Nibletz Staff
Millions of restaurants in the United States means a multitude of competition for restaurateur hopefuls, so it’s no wonder two out of three restaurants close within three years of opening. It’s easy to fail at this seemingly simply venture, as the hospitality business can be surprisingly unforgiving to unprepared entrepreneurs. The restaurant industry is alluring; a passion for food and thoughts of opening night grandeur make it easy for any restaurant investor to lose their head. Without the proper education, research, and capital, opening a restaurant can and has depleted life savings of novices who truly gave it their all. If you’re considering a foray into the world of the restaurant industry, take a look at the stresses and responsibilities that come along with this venture.
The True Costs of the Business
Restaurants are expensive to get off the ground, and expensive to maintain. General estimates place some restaurant startup costs around $500,000, but this can vary in both directions depending on your local area and the motif you’re going for. Beyond leasing a space, securing produce, meat, and other essentials from local vendors, and buying furniture, there are plenty of hidden costs that come along with a restaurant startup. Restaurant insurance costs can skyrocket, and they’re unavoidable. You’ll pay plenty for marketing and advertising efforts to get your business in front of the eyes of your target demographic, and you’ll have to shell out money for music licensing to help create your atmosphere.
You’ll Need to Secure Your Finances
If you don’t have this amount of capital sitting in your bank account waiting to be used, securing the right financing is essential. You might seek out a private restaurant investor that can give you a hard money loan, or you might approach your community bank if you have great credit and are in good standing in regards to debt issues. One mistake many restauranteur hopefuls fall into is securing money from family and friends. Money can change relationships, and with the high risk of failure in restaurant ventures, it’s advisable to avoid this situation.
Market Research is Required
You have a great menu, a great staff, and you’re ready to get cooking—not so fast. Before dipping your toe into the industry and breaking ground on your chosen location, there’s much research to be done. This means looking in-depth at the population surrounding the neighborhood you’ve chosen for your restaurant. How many households in the area fit into your price point range? If the area is restaurant-heavy, you’ll need to determine how many restaurants have the same concept or similar menus within a few miles of your location. Having a handle on this data will help you price your food, pare down your menu, and determine if a different location would serve your restaurant aims better.
Zoning and Permit Headaches
There’s a seemingly unending list of permits and zoning regulations you’ll be required to keep up with, and these vary based on state and city. We’ll look at one state for example purposes. Take California; a huge population, tourist destination, and all-around competitive real estate market. Securing a restaurant in an area like this is one thing, but securing all of the permits needed and getting the okay from local governments can feel impossible. One such case comes with the procurement of an alcohol permit. In the state and varied counties, permits are limited, so restaurateurs have to secure their desired license from an existing pool of previously issued permits. The cost of buying a California liquor license can vary immensely from county to county depending on competition and population, and it’s not surprising in this sunny state for restaurant proprietors to shell out hundreds of thousands of dollars—all to be able to serve that signature cocktail. The permits don’t stop there; building health permits, employee health permits, resale permits, and of course business licenses are all required in most instances, and these can add up to a costly bill—all before your restaurant has opened.
There’s a lot that goes into getting a restaurant concept up and running, and many hidden fees and stresses await entrepreneurs looking to make their mark in the industry. If you’re seriously considering a foray into this business, keep these aspects in mind.
