When it comes to starting a restaurant business, many people are intimidated by the prospect. There are so many restaurants around and competition is fierce. Yet many of those same restaurateurs who had trouble in their own kitchens decades ago are now able to compete easily against some of the very best restaurants in the world. It’s not that they made mistakes. It’s that they worked harder than everybody else. It’s a different business, though the underlying principles are the same.
Probably, the most important factor that determines how successful a restaurant business will be is the type of ownership that takes place. Restaurant owners can choose from a wide range of ownership structures, including limited partners, venture capitalists and corporation. Limited partnerships are where the restaurant business is managed by a partner; the venture capitalists are only responsible for investments and profits. Corporations are run by a single shareholder; sole proprietorships are run by a single person. If you want to limit your liability and protect yourself against lawsuits brought on by a disgruntled client, you should probably opt for a partnership over a corporation.
Restaurant owners also have the option of choosing a sole proprietorship or a limited liability company (LLC). A sole proprietorship is similar to being an owner in the business structure, except that there are no partners. With a sole proprietorship, one person owns the restaurant. With a limited liability company, multiple people share ownership in the business, but the business can only be sued by the person who owns it – that’s its sole liability.
One way to decide between a partnership and a sole proprietorship is to consider the risks involved with each. A partnership poses more risk because there are more people who are potentially parties involved in the business. A sole proprietorship, on the other hand, only has one owner – which may not be you. A restaurant business plan should take this into account when determining which structure to use. Remember that even a good restaurant has room for risk, so you should include contingency plans for any potential liabilities.
Many restaurants are large restaurants that serve a variety of different foods and drinks. These restaurants usually have a wide customer base and therefore do not have a difficult time increasing sales. However, there are also large upscale restaurants that cater to the elite customer base, offering fine dining and sometimes high-priced cocktails and other alcoholic beverages. When these restaurants open, they often have a number of standing tickets for different courses and different types of food and drinks. These tickets cost money and can add up to a significant expense over time.
Other costly establishments include fine dining establishments and other restaurants that prepare food from scratch. These establishments usually require more staff and higher prices to cover costs such as employing wait staff and purchasing food and supplies. Fine dining restaurants are also frequented by people who like to eat out and are ready to spend a lot of money at restaurants. A small family-style Chinese restaurant may be much cheaper than an expensive five star restaurant because of the smaller volume of food and fewer guests. This is another situation where a franchise or direct selling strategy could prove to be better.
Franchisees and direct selling companies have advantages over traditional restaurants. One advantage is that franchisees can focus on improving restaurant customer service, which can translate directly to increased sales. The other advantage is that they don’t have to worry about complying with all the regulations of setting up a business structure, although they must comply with most state laws. The disadvantages of using a franchise or direct selling company are fairly minimal compared to the costs of starting a restaurant. Franchisees must pay a fee to join the franchisee program but the fees are minimal and usually cover costs such as overhead, payroll and advertising.
An executive summary should be included with your restaurant business plan. An executive summary will provide information about the history of the business, the management team, and key executives. This summary will also describe how the business will compete in the local and national markets. An executive summary will allow investors to assess the business plan thoroughly before investing funds.