Three Mistakes New Restaurant Owners Make and How to Avoid Them
So, you have always wanted to open a restaurant. You are drawn to the excitement of the industry. You love food. You have always had a passion for sharing meals. Enthralled by the possibilities, you dive head-first into crafting the perfect menu, experience, and team for your new restaurant. Before you know it, however, the realities of running a business start to catch up. The details are overwhelming. You find yourself feeling stuck and choose to dive deeper into what you know: food. All the while stacks of invoices start to pile up, the taxes haven’t been filed, and your server wants to know whether or not they get paid vacation. If this sounds familiar, you may have already opened your first restaurant and learned from the experience, or maybe, you are in the thick of it right now. Either way, it is not too late to reap the benefits of a more organized business. Here are a few common mistakes we see new restaurant owners make and tips how to avoid them.
Budgeting
Having a budget is important for any business. Often-times new restaurant owners underestimate the costs of opening their restaurant, especially when planning for what happens after the restaurant is up and running. A restaurant can take months or even years to turn a profit and restaurant owners need to plan enough resources to sustain the business while also creating a road map to achieve financial success. New restaurant owners should create detailed pre-opening and operating budgets to aid in this process.
For your pre-opening budget, the cost of purchasing equipment, furniture, etc. is only part of the equation; there also needs to be an understanding of expenses like occupancy, legal costs, marketing costs, licenses and fees, staffing costs, and most importantly operating capital. Once your new restaurant is open, you should transition to your operating budget. This budget is critical to understanding what your operating costs should be based on sales projections. One of the key things to consider in your operating budget is prime cost, which you can calculate by adding the total costs of sales to the total labor cost. For restaurants, a good target prime cost is 60% of total sales. In addition to prime costs, you should consider setting targets for other fixed and variable costs. Some items, like rent, should carry over from your pre-opening budget to your operating budget, since they do not go away after opening. Having an operating budget can help keep your restaurant solvent no matter what sales volume you experience. The more detailed and accurate your budgets are, the better prepared you will be to weather the challenges of opening a restaurant.
Neglecting HR practices
Human Resources and employment laws can be intimidating to keep up with but they are crucial to business success. Without a basic knowledge of things like meal break laws in your state, especially in CA, you may be unwittingly not following current rules and regulations. Knowing the details of laws that apply to your business is the first step to protecting that business. The second step is to create an employee handbook. Your employee handbook can be a powerful tool as long as the policies described in the handbook are your actual business practices. For example, if your handbook says that everyone must wear a flower on Wednesday, but you don’t enforce that policy, it should be removed from the handbook. In the handbook, you should outline things like your uniform policy, your break policy, employee classifications, benefits, and leave policies that apply to your organization. You should also have your employees sign an “acknowledgement of receipt”, which you should keep in their employee file. This can show you did your due diligence in informing the employee of your policies should disciplinary actions become necessary. Familiarizing yourself with the laws that apply to your organization and creating a handbook can help ensure compliance with your area’s laws, while also providing guidance in the event an employment actions occurs. If this all sounds like too much there are HR services, like the ones we offer at Vine Solutions, available for those who want assistance creating a handbook or providing guidance in keeping up with ever changing employment laws on a Federal, State & Municipality level.
Not Managing all three components of a successful restaurant equally: Operations-Finance-HR
All too often, we run across business owners who have a strong operational background but little financial and HR experience. This operational expertise is a strong asset but it is only one part of a successful restaurant. After all, it doesn’t matter how good a menu item is if it isn’t priced right or the server’s attitude problem hasn’t been dealt with appropriately. Likewise, it doesn’t matter how nailed down your HR policies are if they are not being followed on an operational level or if the profit and loss statement is picture-perfect but customers complain there is no consistent quality in the food they receive. Like so many things in life, running a restaurant is about balance. The good news is that you don’t have to be an expert in all of these things to find success, you just need to know where your areas of opportunity are. If you know you have a strong operations background but have never written a handbook or created a budget, partner with people who have the experience you are looking for. Your business is only as strong as the team you put in place. When you build this team, resist the urge to hire people with similar experience to you; instead, find individuals who can fill your gaps in knowledge. This can help balance your team and ensure your business is looked at from all angles. If your business can’t afford to hire people for each of these roles, look into potential outsourcing services or programs that can support your objectives.
KEY TAKE-AWAYS
Opening a restaurant is an exhilarating experience that can be best supported with an organized plan. A proper budget, accurate HR practices, and a balanced approach to running your business can help lead your restaurant to increased profitability. The more time that goes into creating your plan, the better off your business will be. Even if your business has already been established, taking some time to reevaluate can help pivot your restaurant in the right direction. It is never too late to benefit from a more organized approach to running your business.