomodate bank debt which may be subordinated to the equity capital once an operating record (credit history) has been established.

The rule of thumb is that a restaurant that is performing strongly can hit point 5. above, in about 4 to 4.5 years. In other words, about a 20% to 25% ROI. Beneath 20%, it's more difficult to attract capital to such a risk-prone business because the financial model will appear flawed, epecially in a time of such dramatically increasing hard costs.

Edited by jamiemaw (log)

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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BC Restaurant Financing 201 -- Why Do Restaurants Fail?

What do you think are the most common reasons restaurants in BC fail?

To begin the list:

1. Underestimation of money required to complete the restaurant, inventory up etc.

2. Underestimation of time required; i.e. construction, permitting, licensing delays.

Your thoughts . . . ?

Edited by jamiemaw (log)

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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Bad restaurant concept.

Bad location.

Unrealistic expectations of revenue.

Mediocre menu.

Too threatening menu.

Bad business practises...case in point...Coco Pazzo.

Change of prices.....(usually higher, because the owner is panicking or is greedy)

Unhappy employees=unhappy customers.

Bad news travels fast...case in point...Watermark.

(Had a lot more written here...but hit CLEAR by accident....couldn't bear writing this again.)

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BC Restaurant Financing 201 -- Why Do Restaurants Fail?

1. Underestimation of money required to complete the restaurant, inventory up etc.

2. Underestimation of time required; i.e. construction, permitting, licensing delays.

The reasons that it seems many major projects; RAV, Waterfront Convention Centre, Olympic Ice Centre in Richmond and gawd knows what else, besides the rest of us trying to do home reno's/buy a home/establish or improve a business are almost seemingly doomed to fail, or are predicted to..... and if a restaurant is to fail, it is partly because those of us potential customers, although we would like to go, can't justify affording to ....... frustrating indeed. :sad:

"If cookin' with tabasco makes me white trash, I don't wanna be recycled."

courtesy of jsolomon

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Restaurants are

Capital intensive

Labor intensive (and reliant on skilled staff)

Top-end limited (only capacity for a certain number of bums on seats)

Fickle (you are only as good as your last meal)

Fashion goods.

Also, rule of thumb

Food costs: 30%

Staff costs: 30%

Overheads: (heat, light, power, comms, insurance, water, linen flowers, capital costs etc etc) 30%

Leaving 10% for profit, taxes and repyaing the investors.

Slim margins at best, and leaves little room for disaster.

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[host]

Let's keep this thread focussed on local financial/economic issues. There are lots of threads on the trials and tribulations of opening a restaurant in General Food Topics. In order for this thread NOT to be moved, it needs to stay regional.

Thanks

A.

[/host]

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Nice one Jamie.

I've always been impressed with your intimate grasp of business financials.

Actually, there are some interesting twists to this, and I've been exploring all of them. I've discovered that one thing gets restaurants built and financed;

Optimism.

One thing, also, keeps them profitable and executing properly;

Pessimism.

So call it the bulls and the bears, or a slick tango between the haves and the have-nots, even a timeless battle between the dreamers and the realists. The scariest thing to me is how many of us can't stop doing it.

Our investors have always pitched everything to their accountants and their lawyers, so I've invested years into developing proper business plans, learning all the accounting and partnership legal and trying to master the sales pitch in the board room. Confidence (and optimism) always seems to take a bathroom break when the lawyers are in the room.

It sounds like you were describing a limited partnership type deal, and I constructed one of those for our (ill-fated, worse timed) Whistler project. At a build cost of $2.2m, it necessitated serious deep pockets, and a seriously good business plan. The LP is a great vehicle for financing big projects.

That isn't, however, how I've seen most of us develop these little dreams. My partners in Lucy's and I self financed, put the tool belts on and did it ourselves. I did the same at Fiction, once the folks agreed to put up their home as collateral for the loan. Both of those projects only cost 2-300k to do, but to be fair, I think each one saved approximately 1-300k in consulting fees, labour costs and earned sweat equity.

Century is being built by myself, my brother and a good family friend. Our investment was small again, and spent entirely on materials. It's a great example of restaurant sourcing. It's taken me years to budget a project properly, and learn which projects will be the most viable to our particular style. (DIY)

I'd love to argue that this intimacy with the project brings a ton of heart and soul to the room, and saves us a ton of money, but the bottom line never changes, you simply move it from one column to another on the balance sheet. Either someone else will do it, or I will. In the end, if my partners let me, I'll try and do everything myself, it's my achilles heel.

This is the greatest failure of restauranteurs that I've known. We're control freaks, at least we better be. We're detail focused, quality driven and cost conscious. If we don't have control, we better get medicated or lubricated. And we all try and do it all ourselves.

The most difficult thing for any of us to do is run our restaurant like a business, if we did, we'd do so much better. In my time I've seen one main difference between independents and chains; one is a locus for socializing, craftwork and engaging conversation between interesting people, and the other is a business.

There are some great tools for hopeful restauranteurs on the net, and quite frankly, out there accross the bar. We're all quite willing to let you in on the secret joys of this business over a pint or eight. But to all those interested

I have an interesting observation.

Every year I look myself in the mirror, survey my operations and think, 'damn, I learned a lot this year.'

Good luck all!

Owner

Winebar @ Fiction

Lucy Mae Brown

Century - modern latin -

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Great thread Jamie;

As Someone who has financed projects under the exact Limited Partnership formula that Jamie puts forth I can tell you the benefits.

1. If you have a real handle on the budget required it allows you to open with the ability to focus building the business not on the ever present thought " please let this be a good weekend so we can pay our.... whatever needs to be paid NOW". If you are a restauaranteur and you haven't gone through that all I can say is you have way too much money.

2. If the deal is fair and people like what you are about then it is much easier to get done.

3. If you are doing this form of financing NEVER, EVER,EVER,EVER do a cash call. Nothing says "i don't know what I'm doing more than that". If you have to ask for money at the start and then return additional funds early your partners will look at it as a bonus payment.

This form of fundraising is good for both independants that have a track record in the industry and for growing concerns. The issue with growing concerns is that if you are like us, where you can show a good concept and growth potential, everytime you want to go the traditional funding route it inhibits growth, with things like personal guarantees (the seans comments re the house on the line) the bank likes to fund one at a time, on a 4-5 year return that does not allow for much growth, the "MAW" formula is good because it allows better growth.

Proof is in the pudding we are opening 3 stores next year on the back of that formula.

Gerald Tritt,

Co-Owner

Vera's Burger Shack

My Webpage

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Thanks for your valuable post on this topic, Sean. Yes, i was describing a Limited Partnership approach to financing, although the formula works for less formal arrangements as well. With any luck, we'll hear from other proprietors as to their business models and M.O.'s for getting started.

I think that you are the DIY exception that proves the LP rule.

Would you care to share with us the details of the pitfalls that you encountered at Whistler?

Cheers,

Jamie

Edited by jamiemaw (log)

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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Great thread Jamie;

As Someone who has financed projects under the exact Limited Partnership formula that Jamie puts forth I can tell you the benefits.

[EDIT]

This form of fundraising is good for both independants that have a track record in the industry and for growing concerns.  The issue with growing concerns is that if you are like us, where you can show a good concept and growth potential, everytime you want to go the traditional funding route it inhibits growth, with things like personal guarantees (the seans comments re the house on the line) the bank likes to fund one at a time, on a 4-5 year return that does not allow for much growth,  the "MAW" formula is good because it allows better growth.

Proof is in the pudding we are opening 3 stores next year on the back of that formula.

I remember discussing this formula with you when you were still involved at Sienna, Gerald. As I recall you took careful notes on the back of a napkin. :biggrin: I'm glad that it is serving you well; as you say, for an expanding chain such as your own, it allows financial firewalls to be introduced in the event of an underperforming location.

And as you say, it allows for you to focus: Build a better burger and a better business is more likely to follow.

Edited by jamiemaw (log)

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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Great topic.

I was not smart enough nor did I know enough people with $$$, so I had to take a different appraoch. ( I could now open a chain of hotdog carts on the strength of being nwyles from Egullet and have the whole thing financed ! )

Do it all myself with my own money. I managed to get a bank loan for some but as it is a restaurant, you could imagine the restrictions.

After the fact, there are some good things and some negatives.

I have no partners : both a negative and a positive. It is hard to do it all on your own, but at the end of the day, the money that is hopefully left over, is all yours as well.

No debt : That speaks for itself.

No group of partners to call upon when you want to expand or get a second location. It makes it that much harder but not impossible as I have been lucky enough to expand my restaurant twice.

I might change a thing or two in how I opened this place but I am happy. Every now and then I see some well financed people open flashy places to much pomp and flair but having a million dollar nut hanging over your head would be so streesful that I would go crazy. The first people you turn to finance your dream would be friends and family. If it all went sideways, Christmas dinner would be a dismal affair.

Neil Wyles

Hamilton Street Grill

www.hamiltonstreetgrill.com

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jamiemaw   I think that you (and Neil, for that matter) are the DIY exceptions that for the most part prove the LP rule.
nwyles  No group of partners to call upon when you want to expand or get a second location. It makes it that much harder but not impossible as I have been lucky enough to expand my restaurant twice.

Most restaurants with a start-up budget exceeding $500,000 carry the weight of partners, or more directly put, the opium of OPM: Other Peoples' Money.

One of the earliest models of the Limited Partnership that I'm aware of locally is Joe Fortes. Quite a few Limited Partners, each of whom bought a unit/units in the LP. It's my understanding that the General Partner has endeavoured to buy back LP units from investors and their estates.

Of course, once equity has been returned (with its requisite interest), the ROI becomes an infinite return on the 'phantom' equity. In other words, in the case of a financially viable restaurant, sometime after Year Four of Ops or so, it's a very pleasant way for the investors to passively clip their coupons -- and show up for the annual Christmas shivaree. :biggrin:

Chestnuts roasting on an open fire,

Jamie

Edited by jamiemaw (log)

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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The Fortes model is stuff of legend as is the Partnership Dinner each year.

THe magic there was the ability to buy back some of the shares at the agreed upon price, after the initial investment was repaid. As people's fortunes rose and fell, oppourtunity knocked for Mr. Kanke to secure more and more of restaurant back. I would be curious as to how many of the original investors were left.

Neil Wyles

Hamilton Street Grill

www.hamiltonstreetgrill.com

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The Fortes model is stuff of legend as is the Partnership Dinner each year.

THe magic there was the ability to buy back some of the shares at the agreed upon price, after the initial investment was repaid. As people's fortunes rose and fell, oppourtunity knocked for Mr. Kanke to secure more and more of restaurant back. I would be curious as to how many of the original investors were left.

Coincidentally, Neil, I was editing my last post to reflect exactly that. I don't know how many of the original LP's are left, however I believe that repurchased LP Units have allowed fractional ownership to be reallocated to the restaurant's senior managers.

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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I think that you are the DIY exception that proves the LP rule.

Would you care to share with us the details of the pitfalls that you encountered at Whistler?

Cheers,

Jamie

I guess the appropriate mourning period has passed. . .

Landlord issues. One actually, the landlord.

:raz:

Long story short, our project included a liquor primary aspect in a venue that Jack's architect (Werner) had done a lot of work on already (Alpen Rock). Restaurant and Nightclub in the heart of the Village.

my Spidey senses were tingling when I saw that Jack walked from walked looked like a very fundamentally sound project. I have to start listening to that little voice, I think.

Anyway, once we had final approval from the municipality of Whistler, which took us into month 6, with design, mech/eng and legal already completed and engaged, financing in place with all sorts of paper on every inch of the deal, it was discovered that the landlord owed $200k in development fees to the muni. The Muni's caveat on approving our project was to ensure that the project didn't start until the unpaid debt was paid in full.

:sad:

I'm sure you can imagine the rest of the story. Larco's (landlord) rep looked us straight in the eye and said, 'you want to do this project so bad, you pay it.'

I'm ashamed to admit that I even considered it for a moment, but once we did our due dilligence on this particular companys past history uncovered many similar stories, we walked, half expecting them to come back to the table. They didn't. The space still sits empty.

Sad to say, but we lost an opportunity and some money for a lesson learned. I'm still not sure what the lesson is yet, but perhaps it's a better thing with Whistler's difficult past seasons and the disgusting rates their charging.

This is the project where I originally got excited about the modern latin concept, in fact, Century is very similar to what we had planned for Whistler.

And the commute is a little easier, too.

Owner

Winebar @ Fiction

Lucy Mae Brown

Century - modern latin -

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Ouch. I can only be candid in my silence about your prospective landlord except to say that they owed my family a good deal of money for excavation services rendered. They were painfully slow to pay. So we sent in our collection team. There's just something about the prospect of a D-9 in your lobby that sharpens the senses. A cheque was forthcoming.

Thanks for sharing, now would you care to let us know a little more about Century? Concept, budgets, revenue expectations?

J.

Edited by jamiemaw (log)

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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I guess this is the coming out. . .

We first spied the Century House two years ago and were besotted with the architecture, barrell vaulted ceilings, solid marble staircase, solid granite pediments etc. and have always been disappointed in the room's performance.

So, we picked up the space when a new landlord came in and have begun work on this grand old lady.

Remi Dubois has been hired from Salish Lodge in Wa. to oversee the kitchens of both Lmb and Century, and his talent is extraordinary. The son of a two French chefs, he began his career at 12, staging at 15. He spent time as Exec at Ritz-Carlton Boston and was our resounding first choice to lead the brigade. This guy is only 26 and is brimming with confidence. I've been having a blast working with him so far. Being from the U.S., he has some interesting perspectives on the local scene.

At Century, Remi will be using Latin flavours, with classically French techniques and locally sourced ingredients. Small plates, shared entrees and platters will help facilitate what I like to call 'social dining'. Merely, a focus on sharing and conversation. Highlights include a latin cassoulet, and kick ass paella, but I'll forward a menu once we get closer. A girl's gotta have some secrets, you know.

The wine list will focus on wines that work with the food. Obviously, Chile and Argentina will figure prominently, as will Spanish and Portugese. We'll round out the list with some BC's and some bits and pieces from around the world, but aren't focussed on making a massive cellar right away. Just an intelligently sourced selection and build it over the years.

What can I say about the cocktails that isn't immediately assumed with Latin? Classic and modern interpretations of Mojitos, Caiprhinas, Sangria etc. all made with fresh juices.

The decor is my own original creating, and I think I've created a monster! Modern Latin Cowboy is the official design theme, although I think I might throw the word revolutionary in there as well. We have sourced saddle leather for the seating, with a caramel microfibre suede for the chairs and reclaimed 500yr old lumber for the bar tops. Tables are handmade Hawaiian Koa, and the original wine stained marble floor has been restored.

The upstairs loft is being converted into a lounge/bar and the licensing should be coming through in a few short (govt) months. Barcelona loungers, big windows and crystal chandeliers will be the main draws up there.

The private vault room will hold 14 people for dinner, with exclusive dumbwaiter (bring the jokes) service directly to your room, and private phone for service calls. The challenge we're having is with the door, it weighs a few thousand pounds, so our hostess will have to have some pipes on her to move it.

Lighting is by Propellor, my favourite custom lighting company. They did Lucy's as well as those fantastic mahogany pendants at Fiction. We have also engaged them to restore three of the original chandeliers from the building that were collecting dust in an antique store next door.

Correct me if I'm wrong Jamie, but I believe this was originally converted into a restaurant by Werner himself for Umberto and they called it Il Pallazo. It truly is palatial, and built like a tank. The granite for the building is supposedly the same as our own city hall, the only two buildings in the city from the same quarry, so I'm told.

I've not seen the ghost yet, but I've heard her. I wonder if anyone has any encounters with her from the Lola's - Ballantyne's days?

As you may have surmised, we're doing our best to be low key with this one, it's a tough location with great fundamentals, our neighbours Cassis are doing a fantastic job and with Yagger's opening up around the corner we're expecting this neighbourhood, 'crosstown', to start making some noise in town.

Opening Soon has been filming, so everyone can watch the episode when it comes out to see how much fun it is building these things :biggrin:

Staying on topic, though, the dealmaking was a big part of this project, and while we hope to stay within budget, it's taken an incredible amount of effort to keep it there.

If anyone wants to poke their head in from 'the gullet', feel free. I'd love to give you a peek into the chaos.

Owner

Winebar @ Fiction

Lucy Mae Brown

Century - modern latin -

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Sean,

I am really glad to see something new going into that room, which is lovely. Can't wait to see it.

I never saw the ghost, and I was definitely known to be there during the wee hours back then, making enough noise to rouse the dead.

Ann

The sea was angry that day my friends... like an old man trying to send back soup in a deli.

George Costanza

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I don't know if I have anything new to add to this discussion, but I can second a lot of the previous opinions.

My mom used to be a small business loans counsellor, and I've worked at a lot of startup restaurants over the years, and I think there are two major things, one of which has been mentioned (business plan) and the other, which is emotion.

Of course, you don't need a business plan in order to have a successful business; but - IIRC - 80% of new businesses fail within the first 5 years, and the majority of those failures are due to cash flow or financing problems. Importantly, especially for restauranteurs, many of these businesses do *not* close because they lack business, but often because they are operating at full capacity, but at a loss, for too many months before errors (of action or omission) in gross margin are recognised.

I've read that there is an odd brain phenomenon that goes on when we shop for houses: apparently the most concentrated areas for reasoning go completely quiet when we see a house we want to buy (how they figured this out I don't know: free PET scans at MLS?), resulting in the numerous instances of people buying houses without really checking into their viability. Apparently, the combination of stress and desire shuts down our ability to step back and evaluate the reality of the situation, and we take a drastic leap completely on gut feelings.

Nothing wrong with gut feelings. But I think the same thing is true with restaurants; there's something deeply emotionally satisfying about being a restaurant owner, and I think that (sometimes. Often?) new restauranteurs don't *want* to see how unviable their idea is; the romantic rush of walking into a storefront where they can picture themselves plying their trade just over-rules higher logical functions.

Sometimes. Not always.

And - particularly after their signatures are on the dotted line - there's a lot of emotional resistance to rethinking decor, giving up the idea of that special dish, carefully calculating and incorporating hidden (or more likely, un-noticed) costs, which might result in delaying opening or needing more bridge financing. It's where blind hope comes in. If it were any other enterprise a careful look would result in a vote for bailing, but the hopeful entrepreneur keeps plowing on because it would hurt too much to really *see* their idea's failings.

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SSherwood 

Staying on topic, though, the dealmaking was a big part of this project, and while we hope to stay within budget, it's taken an incredible amount of effort to keep it there.

Thanks for the summary of your new venture, Sean. Would you feel comfortable sharing some financial data from your business plan?

Here's the edited version of something we published earlier this year that's quite germane to the discussion at hand. At the end, there's mention of Il Palazzo, the most beautiful incarnation of this space (to date :biggrin: ) and, yes, a creature of Werner's design:

Forum Hosts kindly note that I own the following copy:

"Like the celebrity poker tournaments that haunt late-night television, Vancouver’s high-stakes restaurant business is rife with folded hands. Folded hands from amateurs trying to muscle in on the professionals’ game. And now, with rents escalating wildly—the highest fixed cost for would-be restaurateurs—the game has just become that much more serious, quickly.

But the odds against launching a successful restaurant are much worse than in a Vegas casino—they’re heavily stacked against the player. If statistics are to be believed, within three years two of the three restaurants that we review this month will be shuttered and forgotten. Then a new person, someone with a slightly different dream, will pick up the entrails, clean behind the stove, renovate the room, and then unwittingly attempt to sell food to the unwilling.

The dreams of these would-be restaurateurs are born from a stubborn place: that the greatest pleasure in life comes from doing what people say you cannot do. Some restaurants are ill-fated from day one, typically because their owner has misgauged its intended market, or chosen a tough location, or lacks an innate capacity to understand that this is a vicious calling, or, more brutally, oversees a stunningly quick escape of operating capital. “Sometimes you’re the windshield,” as the musician Mark Knopfler might have said about the restaurant business, “and sometimes you’re the bug.”

Jack Evrensel owns CinCin and now intuitively understands the many things that combine to ensure commercial success in the toughest job in show business—restaurateuring—cooking and service are just two, albeit vital, components. Evrensel has learned them the hard way. When CinCin first opened in July of 1990, this magazine’s then-restaurant critic Scott Mowbray gave it an unforgiving, harsh review. Evrensel, though, has defied the statistics of misadventure, not only surviving but steadily expanding his empire from profits: he has no partners.

He’s been successful because he understands the lengthier list of items required for commercial success in the business: clarity of concept, décor, sourcing, food management, staffing, wine procurement, cash management and public relations. The list goes on, but if you were to examine successful restaurant businesses, you would also know that you could claim this entire list and still not make a go of it. Like umami, the combinant fifth and most intangible taste, there is an ineffable, mysterious and effortless grace to restaurants that flourish.

Ask Umberto Menghi, who is a veteran of the restaurant wars. He has an intuitive taste for design, service and food. But even a master such as Menghi has closed—in Vancouver, San Francisco, Seattle and Whistler—more restaurants than he has open today. Most famously was the million-dollar closure that broke his heart, the beautiful Il Palazzo, a room that combined the elegance of a slightly-decayed Florentine villa with extraordinarily good cooking (a young Michel Jacob was there) but couldn’t consistently win over Vancouverites to a challenged location and high prices."

Edited by jamiemaw (log)

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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Anchoress,Nov 28 2005, 01:58 PM

My mom used to be a small business loans counsellor, and I've worked at a lot of startup restaurants over the years, and I think there are two major things, one of which has been mentioned (business plan) and the other, which is emotion.

. . . many of these businesses do *not* close because they lack business, but often because they are operating at full capacity, but at a loss, for too many months before errors (of action or omission) in gross margin are recognised.

. . . and we take a drastic leap completely on gut feelings.

. . .  there's something deeply emotionally satisfying about being a restaurant owner, and I think that (sometimes. Often?) new restauranteurs don't *want* to see how unviable their idea is; the romantic rush of walking into a storefront where they can picture themselves plying their trade just over-rules higher logical functions.

. . .  there's a lot of emotional resistance to rethinking decor, giving up the idea of that special dish, carefully calculating and incorporating hidden (or more likely, un-noticed) costs, which might result in delaying opening or needing more bridge financing.  It's where blind hope comes in. .

I couldn't agree more with your excellent points, Anchoress. Especially that (not unlike more converntional forms of divorce) for the "injured" party the emotional investment in a restaurant quite often disguises fianancial distress: A failing restaurauteur can throw up more denial than an entire anger management clinic -- Hope springs infernal.

Edited by jamiemaw (log)

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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I find this all fascinating.

Anchoress, you have scared the living daylights out of me though, with your house-buying analogy...(in the midst of buying a cash-sucking old-timer).

I believe that Alan Greenspan, when he was chairman of the Fed, called this human failing "irrational exuberance."

But cheer up, because it's immediately followed by "cognitive dissonance" or buyer's remorse. :biggrin:

J.

Edited by jamiemaw (log)

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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I find this all fascinating.

Anchoress, you have scared the living daylights out of me though, with your house-buying analogy...(in the midst of buying a cash-sucking old-timer).

You should be taking anna nicole smith's lead and marrying a cash sucking old-timer, not buying one. :wink:

Back on Point, Another benefit of the lp route is that it gives you alot more "eyes" which are focused on the things that can negatively impact your business. Your partners won't tell you when they have gone to a your place, but you will hear about it if they had an issue. As the general partner you need to have thick skin and a head for business, having partners help keep both on point. When its the banks money, emotion can cloud judgement, when its people that you see or have relationships with, it provides brilliant clarity.

Gerald Tritt,

Co-Owner

Vera's Burger Shack

My Webpage

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Gerald's point is an important one. While a banker might allow him/herself to be entertained (read: 'snowed') by the owner once a year, LP's are the deadliest of silent shoppers because they have a heavily vested interest in performance.

On a positive note though, some LP's can bring a lot more than money to the investment. Accountants, lawyers and experienced business owners bring expertise and contacts.

from the thinly veneered desk of:

Jamie Maw

Food Editor

Vancouver magazine

www.vancouvermagazine.com

Foodblog: In the Belly of the Feast - Eating BC

"Profumo profondo della mia carne"

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