January 23, 2019 |
A miscalculation of capital expenditure is the single biggest danger to a successful restaurant opening. There are numerous examples where ambitious restaurateurs started off with a solid product in an under-serviced market niche, yet still had to close their doors not even a year after opening. But how can we avoid such a scenario?
The answer is to prepare a sound budget to know how much funding is needed not only to build the restaurant, but also to operate it. I have seen many first-time restaurateurs making the mistake of underestimating the capital expenditure needed to launch a venue successfully. When preparing a feasibility study for a foodservice establishment, there are four common mistakes that can easily be avoided:
1. Confusing the build cost with your overall project budget
“How much did it cost to build your place?” That’s a common question restaurant owners get asked by their peers. The surprising answer to this is that, whatever the sum might be, it is usually only around one third of the total cost of opening that specific venue. Many aspiring restaurateurs confuse the build cost with the overall project budget needed to successfully open their outlet. The build cost is the most straightforward expense to estimate as it includes the fit-out and MEP works as well as furniture and operating equipment.
2. Overlooking the soft costs
The so-called soft costs involve any intangible part of the restaurant opening such as branding, design, consultancy, training and marketing. These expenses play a big role in the positioning and the voice of your venue in the market. It would not be wise to wait with your marketing efforts until you open your doors but you should rather plan a full marketing and PR campaign starting two or three months in advance in order to create a buzz around your venue and get people excited about the opening. All this needs to be funded from the pre-opening budget so make sure to allow a realistic sum for these efforts.
3. Forgetting about the pre-opening payroll
For every new café, restaurant, bar, pub, etc. you will have to bring in at least part of your workforce way before opening the doors and taking the first revenues. Especially the kitchen team needs to have sufficient time to develop the menu, do tastings and be trained according to the brand’s standards. Many restaurateurs forget to calculate the implication of these early labour costs, especially if there are expenditures involved such as like working visas, health insurance, hygiene training and others. Make sure to have provisions for all these related costs and set aside the required amount of money to avoid any trouble or delay in the opening.
4. Neglecting the importance of working capital
Working capital is probably the most important, yet the most commonly undervalued cost. It is in the nature of every entrepreneur to be optimistic and to expect his venture to rake in revenues from the first day of operations. The F&B industry is no exception, as owners tend to believe that the whole city waited for their venue to finally open so the masses can storm through their front door.
But what if they don’t? What if it takes longer than expected for people to understand your concept? What if your opening gets delayed because of fit-out issues and you are forced to open in the lowest point of the season?
There are many circumstances where an opening does not go as planned and it would take a while for a new concept to take off. Expenses however still need to be settled, suppliers and staff need to be paid. Therefore, it is of utmost importance for a new restaurant project to have a clear budget set aside in order to overcome all the potential hiccups and drawbacks following the first few months of operation. A solid working capital reserve should at least cover 3-6 months’ worth of operating expenses in order to keep the restaurant afloat in case it is needed.
Keeping all of the above in mind when embarking on the adventure of opening a restaurant will help entrepreneurs to sort their finances appropriately. Paired with high quality products and a killer service, this makes for a winning combination in any new F&B venture.
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