Owning a restaurant?
07-23-2013, 12:49 PM
#22
IT'S RAWWRRRRRRRRR!!!!
Welcome to Gordon Ramsay BurgR
and welcome to the bandwagon; within just a few miles of each other in Arlington:
Elevation Burger, Ray's To the Third, (2) BGR the Joint, Five Guys, Big Buns, Burger 7, Burger Shack.
I'm sure I'm missing a few.
Welcome to Gordon Ramsay BurgR
and welcome to the bandwagon; within just a few miles of each other in Arlington:
Elevation Burger, Ray's To the Third, (2) BGR the Joint, Five Guys, Big Buns, Burger 7, Burger Shack.
I'm sure I'm missing a few.
As far as the bandwagon, luckily we are still years behind up here in WV. We just got a Five Guys this past year and that is the only burger centric restaurant. Unless you try to count the chains like Ruby Tuesday, Applebess, etc.
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07-23-2013, 02:53 PM
#23
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So I had a conversation late last night with the business broker who is handling my attempt to acquire a local restaurant, in which we agreed that based on some recent statements and actions, there is a very good possibility that the owner will accept my offer and sell said restaurant to said me.
Today.
My initial elation was followed by a nearly all-night long session of Fear and Crippling Doubt.
Today.
My initial elation was followed by a nearly all-night long session of Fear and Crippling Doubt.
Good food, good service, the right prices, plus the right advertising. If the location is in the downtown business district, a little advertising to the local office workers might go a long way.
I would personally avoid the daily deals and heavy coupons. I know I am not the only person that hesitates to go to a place and pay full price once I come to expect a coupon in the near term.
As far as the POS system, if you have any questions on that or are looking for a potential upgrade, I know a local guy who designs and runs a company in that field that I could put you in touch with. If you are familiar with downtown Orlando, a majority of the clubs and bars (including those with kitchens) use their platform. PM me if that's something you want to look in to.
Ulterior Motive Disclaimer: I secretly daydream about opening up a bar and want to watch your progress and pick your brain over time.
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07-23-2013, 09:08 PM
#25
^^^. All excellent points, and challenges of which I'm aware, hence the Fear and Crippling Doubt. Here's what I'm thinking to mitigate those risks-
The high failure rate of restaurants is generally for new restaurants who spend all their capital getting open and then find themselves quickly in financial trouble when business fails to grow quickly enough to cover costs, resulting in desperate attempts to reduce food and labor costs, leading to poor food poorly served, and the resulting death spiral.
Not necessarily the only scenario that can lead to said spiral - I'm more familiar with the restaurant wearing down over the years, the owner finally getting to the point where the original borrowed money is paid back, and now that it seems like the money will roll in everything is breaking -
Commercial HVAC & especially hoods
Grills, Broilers, Fryers, Line coolers, ovens, and all sorts of equipment are insanely expensive and generally at the point of a restaurant's maturity is when they all start to take a crap on you
not to mention stuff like paint, tile, sheetrock, etc etc
i guess what i'm getting at here is if you're set on buying this thing - you need a good solid list of the equipment that's there now and it's true condition
dirty coils on line coolers, filthy insides of ovens, or broilers that look like they've never been disassembled are all sings that an owner was too cheap to do a pm program -
not only do these things have to be functional, but they have to be food safety compliant
stray away from these standards and the local health department will shut you down
if you haven't already, you should look into taking a class like servesafe to get you started
I can imagine as a franchise coach you've seen a lot of these, as every new franchise is a completely new business. I am buying an existing (10 years plus) moderately successful restaurant, which currently serves only French food between the hours of 11-2:30 Monday through Friday. It's in the heart of downtown, surrounded by huge companies and government offices, and I have sat and watched thousands of people walk past his shuttered doors at 8 am and 5 pm, all opportunities which he is missing. I'm also very well capitalized, and can survive any lull that may occur. At lunch the same thousands of people walk past his door, because let's face it, how much quiche can you eat? It's begging for a rebranding, and doing so would certainly attract more diners
The ops hours sound nice
Just be aware that a big part of building reputation with potential new guests is consistency and your operating hours are super important here
If you want to add more hours to when you're open just make sure it' not something you try out for 2 weeks and then change again
A lot of small restaurant owners also start to take the stance over the years of "well i'm just going to be here, when it's busy then i'll shut down when the rush is over"
So you start to see different open/close times every day because it really turns into it's open when the owner feels like it
Post the hours on the door and stick to them - Make sure everyone else does the same
If you change put up a big sign
My understanding of the new health care law is that it only applies to companies with more than 15 employees, which this 90 seat place will never require.
You're right about the size of the company, but I think there may be some different expectations for how you take care of your employees in the works.
The record-keeping and management you cite are standard fare for *any* business, large or small. Ignore costs and inventory in any business and you're doomed to failure.
Yes, it's a lot of work, and a lot of hours, both of which I'm prepared for and actually looking forward to. My other investments are all pretty much humming away with minimal time demands, and frankly I'm a bit bored.
The "lack of food service experience" is the one factor which really worries me; you're right, going into a business in which you have little experience is a bit nutty. But I'm hoping to mitigate that a bit by buying that knowledge in the form of a good experienced team of trusted people, which I have lined up and ready to go. It'll still be a huge learning curve for me, but I have a *long* history of tap-dancing myself into positions for which I have no knowledge nor experience and quickly figuring it out. (So much so that I'm willing to bet big money on my ability to do it again.
This lack of experience you speak of is the biggest reason I'm negative on the whole idea -
The reality is that if you can't train someone to do something the right way in your restaurant then any employee who knows how to do things the right way (or what he/she thinks is the right way) has power over you
An hourly employee with power over you is a surefire way to diminish any chance of you having authority there
If you don't have authority, you will fail - You can not be their friend
Again if you're really set on it, I think you should work out something with the existing owner to work in the restaurant for 3-4 months before actually moving on to buying it.
I was a manager and a district manager for a franchisee
Then I took a job with the same company's corporate office
After doing that for 5 years - I took a better job with a bigger company at a much later age in life
The training program with my current company (which is the biggest, number of units, full service chain on the planet) was 120 days long - At the end of the training period I was still a bit unsure of myself in many scenarios - Only after a full year working for this company do I feel really confident running things on a daily basis and I'm a 20 yr vet...
There's no doubt, food service is a tough business. Yet there are restaurants that somehow make it work. Lots and lots of them.
Having discussed the pitfalls, can you share some insight as to the ones who *didnt* flame out? What are the major factors in their success in your opinion ?
The high failure rate of restaurants is generally for new restaurants who spend all their capital getting open and then find themselves quickly in financial trouble when business fails to grow quickly enough to cover costs, resulting in desperate attempts to reduce food and labor costs, leading to poor food poorly served, and the resulting death spiral.
Not necessarily the only scenario that can lead to said spiral - I'm more familiar with the restaurant wearing down over the years, the owner finally getting to the point where the original borrowed money is paid back, and now that it seems like the money will roll in everything is breaking -
Commercial HVAC & especially hoods
Grills, Broilers, Fryers, Line coolers, ovens, and all sorts of equipment are insanely expensive and generally at the point of a restaurant's maturity is when they all start to take a crap on you
not to mention stuff like paint, tile, sheetrock, etc etc
i guess what i'm getting at here is if you're set on buying this thing - you need a good solid list of the equipment that's there now and it's true condition
dirty coils on line coolers, filthy insides of ovens, or broilers that look like they've never been disassembled are all sings that an owner was too cheap to do a pm program -
not only do these things have to be functional, but they have to be food safety compliant
stray away from these standards and the local health department will shut you down
if you haven't already, you should look into taking a class like servesafe to get you started
I can imagine as a franchise coach you've seen a lot of these, as every new franchise is a completely new business. I am buying an existing (10 years plus) moderately successful restaurant, which currently serves only French food between the hours of 11-2:30 Monday through Friday. It's in the heart of downtown, surrounded by huge companies and government offices, and I have sat and watched thousands of people walk past his shuttered doors at 8 am and 5 pm, all opportunities which he is missing. I'm also very well capitalized, and can survive any lull that may occur. At lunch the same thousands of people walk past his door, because let's face it, how much quiche can you eat? It's begging for a rebranding, and doing so would certainly attract more diners
The ops hours sound nice
Just be aware that a big part of building reputation with potential new guests is consistency and your operating hours are super important here
If you want to add more hours to when you're open just make sure it' not something you try out for 2 weeks and then change again
A lot of small restaurant owners also start to take the stance over the years of "well i'm just going to be here, when it's busy then i'll shut down when the rush is over"
So you start to see different open/close times every day because it really turns into it's open when the owner feels like it
Post the hours on the door and stick to them - Make sure everyone else does the same
If you change put up a big sign
My understanding of the new health care law is that it only applies to companies with more than 15 employees, which this 90 seat place will never require.
You're right about the size of the company, but I think there may be some different expectations for how you take care of your employees in the works.
The record-keeping and management you cite are standard fare for *any* business, large or small. Ignore costs and inventory in any business and you're doomed to failure.
Yes, it's a lot of work, and a lot of hours, both of which I'm prepared for and actually looking forward to. My other investments are all pretty much humming away with minimal time demands, and frankly I'm a bit bored.
The "lack of food service experience" is the one factor which really worries me; you're right, going into a business in which you have little experience is a bit nutty. But I'm hoping to mitigate that a bit by buying that knowledge in the form of a good experienced team of trusted people, which I have lined up and ready to go. It'll still be a huge learning curve for me, but I have a *long* history of tap-dancing myself into positions for which I have no knowledge nor experience and quickly figuring it out. (So much so that I'm willing to bet big money on my ability to do it again.
This lack of experience you speak of is the biggest reason I'm negative on the whole idea -
The reality is that if you can't train someone to do something the right way in your restaurant then any employee who knows how to do things the right way (or what he/she thinks is the right way) has power over you
An hourly employee with power over you is a surefire way to diminish any chance of you having authority there
If you don't have authority, you will fail - You can not be their friend
Again if you're really set on it, I think you should work out something with the existing owner to work in the restaurant for 3-4 months before actually moving on to buying it.
I was a manager and a district manager for a franchisee
Then I took a job with the same company's corporate office
After doing that for 5 years - I took a better job with a bigger company at a much later age in life
The training program with my current company (which is the biggest, number of units, full service chain on the planet) was 120 days long - At the end of the training period I was still a bit unsure of myself in many scenarios - Only after a full year working for this company do I feel really confident running things on a daily basis and I'm a 20 yr vet...
There's no doubt, food service is a tough business. Yet there are restaurants that somehow make it work. Lots and lots of them.
Having discussed the pitfalls, can you share some insight as to the ones who *didnt* flame out? What are the major factors in their success in your opinion ?
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07-24-2013, 04:48 PM
#27
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Ugh. This maniac is asking almost *six* times EBITDA on a place that has declining financials, fully depreciated equipment and no current lease, and won't come off his asking price at all, not even a penny. I've already made an offer that's literally half way between what the CPA says its worth and his insane asking price, and the cat won't budge. It's easily the craziest negotiation I've ever been involved with.
I'm really not sure what to do.
I'm really not sure what to do.
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07-24-2013, 04:59 PM
#28
I wouldn't budge from where you're at now. If anything I would walk away and let the guy try to sell it to someone else. He will likely come back somewhat desperate and then you can get it for a little lower than your original offer.
EDIT: Are you structuring the deal as a lump cash offer? You might use various other forms of payment like annuities in order to get close or at his number while retaining a present value within your comfortable range. Your CPA should be able to help you with this.
EDIT: Are you structuring the deal as a lump cash offer? You might use various other forms of payment like annuities in order to get close or at his number while retaining a present value within your comfortable range. Your CPA should be able to help you with this.
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07-24-2013, 05:26 PM
#29
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Are there any "comparables" in terms of restaurant sales? 6x EBITDA doesn't really tell me anything.
What if I told you that most mature publically traded casual restaurant groups trade at an average EV/EBITDA of 8-9x and more growth oriented full service companies are trading at 9 - 11x?
I would think his number is too high, but what are your CPA's qualifications for valuing a restaurant like his?
What if I told you that most mature publically traded casual restaurant groups trade at an average EV/EBITDA of 8-9x and more growth oriented full service companies are trading at 9 - 11x?
I would think his number is too high, but what are your CPA's qualifications for valuing a restaurant like his?
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07-24-2013, 05:50 PM
#30
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Run away. I have been the GM of a restaurant back in my past and was successful and ran good numbers after I got the hang of it but would seriously consider setting myself on fire as an alternative to doing it again. And I was making pretty good money.
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07-24-2013, 06:19 PM
#31
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Damn. I just realized no one has asked the most vital question - something sixshooter made me think about:
Pinky - Do you have a passion for the restaurant concept you are envisioning?
Pinky - Do you have a passion for the restaurant concept you are envisioning?
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07-24-2013, 07:35 PM
#32
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I wouldn't budge from where you're at now. If anything I would walk away and let the guy try to sell it to someone else. He will likely come back somewhat desperate and then you can get it for a little lower than your original offer.
EDIT: Are you structuring the deal as a lump cash offer? You might use various other forms of payment like annuities in order to get close or at his number while retaining a present value within your comfortable range. Your CPA should be able to help you with this.
EDIT: Are you structuring the deal as a lump cash offer? You might use various other forms of payment like annuities in order to get close or at his number while retaining a present value within your comfortable range. Your CPA should be able to help you with this.
Are there any "comparables" in terms of restaurant sales? 6x EBITDA doesn't really tell me anything.
What if I told you that most mature publically traded casual restaurant groups trade at an average EV/EBITDA of 8-9x and more growth oriented full service companies are trading at 9 - 11x?
I would think his number is too high, but what are your CPA's qualifications for valuing a restaurant like his?
What if I told you that most mature publically traded casual restaurant groups trade at an average EV/EBITDA of 8-9x and more growth oriented full service companies are trading at 9 - 11x?
I would think his number is too high, but what are your CPA's qualifications for valuing a restaurant like his?
(I might point out that I could, if so inclined, spend my days on the couch watching cartoons and doing bong swats; I'm just not wired that way. The heavy lifting has already been done on my other interests and I'm frankly bored and needing a new challenge.)
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07-25-2013, 06:44 AM
#33
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My restaurant had 28 to 32 employees responding to volume changes over two years. Half of the employees were skimming/stealing at any given time. You have to lock the food up that is not immediately needed for that day and inventory the rest, shift by shift and compare yields from the tickets on the floor to actual food usage every shift to isolate problems. Some of the employees who were nicest to me and would do extra things to help me out were stealing. They felt guilty enough about stealing to want to help me out because they liked me, but didn't feel guilty enough to stop stealing. A quality POS system is the best way to control the waitress' access to the goods coming out of the kitchen and prevent them from giving away food. Ringing up lesser items instead of the big ticket items the customer actually consumes and then getting a healthy tip from the customer is common if they are given leeway to pull it off. Or you will just catch someone who works for you carrying a case of steaks to their car when you show up on a day you are supposed to be off.
I will respond more later when I have more time.
The guy selling might be holding his price because he owes so much money because of the debt he has accumulated trying to keep the doors open. Buy used restaurant supplies (freezers, fridges, etc. to save money). Learn to fix them yourself.
I will respond more later when I have more time.
The guy selling might be holding his price because he owes so much money because of the debt he has accumulated trying to keep the doors open. Buy used restaurant supplies (freezers, fridges, etc. to save money). Learn to fix them yourself.
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07-25-2013, 07:12 AM
#34
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I'm pretty comfortable with our valuation; I've discussed it with my regular CPA as well as the restaurant-specific practice CPA who handles a close-friends chain of restaurants, and they both came up with the same number. Beyond that, my broker, who routinely deals in restaurant transactions feels his price is really out of line, as do several of my restaurant owner friends.
[...] Owning a restaurant has been a dream of mine for a long time, and I'm finally at a point in my life where I'm financially and personally ready to pursue it. I've always had a knack for both recognizing opportunity and being able to follow through, and I believe in my self enough to trust those instincts in this deal.
[...] [RE: "Are you passionate about the idea of the restaurant?"] Absolutely, or i wouldn't even be considering it.
[...] Owning a restaurant has been a dream of mine for a long time, and I'm finally at a point in my life where I'm financially and personally ready to pursue it. I've always had a knack for both recognizing opportunity and being able to follow through, and I believe in my self enough to trust those instincts in this deal.
[...] [RE: "Are you passionate about the idea of the restaurant?"] Absolutely, or i wouldn't even be considering it.
Based on the above, I say: go for it, but stick with your offer.
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07-25-2013, 07:23 AM
#35
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Funny! Eating at a restaurant[s] has been a dream of mine for a long time, and I'm finally at a point in my life where I'm financially and personally ready to pursue it.
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07-25-2013, 08:01 AM
#36
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Expect to not be able to pay yourself for a long time, but rather to continue to spend large portions of your savings propping the place up after you have spent a large sum of money purchasing it. It often takes 12-18 months for an experienced manager to get the cashflow to a positive number to begin to pay off debts. Until then much of it comes out of pocket for the food, mortgage, electric, payroll, etc. You will be spending more than you will take in for many months.
Wait! Did you say you will be re-naming the place and changing the menu? Then why are you paying money for an existing business? All you buy is a reputation and a "brand" when you spend anything more than the cost of the building and equipment. If you are changing the brand then you only need a lease and the equipment and are throwing money away if you are spending a dollar more.
Wait! Did you say you will be re-naming the place and changing the menu? Then why are you paying money for an existing business? All you buy is a reputation and a "brand" when you spend anything more than the cost of the building and equipment. If you are changing the brand then you only need a lease and the equipment and are throwing money away if you are spending a dollar more.
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07-25-2013, 08:39 AM
#38
Wait! Did you say you will be re-naming the place and changing the menu? Then why are you paying money for an existing business? All you buy is a reputation and a "brand" when you spend anything more than the cost of the building and equipment. If you are changing the brand then you only need a lease and the equipment and are throwing money away if you are spending a dollar more.
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07-25-2013, 11:26 AM
#39
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work more then 60 hours a week every week forever +1
fire everyone but a minimal staff and run the place completely on your own
(when i say run, i mean
serve,+1
cook, big +1
clean, also a big +1
count the money, +1
do the books, +1 daily
file all necessary paperwork for taxes and payroll,
calculate your labor cost every day, +1
calculate your food cost at least once aweek, always daily but by shift if there is a problem so you can find the culprit +1
make food orders, +1 You will lose food initially due to spoilage because you won't know your needed daily prep levels and can't afford to run out. Improper sourcing can cost you more as well. Set up accounts with major delivering restaurant suppliers like SYSCO and the like.
make schedules, +1 If you under staff customers will suffer and not return. Try not to overstaff, but iff you are and it ends up being a slow shift, cut excess staff early to save payroll. Don't be guilted into keeping them the whole shift.
and the list goes on.....
a restaurant is a... life consuming beast that is tough to do even for the most experienced person +1
i could rant for a long time, but the reality is that unless you have worked in a restaurant and managed a restaurant for years it's really a bad idea... +1
fire everyone but a minimal staff and run the place completely on your own
(when i say run, i mean
serve,+1
cook, big +1
clean, also a big +1
count the money, +1
do the books, +1 daily
file all necessary paperwork for taxes and payroll,
calculate your labor cost every day, +1
calculate your food cost at least once a
make food orders, +1 You will lose food initially due to spoilage because you won't know your needed daily prep levels and can't afford to run out. Improper sourcing can cost you more as well. Set up accounts with major delivering restaurant suppliers like SYSCO and the like.
make schedules, +1 If you under staff customers will suffer and not return. Try not to overstaff, but iff you are and it ends up being a slow shift, cut excess staff early to save payroll. Don't be guilted into keeping them the whole shift.
and the list goes on.....
a restaurant is a... life consuming beast that is tough to do even for the most experienced person +1
i could rant for a long time, but the reality is that unless you have worked in a restaurant and managed a restaurant for years it's really a bad idea... +1
As a side benefit, you will also be able to overlay the daily records from year to year and predict food usage and staffing needs for a given day as time goes on (ie. the 3rd week in August might be different from the second one if school has started). It will also allow you to track problem trends down to the individual who was or wasn't working on certain days when food costs were a bit higher.
Some of the more important lessons I learned were to:
1. Recruit better help constantly so that you can upgrade your staff. If you go to a restaurant or grocery store and somebody is particularly nice and efficient at what they do, ask them if they have the particular hours they want, are making the money they want, or are being treated well by management. Offer them a job.
Recruit better help constantly so that you can upgrade your staff. Recruit better help constantly so that you can upgrade your staff. And when you get a chance, recruit better help constantly so that you can upgrade your staff.
2. Fire weak links early and often because keeping them abuses your good staff members and degrades morale. Good employees have to carry the weight of the bad ones and that creates resentment toward the management. It also shows the better ones that they don't really have to try as hard or do as much to get by, and that you are OK with it.
3. "No call, no show = no job, the very 1st time." Demand responsible employees. Your good employees have to pick up slack when the bad ones don't show up for work. That creates resentment toward the management.
4. "Stop leaning and start cleaning." It starts with the boss. Start cleaning something if you have a minute and ask employees to help by cleaning XY or Z in their area. (this is especially difficult in a newly renovated place because theoretically most things are clean and new). Pick something new to clean or repair every day and lead by example to show your pride in the place (hard to find time and energy to do when there is bookkeeping to be done).
5. Keep your a$$ out of the back office. Be where the money is being made and lost and drive the stinkin' ship. This is especially important during lunch and dinner rush. Put yourself on the grill before they get in the weeds, not after.
6. Let them all know they are not just a "cook or waitress" but a team member that is responsible for restaurant upkeep and cleaning. If they have experience already there will be bad habits and they need to know this is not like everyplace else. You need and expect they will clean anything and everything if they are hired.
7. Pull key employees aside and tell them that you appreciate how they are helping you. Tell them that you depend on them. Then tell them you have XYZ problem and ask them to please help you fix it by doing ABC extra task or doing DEF procedure differently because you know you can count on them to help you. Then in a hour go to the next employee and do the same until in a few days you have told them all. Then start with the first one again with a new focus or task. You can get about 80% of what you ask to have done this way.
8. Post a short list of 3 or 4 extra things you want to try to get cleaned or deep cleaned that day and make everyone aware that you are going to try to get to one of them yourself and ask them to try to team up and knock a couple out when they can in between customers. Always make it about doing those things as a personal favor to you, not because they were assigned.
9. Never hire anyone who is out of work. Hire people who are working somewhere they don't like, but they are still working somewhere. A responsible person would not be without a job, even if it was a job that sucked or was beneath them. Don't hire people who are OK with being at home and not working, even for a week. I could leave where I am right now and have 4 jobs minimum by day's end just walking up the street on foot if I tried. Most would likely be beneath me but I damn sure wouldn't have to go without a job at all if I lost one. The only people who can't find work are too lazy or too uppity to take what is out there, and you want neither of those. I learned to despise the phrase, "I'm just trying to get back on my feet." Run away if you hear that. Any self-repecting person is still on their feet fighting because they have bills to pay and are responsible for them. Off their feet means they have accepted failure and have laid down and become lazy and worthless. The restaurant business is high turnover and you learn to recognize patterns after a couple dozen firings.
***OK, as someone with a degree in psychology and having been to too many management and sales schools in my time, this is very important to having a successful management experience anywhere:
10. Always make eye contact and thank them while they are doing the job or tasks you need done and praise their help directly to them while looking them in the eye when they have completed. Make it very personal and make them feel genuinely appreciated, because you do genuinely appreciate it. Be specific about the things they did well. You have no idea how few times people are given positive feedback like this at home or elsewhere in their lives. People crave it and don't or can't verbalize it. Many more people will follow you to the ends of the earth with this treatment than you can imagine. It generates incredible loyalty and superior productivity. People work for people, not companies. People are dedicated to people, not companies. People will follow people whose praise they wish to have (especially people with daddy or mommy issues, or older women whose own sons and husbands don't ever tell them they appreciate them).
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