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4 things to consider before starting a restaurant business

An unforgiving industry means you have to plan that much more.

Restaurants that open within the first year have a high failure rate, and they’re extremely risky investments. Truth be told, I didn’t fully grasp why this was until I researched restaurants for a college assignment. 

I quickly learned that the restaurant industry is extremely challenging. A restaurant’s success depends on more than its ability to prepare quality meals and serve them on location.

A restaurant’s success is influenced by many factors, and many of them are not simply related to the food’s amazing quality and freshness. I recently spoke with restaurateurs of successful restaurants, and they revealed some of their tips and tricks for opening successful restaurants.

Michael and Kwini Reed are the owners of two wildly successful restaurants “Poppy + Rose” and “Poppy + Seed” located in Los Angeles and Anaheim, CA. Michael Reed, the chef behind both restaurants’ modern twists on various cuisine styles has over 20 years of experience in the industry.

Bernard James is a gourmet celebrity chef and 25-year culinary and restaurant industry veteran. Originally from Guyana, he has been preparing authentic gourmet Caribbean cuisine since adolescence and owns Taste of the Caribbean in Los Angeles.

My own experiences and these discussions have enabled me to highlight four factors that entrepreneurs should consider before opening a restaurant.

1. Location

Significant factors to consider when choosing the right location for your restaurant are your target customers, accessibility, visibility, competition in the area, and the size or space you require to properly serve your ideal customer base. 

Once you know your target audience, you can find the appropriate location for the demographic of people you intend to serve. Choosing the right location also requires consideration of accessibility and visibility. 

The majority of restaurant chains are located near areas with plenty of foot traffic or highways as their visibility and accessibility are greatly enhanced. You will also need to consider the local competition and the size and space of your desired restaurant location. 

Selecting the wrong restaurant location can kill your restaurant if you do not properly evaluate the competition. Avoid choosing a location that is near a successful competitor offering similar cuisine. When it comes to restaurant location, size matters. 

How a restaurant is run and the overall customer experience can be impacted by its size. Customers are less likely to stay and dine in an area that feels cramped. Choose a location that reflects the experience you want to give your customers.

2. Funding

The vast majority of restaurants are in a financial deficit at their inception. The expenses associated with location, equipment, staff, ingredients, and marketing will likely result in most restaurants having more expenses than income at the start. 

Some restaurateurs seek breathing room by utilizing available business loans or credit cards to cover their growing expenses, but this is a short-term fix. Given these circumstances, cash flow is imperative to successful restaurant operations as the primary goal is to turn a profit as quickly as possible. 

Having a clear insight into your restaurant’s finances is important. You can start with a cash flow statement to determine how much money you make and spend each month. A cash flow forecast can be created once your cash flow has been determined. 

Using one, you will be able to forecast future sales based on the past months or year(s), as well as ongoing operating costs, such as salary, rent, food, and capital expenses, such as taxes. According to Kwini Reed of Poppy & Love and Poppy & Seed, maintaining a cash flow forecast is vital. 

“You need to consider cash flow when starting a restaurant. Moreover, you should establish a forecasting system to determine your requirements and create a budget that includes working capital, salary, food costs, and liquor costs. 

These types of things are going to be recurring expenses each month. You want to have at least 3-4 months of operational cash flow in the bank, but 6 months is ideal. Normally, in the restaurant world, it’s only feasible to have 3 months of operational cash flow.”

3. Marketing

Social media has become a great tool for restaurants to advertise their businesses since it enables restaurateurs to reach their desired customer base and audience. 

Whether you are paying for social media ads or setting up your own pages and marketing your business, you must focus on social media marketing. Featuring regular food content on your restaurant’s social media pages will help to attract more customers. 

Your restaurant’s social media pages are also a great way to communicate with guests, not only about opening hours and contact information, but also about menu additions, events, and promotions.

In discussing social media marking with Michael Reed of Poppy & Love and Poppy & Seed, he shared, “Social media puts a face to the name, essentially. It allows us to visually demonstrate our craft to our customer base and show them who we really are. 

It provides customers with the opportunity to showcase reviews during actual restaurant service, share honest feedback directly with business owners, and connect with us on a more personal level. 

The faster pace of social media, compared to traditional marketing, works well with restaurants who change their menu offerings frequently with the seasons, like Poppy & Seed, so we can inform customers in real-time.”

4. Inimitable

You can make your restaurant hard to rival by offering a well-chosen menu and excellent customer service. It may seem obvious, but the menu is one of the most powerful tools you can use when opening a restaurant. 

If the above conditions are properly met, a well-crafted and priced menu can drastically increase restaurant profits and ensure longevity. In order to differentiate your unique culinary vision from your competitors, your menu must be carefully designed.

Chef Bernard James shares how he keeps his food unique in his restaurant, “Taste Of The Caribbean LA differs from other Caribbean restaurants in that we incorporate ingredients from various Caribbean countries into our recipes and dishes. We work meticulously to ensure everything at our restaurant is fresh and authentic to capture the essence of Caribbean culture and it is evident in our food.”  

An establishment’s success can depend on the quality of customer service it provides. Satisfied customers share their positive experiences via word-of-mouth or online, and this generates more revenue. Exceptional customer service should accompany a thoughtfully well-crafted menu.

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