Now that we have our per person check amount and size of restaurant we just have a few more decisions to make before we plug our numbers into the magical restaurant creation spreadsheet.
Are we going to do lunch?: Yes
What is our average ticket price (based upon our research)?: $14.00
Will there be patio seating?: Yes
How many patio seats will there be (13 ft2 per person): 30
What days are you open for dinner: 7 Days
What days are you open for lunch: 5
What days are you open for brunch: 2
What is your average ticket price for brunch?: $16.00
Hypothetical Restaurant Overview
So now we know how much money our hypothetical restaurant will make. With that in mind we know that our net income (a successful restaurant is only about 10% of gross income) must be able to pay back our investors by year four--but honestly year 5 is going to be alright. Also we know that our initial investment should be about 50% of our annual gross. We also know that our rent with NNN should not exceed 8% of our total gross--otherwise it will throw up red flags to any accountants with restaurant experience. With these numbers we will also be able to determine our variable and fixed costs allowing us to create our important breakeven analysis.
Okay, you just probably read some terms you are only somewhat familiar with. As a chef you already know food cost, yield, etc. But when you begin writing a business plan there are plenty of terms you will need to understand so you won't stare blankly at a banker when they ask you what your breakeven is.
So at this point you can actually do a few things 1) hire someone, for about 3 grand, to create a personalized business plan for you 2) buy a business plan program and fill in the blanks, but you might as well just take your money and blow it on slow horses and booze 3) do it yourself and actually understand the entire process then have your local small business center edit to you for free (yay for the City of Cambridge small business assistance office).
Let's start with some basic terms that you will need to know off the top of your head. The worse thing to do is trying to make a presentation to potential investors and confuse your net and gross incomes.
Gross Income: The total income your restaurant will generate BEFORE expenses.
Net Income: The money (hopefully profit) your restaurant will make AFTER expenses
Fixed Costs: Costs you cannot substantially change, such as Rent, Utilities (water, electricity, gas, cable, telephone, internet, etc), Labor (yes you can change this, but there will always be a certain number of cooks/servers you need to operate), administration fees (lawyers, accountants, insurances), and much more.
Variable Costs: Primarily Food Cost and Beverage Cost.
Break Even: How much money your restaurant MUST make after fixed and variable costs to, as the name suggests, break even.
Cash on Hand: What your business needs as a bankroll for safe operations, it's suggested to reflect 6 months of operating costs, but that number is next to impossible to justify. So in reality try to shoot for 3 months of rent plus 1 month of payroll.
ROI or Return on Investment: The amount of money a investor will receive after their initial investment is paid off, generally this is annually and will be presented in a percentage basis. So if they invest $1,000,000.00 and you anticipate to pay them $50,000.00 then they will receive a 5% ROI.
PSF/psf or Ft2: Per Squared Foot or Squared Foot, this is normally how rent and the size of a restaurant measured.
Rent: Now this is normally per ft2, so if you see a 5000 square foot restaurant at $40 ft2 that means ANNUAL rent will be $200,000.00 or $16,667.00 monthly. So all you do is multiply the price per square foot by the total square foot of the restaurant to find the annual rent, then divide it by twelve to discover the monthly
NNN: Now on top of paying the rent ft2 you will also have to pay NNN: building insurance (note you will STILL have to buy insurance(s) for your restaurant, this is just for the physical property), Property Taxes, and the cost for building Maintenance and Repair (this should include snow plowing, landscaping of public areas, maintaining shared areas). For a stand alone building in Cambridge the range is about $6 - $8 ft2 in addition to your rent, and for high rises $10 - $14 ft2.
TI: Tenant Improvements. This stands for money psf a landlord will give a potential tenant to build their restaurant. Generally if the building is a brand new development a landlord will give anywhere from $50 to $125 psf to help build out a raw space, if the building is older then it's generally $0 to $50 psf.
Lease/Least Terms/Extensions/Non Compete/First Right of Refusal: We'll get into lease terms more as we work on our LOI much later in the process (LOI: letter of intent you send to a landlord describing what terms you would like in regards to rent).
There is plenty more to learn, but I figure that we'll introduce terminology as it comes into play. But honestly the above terms are the ones I've encountered most when creating proposals for investors--and too be honest I believe most investors are impressed that a Chef actually could understand the above terms in depth. In the end it's the Chef that will drive 60% of the business to the restaurant, so even if you are not ready to open your own place you MUST understand these basic concepts. That will differentiate you from a great cook and a Chef.
Tuesday, December 23, 2014
Friday, December 19, 2014
Finalizing Competitive Analysis
Okay now that we have: demographics, general competitive analysis within a reasonable radius (depending upon restaurant density this can be anywhere from 1 mile to 5 miles), and a specific cuisine in mind, you can begin carving out your niche.
Now this is where you begin making basic assumptions based upon data provided by accredited sources. Using Kinsai as our template let's take a deeper look into creating a niche--this is assuming you are not creating a 'all things for all people' restaurant', if you are then creating a restaurant is significantly easier (sell a few 'gourmet' burgers on brioche bun, have a 'local' and 'artisinal' beer selection, maybe a few mid-range whiskeys, a 'blackened' protein with Caesar salad and boom).
Let's start with our cuisine and determine similar restaurants in the area, then branch out and determine similar restaurants within the greater Boston metro area. However this is where you cull restaurants that may share the same cuisine but are in a different tier (if you are opening a high end Bistro you wouldn't list Au Bon Pain as competition simply because they have a French name).
Blue Dragon
Blue Ginger
Empire
Mei Mei Street Kitchen (not the food truck)
Meyers and Chang
Red Lantern
So after looking at these restaurants we can make the following price assumptions based upon their menus and check averages, which involves getting their menus in person, eating both lunch and dinner on different days. So let's say you give yourself a budget of $500.00 for research--don't forget to save the receipts as a business expense!
Lunch: $9.00-$16.00 (assuming one entree, 0.25% appetizer, 0.1% a beverage)
Dinner: $35.00 - $44.00 (assuming one entree, 0.5% appetizer, 0.2% dessert, and 0.2% a beverage)
With those assumptions we can put a tentative goal of--these numbers will change depending upon your location and reputation:
Luncheon Per Person: $13.00
Dinner Per Person: $40.00
Now with those numbers we can do some general numbers to estimate opening costs, profit, ROI. The average restaurant size you will encounter is between 2500 ft2 - 3500 ft2. For all intensive purposes let's go for 3500ft2 as a general number. We are going to stop here for now and on Monday before we go any further we should learn some basic terminology.
Now this is where you begin making basic assumptions based upon data provided by accredited sources. Using Kinsai as our template let's take a deeper look into creating a niche--this is assuming you are not creating a 'all things for all people' restaurant', if you are then creating a restaurant is significantly easier (sell a few 'gourmet' burgers on brioche bun, have a 'local' and 'artisinal' beer selection, maybe a few mid-range whiskeys, a 'blackened' protein with Caesar salad and boom).
Let's start with our cuisine and determine similar restaurants in the area, then branch out and determine similar restaurants within the greater Boston metro area. However this is where you cull restaurants that may share the same cuisine but are in a different tier (if you are opening a high end Bistro you wouldn't list Au Bon Pain as competition simply because they have a French name).
Blue Dragon
Blue Ginger
Empire
Mei Mei Street Kitchen (not the food truck)
Meyers and Chang
Red Lantern
So after looking at these restaurants we can make the following price assumptions based upon their menus and check averages, which involves getting their menus in person, eating both lunch and dinner on different days. So let's say you give yourself a budget of $500.00 for research--don't forget to save the receipts as a business expense!
Lunch: $9.00-$16.00 (assuming one entree, 0.25% appetizer, 0.1% a beverage)
Dinner: $35.00 - $44.00 (assuming one entree, 0.5% appetizer, 0.2% dessert, and 0.2% a beverage)
With those assumptions we can put a tentative goal of--these numbers will change depending upon your location and reputation:
Luncheon Per Person: $13.00
Dinner Per Person: $40.00
Now with those numbers we can do some general numbers to estimate opening costs, profit, ROI. The average restaurant size you will encounter is between 2500 ft2 - 3500 ft2. For all intensive purposes let's go for 3500ft2 as a general number. We are going to stop here for now and on Monday before we go any further we should learn some basic terminology.
Monday, December 15, 2014
Playing Pretend: Developing a Concept
Now that you have taken the time to develop a name and brand icon you may want to trademark it--my lawyer recommended that I do for Kinsai.
But we're only going to briefly talk about Trademarks here, because honestly it's so confusing and convoluted you should hire an attorney to navigate the process for you. Generally most businesses only need a trademark (for the icon and name) if they intend on creating a brand with multiple outlets or streams of revenue.
Search the TESS see if your Trademark is available online here: http://www.uspto.gov/trademarks/
Example: The Roca Brothers of the award wining "El Celler de can Roca" do not have a trademark for their top 50 restaurant, however they do have a trademark for their soon to be announced series of Ice Cream stores.
But note just because you have a trademark it doesn't give you the right to remove a previously owned domain squatter. If the website was up before you trademarked or has been in business before you trademarked, they have the right to keep it and sell it to you at any price they wish (the guy who owns www.kinsai.com is from Korea and wants me to pay $25,000.00 for the rights, an expense we can't justify when opening--honestly I'd rather buy two Rational ovens then have a domain name).
Flushing Out the Concept
Now that you have a name, had it registered, and designed a logo, you've already completed the first major hurdle that most people are either too afraid to do or end pay far too much to have someone else do it for them. Now comes the fun part: planning your dream restaurant. Enjoy it.
When developing a concept there are two major schools of thought:
1) Find a opportunity and develop a concept based upon that opportunity.
2) Create a concept and find/create the opportunity to support it.
With Kinsai we didn't have a home to start and I didn't just have a few million dollars in my bank I was willing to spend, so we had to create the concept first then find the opportunity to support it. Not an easy task, I found it helpful to:
- Determine what cities we wanted to open in.
- Determine what style of cuisine we wanted to execute.
- Check out the competition creating a similar style of cuisine.
- Do a demographic study of the neighborhood.
So currently we are biding on a new space right off of Massachusetts ave, between Central Square and MIT. So let's use that as the example.
- We've determined to look into Cambridge (my home city).
- We've determined that we would like to cook Chinese cuisine.
- Create a Competitive Analysis of all restaurants within a mile radius: Our Template is here
- Looked at area demographics:
- http://www.city-data.com/neighborhood/Central-Square-Cambridge-MA.html
- http://www.cambridgema.gov/~/media/Files/CDD/FactsandMaps/profiles/demo_profile_neighborhood_2013.ashx
- Then probably the most IMPORTANT step was to speak with the Cambridge Economic Development branch (Pardis is awesome) and got the local business demand profile - Note if you are a Cambridge resident all small business classes and help are free from the city. Including review of business proposals and even copies of Quickbooks (including a free introductory class).
With that information we can develop who represents our target demographic, and what the target 'average check' will be in the area (given the competition). The first baby steps towards creating the business plan--my favorite part.
Friday, December 12, 2014
Begin Branding
Okay so far all we've done is pay the State $500 dollars for the right of being able to pay them $500 annually and go through the hassle of submitting taxes. Great. Also if you are anything like me and messed up somewhere along the way you will also pay a lawyer to fix your mess---an additional $325.
$825 total, or for the average cook: 1.5 weeks of salary BEFORE paying taxes so actually two weeks of pay. Or 90 hours of work. Or 3.75 days of your life. That means for the next month the average cook will struggle to pay their rent, buy food, or pay their ridiculous culinary student loans.
The crazy thing is we’ve just started the process, there is still a long way to go. The fight is a uphill one, and many times that Sisyphus-ian boulder will come right back on your head. If you’re like me and you’ve decided to call Massachusetts your home base, then you’ve also picked one of the hardest states to open a restaurant--any small business actually. With a D+ (see how abysmal Massachusetts has been grated for small businesses at: http://www.thumbtack.com/ma/#/2014/6) rating in small business friendliness you are about to see how quickly your savings are going to be depleted.
But point of this blog is for you, the cook, to understand the basics so you won’t waste time and money on simple mistakes. I’ve made a ton, but I suppose we only learn from our mistakes.
Domain Parking -
Now that you have a name immediately secure your Domain. I use Namecheap because of their reputation, cost, access to Whois database, etc (I strongly suggest you shop around and choose your own).
As their name suggests, they are cheap. BUT note always, always, ALWAYS, read the fine print. You are about to enter a business where there will be more contracts and licenses then you could ever imagine; and if you don’t read them and understand them you just may screw yourself over, completely.
Now I know we all just click Okay to the Terms of Service (TOS) from places like Facebook and Apple, but honestly you should at least give them a cursory glance. Here are some examples to WHY you should read the Terms of Service and what clauses you should watch out for:
- “Transfer-Out” Fees, this fee is charged if you decided to change your domain to another service. Eventually you will higher a web designer and they may suggest a different registrar. The last thing you want to do is pay a 3x times fee for a “Transfer-Out”.
- “Pay-as-you-go” is basically where you register a domain with a registrar for multiple years. Generally at a discounted rate. Some shady registrars just simply stop providing support after year one and essentially pocket your money. So you get locked into a long term contract with no support. This clause is often bundled with a “no-refunds” policy, so be careful if you see these two together in a TOS.
- “Whois” premium services, edit fees, lockdowns, etc. Essentially when you acquire a domain your information goes to the Whois database--a public database for everyone to see who owns the webpage. Whatever you do DO NOT pay for these “privacy” services and IMMEDIATELY opt out of them. These services basically put the domain registration company's information instead of your own on the Whois database. This gives the illusion of “protecting” your privacy, BUT LEGALLY whoever is listed on the Whois database OWNS the website and the rights to it. So by signing up you will be giving them the rights to your website and anything you publish on it--and why the hell would you do that?
So yes, get in the habit of reading those TOS. Because it can really screw you. Also did you know your Facebook App has access to your microphone?
Lesson: READ all your contracts, ask questions, and understand what rights you are signing over.
The Brand Icon -
Now you have the a registered name and the domain rights, now you need a logo to park on your pretty website. This is where a designer comes in and breaths life into your project. Remember this is your LLC and not necessarily your restaurant, that comes later, much later.
The cost of a designer varies greatly. You can find a college student and pay them 200 bucks under the table or you could go to a professional studio and pay thousands. I went the later route and had a friend create the Kinsai logo (thanks Mike F., if you want his contact info just ask), I believe it cost me a few meals and $500, and I couldn't be happier with it.
After many renditions we choose a persimmon because of what we wanted our restaurant to embody:
- Greater vegetable/fruit consumption over meat
- Wood cut design to show maturity and reflect the old Family Crests in Asia
- Simplicity in design to parallel simplicity in our food--also easier to create in vector
- Elegance in appearance to give a feel of calm and serenity
Now I can guide you step by step on establishing your brand, choosing colors, what typefaces, etc, but we suggest using the free tool located at: https://openbrand.com/ .
If you sit down for one day and fill out all the steps listed--as I did--you will be well on your way to having a better idea of YOUR brand identity. After you understand your own brand then you can successfully communicate it to a design team--again saving time and money. Honestly I could list it out here but this tool does it so well. Just remember you already paid $500 to create your company, and the 1 year timer is ticking before you have to dump in another $500 to maintain it. Keep the momentum moving.
You will save lots of time and money the more of this you complete this yourself then having a professional team do everything from scratch. However if you are looking for a professional design quote--called a RFP (request for proposal)--I really enjoyed working with Vince of Analogue Studios in Boston: http://www.analoguestudio.com/ . A professional team will cost upwards of $5000, a fee you will eventually have to pay unless you are an idiot savant at Photoshop.
Total Cost so far:
$825 for you LLC and Lawyer Fees
$100 for your Domain Names (opt out of Whois guard, read TOS!)
$500 for Brand Design$1425, guess paying rent is going to be real tough this month
Thursday, December 11, 2014
What's in a Name?
Let's assume up to this point you've already head the tired reasons on why not to open a restaurant. Let's also pretend you haven't wasted time on creating imaginary menus, dreamed at overly expensive plate-ware at William Sonoma, or anything else that is just a waste of time/money. The true first step on opening a restaurant--not just playing pretend restaurant owner, is actually creating your business.
I know we should put some legal jargon here about how you need to speak with a lawyer and take all this with a grain of salt. So do that if you have the excess funds laying around, because frankly it will be easier. But as chef's we never really do it the easy way, do we?
What's in a Name?
No matter how great an idea may be it only comes alive when you give it a name. Names hold power--at least that's what all my fantasy books told me growing up. I still remember reading the Hobbit and Bilbo refusing tell Smaug his true name, or in the Earthsea series where knowing a Dragon's true name gave you power over them. Needless to say having a name with a story was very important to me and should be to you
The name Kinsai (the restaurant we've been trying--and failing to open) has an unusual origin; The word first appears after the recounting of Marco Polo's fantastical 25 year journey through Kublai Khan's China by a Genoese prisoner--a man who shared the prison with Marco Polo but only heard of his adventures secondhand. Kinsai is not Chinese at all, it is actually a Persianized word meaning: "The City of Heaven." Most likely Marco Polo did not get to see Kinsai, but instead heard about the former glory of the heavily romanticized Song Dynasty Capital (Hongchow); known the for beautiful architecture, entertainment, art, opulence, and--most importantly for us--the origins of Imperial Chinese cuisine. We purposely choose this name for a few reasons: it has a interesting story and it doesn't sound like a stereotypical American Chinese restaurant.
So we have a name, right?
No. First you have to check to see if your name is available and has not been trademarked previously. Your lawyer can do this for you, or you can save yourself $200-500 per hour and look it up yourself at the U.S. Patent and Trademark Office online:
http://tmsearch.uspto.gov/bin/gate.exe?f=searchss&state=4805:65jkt7.1.1
While you are sleuthing online check if your Domain Name is available through the WHOIS internet database online--because when opening you never want to justify paying a internet squatter 20k for your Domain Name that you thought was cool and unique.
http://www.networksolutions.com/whois/index.jsp
Also you're going to have to check (we are in Massachusetts so I'll be only posting Massachusetts resources) that no one is using your names as a "Doing Business As" with the Secretary of State Corporate Index online. Yes you will have a corporation name and "Doing Business As" name if you are going to open multiple restaurants or want to do consulting on the side not attached to the restaurant. An example: Thomas Kellar Restaurant Group (the registered LLC) owns and is "Doing Business As" The French Laundry.
http://corp.sec.state.ma.us/corpweb/CorpSearch/CorpSearch.aspx
Now once this is all complete, it's time to file your LLC. This is when things begin getting real, a LLC cost $550 in filing fees, annually. So think of it as a gym membership, you're paying for it so you should use it, or you just pay the annual fee and feel bad that you never got around to it. Also there are many different forms of corporations you can choose from, S corps, C corps, etc. If an LLC is good enough for most restaurant groups then it's good enough for me, if you're concerned about picking the right thing talk to a lawyer or read about it on your own.
Now you must file for your LLC or whichever corporation you and your lawyer determined best. For the ease of this blog I'm going with what I choose: LLC.
First get your EIN (Employer Identification Number) through the IRS. You may file this online and will need your ID for when you file your LLC with the Secretary of State.
https://sa.www4.irs.gov/modiein/individual/index.jsp
Certificate of Organization with the Secretary of State:
PDF Format: http://www.sec.state.ma.us/cor/corpweb/corllc/llcinf.htm
Online Format: https://corp.sec.state.ma.us/corp/loginsystem/login_form.asp?FilingMethod=I
A few notes here: you can always change the application at a later day (for cash of course), but for now let's say we don't have a separate business address (we haven't opened our restaurant yet). Also in section 6 don't put anyone on as a manager unless they are your business partner that is actually contributing cold hard cash. The last thing you want to do is give someone power to do things to your corporation. I made the mistake of doing this and had to pay $300.00 to get my lawyer to change it and have a courier to deliver it to the State House the same day as not to screw myself. Learn from my mistakes and don't go throw away what is essentially a Vitamix or induction burner.
So with all that done you're out over half a grand, and all you have is the right to do business as and pay taxes. Great! But this is what separates a great cook from a great chef. A great cook can throw down on the line, get himself out of the weeds, create dishes, do orders, and maybe even do costing and inventory well. A great chef does all these things and then takes the risk of starting his own business, sacrificing time and money to pursue their dream. Welcome to the first step, we've got a long way to go.
I know we should put some legal jargon here about how you need to speak with a lawyer and take all this with a grain of salt. So do that if you have the excess funds laying around, because frankly it will be easier. But as chef's we never really do it the easy way, do we?
What's in a Name?
No matter how great an idea may be it only comes alive when you give it a name. Names hold power--at least that's what all my fantasy books told me growing up. I still remember reading the Hobbit and Bilbo refusing tell Smaug his true name, or in the Earthsea series where knowing a Dragon's true name gave you power over them. Needless to say having a name with a story was very important to me and should be to you
The name Kinsai (the restaurant we've been trying--and failing to open) has an unusual origin; The word first appears after the recounting of Marco Polo's fantastical 25 year journey through Kublai Khan's China by a Genoese prisoner--a man who shared the prison with Marco Polo but only heard of his adventures secondhand. Kinsai is not Chinese at all, it is actually a Persianized word meaning: "The City of Heaven." Most likely Marco Polo did not get to see Kinsai, but instead heard about the former glory of the heavily romanticized Song Dynasty Capital (Hongchow); known the for beautiful architecture, entertainment, art, opulence, and--most importantly for us--the origins of Imperial Chinese cuisine. We purposely choose this name for a few reasons: it has a interesting story and it doesn't sound like a stereotypical American Chinese restaurant.
So we have a name, right?
No. First you have to check to see if your name is available and has not been trademarked previously. Your lawyer can do this for you, or you can save yourself $200-500 per hour and look it up yourself at the U.S. Patent and Trademark Office online:
http://tmsearch.uspto.gov/bin/gate.exe?f=searchss&state=4805:65jkt7.1.1
While you are sleuthing online check if your Domain Name is available through the WHOIS internet database online--because when opening you never want to justify paying a internet squatter 20k for your Domain Name that you thought was cool and unique.
http://www.networksolutions.com/whois/index.jsp
Also you're going to have to check (we are in Massachusetts so I'll be only posting Massachusetts resources) that no one is using your names as a "Doing Business As" with the Secretary of State Corporate Index online. Yes you will have a corporation name and "Doing Business As" name if you are going to open multiple restaurants or want to do consulting on the side not attached to the restaurant. An example: Thomas Kellar Restaurant Group (the registered LLC) owns and is "Doing Business As" The French Laundry.
http://corp.sec.state.ma.us/corpweb/CorpSearch/CorpSearch.aspx
Now once this is all complete, it's time to file your LLC. This is when things begin getting real, a LLC cost $550 in filing fees, annually. So think of it as a gym membership, you're paying for it so you should use it, or you just pay the annual fee and feel bad that you never got around to it. Also there are many different forms of corporations you can choose from, S corps, C corps, etc. If an LLC is good enough for most restaurant groups then it's good enough for me, if you're concerned about picking the right thing talk to a lawyer or read about it on your own.
Now you must file for your LLC or whichever corporation you and your lawyer determined best. For the ease of this blog I'm going with what I choose: LLC.
First get your EIN (Employer Identification Number) through the IRS. You may file this online and will need your ID for when you file your LLC with the Secretary of State.
https://sa.www4.irs.gov/modiein/individual/index.jsp
Certificate of Organization with the Secretary of State:
PDF Format: http://www.sec.state.ma.us/cor/corpweb/corllc/llcinf.htm
Online Format: https://corp.sec.state.ma.us/corp/loginsystem/login_form.asp?FilingMethod=I
A few notes here: you can always change the application at a later day (for cash of course), but for now let's say we don't have a separate business address (we haven't opened our restaurant yet). Also in section 6 don't put anyone on as a manager unless they are your business partner that is actually contributing cold hard cash. The last thing you want to do is give someone power to do things to your corporation. I made the mistake of doing this and had to pay $300.00 to get my lawyer to change it and have a courier to deliver it to the State House the same day as not to screw myself. Learn from my mistakes and don't go throw away what is essentially a Vitamix or induction burner.
So with all that done you're out over half a grand, and all you have is the right to do business as and pay taxes. Great! But this is what separates a great cook from a great chef. A great cook can throw down on the line, get himself out of the weeds, create dishes, do orders, and maybe even do costing and inventory well. A great chef does all these things and then takes the risk of starting his own business, sacrificing time and money to pursue their dream. Welcome to the first step, we've got a long way to go.
Subscribe to:
Comments (Atom)