Termonology

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.